As filed with the United States Securities and Exchange Commission on June 30, 2022.
Registration No. 333-262570
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4 TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
L&F ACQUISITION CORP.
(Exact name of registrant as specified in its charter)
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Cayman Islands*
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6770
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98-1557361
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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150 North Riverside Plaza, Suite 5200
Chicago, IL 60606
Telephone: (312) 701-1777
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)
JAR Sponsor, LLC
150 North Riverside Plaza, Suite 5200
Chicago, IL 60606
Telephone: (312) 701-1777
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
Copies to:
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Christian O. Nagler
Tamar Donikyan
Alla Digilova
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Tel: (212) 446-4800
Fax: (212) 446-4900
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Jeffrey N. Ostrager
Wallace E. Christner
Anthony J. Rosso
Christopher M. Vaughn
Venable LLP
1270 Avenue of the Americas
New York, New York 10020
Tel: (212) 307-5500
Fax: (212) 307-5598
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Tony Jeffries
Jeana S. Kim
Todd Cleary
Julian Perlmutter
Wilson Sonsini Goodrich & Rosati P.C.
650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-9301
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Approximate date of commencement of proposed sale to
the public: As soon as practicable after this registration statement is declared effective.
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(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 an 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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☒
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Smaller reporting company
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☒
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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. ☐
If applicable, place an X in the box to designate the appropriate rule
provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐
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 (“Securities Act”), or until the Registration Statement shall become effective on such date as the SEC, acting pursuant to Section 8(a), may determine.
The information in this proxy statement/prospectus is not complete and may be changed. L&F Acquisition Corp. may not issue the securities
offered by this proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission, of which this proxy statement/prospectus is a part, is declared effective. This proxy statement/prospectus does
not constitute an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale of these securities is not permitted.
PRELIMINARY — SUBJECT TO COMPLETION, DATED JUNE 30, 2022
PROXY STATEMENT FOR
EXTRAORDINARY GENERAL MEETING OF L&F ACQUISITION CORP.
PROSPECTUS FOR
56,035,501 SHARES OF COMMON STOCK AND 16,213,430 WARRANTS OF L&F ACQUISITION CORP.
(AFTER ITS DOMESTICATION AS A CORPORATION INCORPORATED IN THE STATE OF DELAWARE, WHICH
WILL BE RENAMED ZEROFOX HOLDINGS, INC. IN CONNECTION WITH THE DOMESTICATION DESCRIBED HEREIN)
The board of directors of L&F Acquisition Corp., a Cayman Islands
exempted company (which will migrate to and domesticate as a Delaware corporation (the “Domestication”) prior to the closing (the “Closing”) of the Business
Combination) (“L&F”), has unanimously approved the transactions (collectively, the “Business Combination”) contemplated by that certain Business Combination
Agreement, dated as of December 17, 2021 (as amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”), by and among L&F, L&F Acquisition Holdings, LLC,
a Delaware limited liability company and direct, wholly-owned subsidiary of L&F (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F
Holdings (“ZF Merger Sub”), IDX Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“IDX Merger Sub”), IDX Forward
Merger Sub, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F Holdings (“IDX Forward Merger Sub”), ZeroFox, Inc., a Delaware corporation (“ZeroFox”), and ID Experts Holdings, Inc., a Delaware corporation (“IDX,” and together with ZeroFox, the “Target Companies”), a copy of which is
attached to this proxy statement/prospectus as Annex A. As described in this proxy statement/prospectus, L&F’s shareholders are being asked to consider and vote upon each of the Domestication and the Business Combination, among other items.
As used in this proxy statement/prospectus, “New ZeroFox” refers to L&F after giving effect to the consummation of the Domestication and the Business Combination.
In connection with the Domestication, prior to the ZF Effective Time
and the IDX Effective Time (as such terms are defined below), among other things, (i) each of the then-issued and outstanding Class A ordinary shares, par value $0.0001 per share, of L&F (the “Class A
Ordinary Shares”) will be converted, on a one-for-one basis, into a share of common stock of the post-Domestication Delaware corporation (“New ZeroFox Common Stock”), (ii) each of the then-issued
and outstanding Class B ordinary shares, par value $0.0001 per share, of L&F will be converted, on a one-for-one basis, into a share of New ZeroFox Common Stock, and (iii) each then-issued and outstanding whole warrant exercisable for one
Class A Ordinary Share will be converted into a warrant exercisable for one share of New ZeroFox Common Stock at an exercise price of $11.50 per share on the terms and conditions set forth in the Warrant Agreement, dated as of November 23,
2020, by and between L&F and Continental Stock Transfer & Trust Company (as amended or amended and restated from time to time). In connection with clauses (i) and (iii) of this paragraph, each issued and outstanding unit of L&F that
has not been previously separated into the underlying Class A Ordinary Shares and the underlying L&F warrants will be cancelled and will entitle the holder thereof to one share of New ZeroFox Common Stock and one-half of one New ZeroFox
warrant.
Concurrently with the Domestication, (i) the governing documents of
L&F will be replaced by governing documents for the Delaware corporation and (ii) L&F will change its name to “ZeroFox Holdings, Inc.”
On the date of Closing, following the Domestication, (i) ZF Merger Sub
will merge with and into ZeroFox (the “ZF Merger”), with ZeroFox being the surviving company in the ZF Merger and continuing (immediately following the ZF Merger) as a direct, wholly-owned subsidiary of
L&F Holdings (the time that the ZF Merger becomes effective being referred to as the “ZF Effective Time”), (ii) immediately following the ZF Merger, IDX Merger Sub will merge with and into IDX (the “IDX Merger”), with IDX being the surviving company in the IDX Merger (referred to herein as “Transitional IDX Entity”) and continuing (immediately following the IDX
Merger) as a direct, wholly-owned subsidiary of L&F Holdings (the time that the IDX Merger becomes effective being referred to as the “IDX Effective Time”), and (iii) immediately following the IDX
Merger, Transitional IDX Entity will merge with and into IDX Forward Merger Sub (the “IDX Forward Merger,” and together with the ZF Merger and IDX Merger, the “Mergers”),
with IDX Forward Merger Sub being the surviving company in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned subsidiary of L&F Holdings (the time that the IDX Forward Merger
becomes effective being referred to as the “Effective Time”).
In accordance with the terms and subject to the conditions of the
Business Combination Agreement, (i) at the ZF Effective Time, (a) each share of ZeroFox common stock (including shares of ZeroFox restricted stock) issued and outstanding immediately prior to the ZF Effective Time (after giving effect to the ZF
Mandatory Conversion and other than ZF Dissenting Shares and ZF Cancelled Shares (each term as defined in this proxy statement/prospectus)) will be automatically cancelled, extinguished and converted into the right to receive a fraction of a
share of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement on the basis of a pre-money enterprise value of ZeroFox of $866,250,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox
Common Stock (as described in further detail in this proxy statement/prospectus, the “ZF Closing Stock Per Share Consideration”), (b) each issued, outstanding and unexercised warrant to purchase shares of
ZeroFox common stock or preferred stock as of immediately prior to the ZF Effective Time will be assumed and converted into a comparable warrant to purchase shares of New ZeroFox Common Stock determined in accordance with the Business
Combination Agreement based on the ZF Closing Stock Per Share Consideration, (c) each outstanding and unexercised option to purchase shares of ZeroFox common stock (whether vested or unvested) as of immediately prior to the ZF Effective Time
will be assumed and converted into a comparable option to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the ZF Closing Stock Per Share Consideration; and (ii) at the IDX
Effective Time, (a) each share of common stock and preferred stock of IDX issued and outstanding immediately prior to the IDX Effective Time (other than IDX Dissenting Shares and IDX Cancelled Shares (each term as defined in this proxy
statement/prospectus)) will be automatically cancelled, extinguished and converted into the right to receive (A) for common stock and series A-1 and series A-2 preferred stock, a fraction of a share of New ZeroFox Common Stock, (B) for common
stock and series A-1 and series A-2 preferred stock, a portion of $50,000,000 in cash consideration (subject to certain adjustments for cash, working capital, debt and transaction expenses, and net of liquidation preferences, as provided in the
Business Combination Agreement), and (C) for series A-1, series A-2 and series B preferred stock, a liquidation preference amount of $0.361 per share, in each case, in accordance with the Business Combination Agreement and on the basis of a
pre-money enterprise value of IDX of $338,750,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as described in further detail in this proxy statement/prospectus), (b) each issued, outstanding and
unexercised warrant to purchase shares of IDX common stock or preferred stock as of immediately prior to the IDX Effective Time will be assumed and converted into a comparable warrant to purchase shares of New ZeroFox Common Stock determined in
accordance with the Business Combination Agreement based on the IDX Total Per Share Consideration or IDX Total Preferred Per Share Consideration (each such term as defined in this proxy statement/prospectus), as applicable, and (c) each
outstanding and unexercised option to purchase shares of IDX common stock (whether vested or unvested) as of immediately prior to the IDX Effective Time will be assumed and converted into a comparable option to purchase shares of New ZeroFox
Common Stock determined in accordance with the Business Combination Agreement based on the IDX Total Per Share Consideration.
The Class A Ordinary Shares and the public warrants of L&F are
currently listed on the NYSE American LLC (the “NYSE American”) under the symbols “LNFA” and “LNFA WS,” respectively. L&F will apply for listing, to be effective at the time of the Closing of the
Business Combination, of New ZeroFox Common Stock and the warrants of New ZeroFox on the Nasdaq Stock Market LLC (“Nasdaq”) under the proposed symbols “ZFOX” and “ZFOXW,” respectively. It is a condition
of the consummation of the Business Combination that L&F receive confirmation from Nasdaq (or the New York Stock Exchange (the “NYSE”) if L&F's listing with Nasdaq is not effected) that the shares
of New ZeroFox to be issued in connection with the Business Combination have been listed or approved for listing on Nasdaq (or the NYSE), subject only to official notice of issuance thereof, but there can be no assurance such listing condition
will be met or that L&F will obtain such approval from Nasdaq or the NYSE. If such listing condition is not met or if such approval is not obtained, the Business Combination will not be consummated unless the stock exchange approval
condition set forth in the Business Combination Agreement is waived by the applicable parties.
The proxy statement/prospectus provides
shareholders of L&F with detailed information about the Business Combination and other matters to be considered at the extraordinary general meeting of L&F. We encourage you to read the entire proxy statement/prospectus, including the
Annexes and other documents referred to therein, carefully and in their entirety. You should also carefully consider the risk factors described in the section titled “Risk Factors” beginning on page 62 of the proxy statement/prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED IN THE PROXY STATEMENT/PROSPECTUS, PASSED UPON THE MERITS OR FAIRNESS OF THE BUSINESS COMBINATION OR RELATED TRANSACTIONS OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THE DISCLOSURE IN THE PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.
The proxy statement/prospectus is dated , 2022, and is first being
mailed to L&F’s shareholders on or about , 2022.
L&F Acquisition Corp.
150 North Riverside Plaza, Suite 5200
Chicago, IL 60606
Dear L&F Acquisition Corp. Shareholders:
You are cordially invited to attend an Extraordinary General Meeting
of L&F Acquisition Corp., a Cayman Islands exempted company (“L&F”), which will be held on , 2022 at a.m., Eastern Time, at the offices of Kirkland & Ellis LLP located at 601
Lexington Avenue, New York, New York 10022, and via a virtual meeting, or at such other time, on such other date and at such other place to which the meeting may be postponed or adjourned (the “Shareholder
Meeting”).
Due to the current novel coronavirus (“COVID-19”) global pandemic, there may be restrictions in place in many jurisdictions relating to the ability to conduct in-person meetings. As part of our precautions regarding COVID-19, we are
planning for the meeting to be held virtually over the Internet, but the physical location of the meeting will remain at the location specified above for the purposes of our amended and restated memorandum and articles of association. If you
wish to attend the Shareholder Meeting in person, you must reserve your attendance at least two business days in advance of the Shareholder Meeting by contacting L&F’s investor relations department at info@lfacquisitioncorp.com by 9:00
a.m., Eastern Time, on (two business days prior to the meeting date).
On December 17, 2021, L&F, L&F Acquisition Holdings, LLC, a
Delaware limited liability company and direct, wholly-owned subsidiary of L&F (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings
(“ZF Merger Sub”), IDX Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“IDX Merger Sub”), IDX Forward Merger Sub,
LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F Holdings (“IDX Forward Merger Sub”), ZeroFox, Inc., a Delaware corporation (“ZeroFox”),
and ID Experts Holdings, Inc., a Delaware corporation (“IDX,” and together with ZeroFox, the “Target Companies”), entered into a business combination agreement (as
it may be amended from time to time, the “Business Combination Agreement”), contemplating several transactions in connection with which L&F will become the parent company of the Target Companies.
As further described in the accompanying proxy statement/prospectus,
in connection with the Domestication (as such term is defined below), prior to the ZF Effective Time and the IDX Effective Time (as such terms are defined below), among other things, (i) each of the then-issued and outstanding Class A ordinary
shares, par value $0.0001 per share of L&F (the “Class A Ordinary Shares”), will be converted, on a one-for-one basis, into a share of common stock of the post-Domestication Delaware corporation (“New ZeroFox Common Stock”), (ii) each of the then-issued and outstanding Class B ordinary shares, par value $0.0001 per share of L&F (the “Class B Ordinary Shares”),
will be converted, on a one-for-one basis, into a share of New ZeroFox Common Stock, and (iii) each then-issued and outstanding whole warrant exercisable for one Class A Ordinary Share will be converted into a warrant exercisable for one share
of New ZeroFox Common Stock at an exercise price of $11.50 per share on the terms and conditions set forth in the Warrant Agreement, dated as of November 23, 2020, by and between L&F and Continental Stock Transfer & Trust Company (as
amended or amended and restated from time to time).
Concurrently with the Domestication, (i) the governing documents of
L&F will be replaced by governing documents for the Delaware corporation and (ii) L&F will change its name to “ZeroFox Holdings, Inc.”
At the Shareholder Meeting, L&F shareholders will be asked to
consider and vote upon a proposal, which is referred to herein as the “Business Combination Proposal” to approve and adopt the Business Combination Agreement, a copy of which is attached to the
accompanying proxy statement/prospectus as Annex A, including the transactions contemplated thereby (the “Business Combination”).
As further described in the accompanying proxy statement/prospectus,
subject to the terms and conditions of the Business Combination Agreement, the following transactions will occur:
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(a)
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On the Closing Date (as such term is defined in the accompanying proxy statement/prospectus), prior to the consummation of the
Mergers (as such term is defined below), (A) L&F will change its jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and continuing and domesticating as a corporation incorporated under the laws of
the State of Delaware (the
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“Domestication”), upon which L&F will
change its name to “ZeroFox Holdings, Inc.” (“New ZeroFox”) (for further details, see the section titled “Proposal No. 3 — The Domestication Proposal” in the
accompanying proxy statement/prospectus), (B) each outstanding Class A Ordinary Share and Class B Ordinary Share will be converted, on a one-for-one basis, into one share of New ZeroFox Common Stock, and (C) the governing documents of L&F
will be replaced by governing documents for the Delaware corporation.
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(b)
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On the Closing Date, following the Domestication, (i) ZF Merger Sub will merge with and into ZeroFox (the “ZF Merger”), with ZeroFox being the surviving company in the ZF Merger and continuing (immediately following the ZF Merger) as a direct, wholly-owned subsidiary of L&F Holdings (the time that the
ZF Merger becomes effective being referred to as the “ZF Effective Time”), (ii) immediately following the ZF Merger, IDX Merger Sub will merge with and into IDX (the “IDX Merger”), with IDX being the surviving company in the IDX Merger (referred to herein as “Transitional IDX Entity”) and continuing (immediately following the IDX Merger) as a
direct, wholly-owned subsidiary of L&F Holdings (the time that the IDX Merger becomes effective being referred to as the “IDX Effective Time”), and (iii) immediately following the IDX Merger,
Transitional IDX Entity will merge with and into IDX Forward Merger Sub (the “IDX Forward Merger,” and together with the ZF Merger and IDX Merger, the “Mergers”),
with IDX Forward Merger Sub being the surviving company in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned subsidiary of L&F Holdings (the time that the IDX Forward
Merger becomes effective being referred to as the “Effective Time”).
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(c)
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In accordance with the terms and subject to the conditions of the Business Combination Agreement, (i) at the ZF Effective Time,
(a) each share of ZeroFox common stock (including shares of ZeroFox restricted stock) issued and outstanding immediately prior to the ZF Effective Time (after giving effect to the ZF Mandatory Conversion and other than ZF Dissenting
Shares and ZF Cancelled Shares (each term as defined in the accompanying proxy statement/prospectus)) will be automatically cancelled, extinguished and converted into the right to receive a fraction of a share of New ZeroFox Common
Stock determined in accordance with the Business Combination Agreement on the basis of a pre-money enterprise value of ZeroFox of $866,250,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as
described in further detail in the accompanying proxy statement/prospectus, the “ZF Closing Stock Per Share Consideration”), (b) each issued, outstanding and unexercised warrant to purchase shares
of ZeroFox common stock or preferred stock as of immediately prior to the ZF Effective Time will be assumed and converted into a comparable warrant to purchase shares of New ZeroFox Common Stock determined in accordance with the
Business Combination Agreement based on the ZF Closing Stock Per Share Consideration, (c) each outstanding and unexercised option to purchase shares of ZeroFox common stock (whether vested or unvested) as of immediately prior to the ZF
Effective Time will be assumed and converted into a comparable option to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the ZF Closing Stock Per Share Consideration;
and (ii) at the IDX Effective Time, (a) each share of common stock and preferred stock of IDX issued and outstanding immediately prior to the IDX Effective Time (other than IDX Dissenting Shares and IDX Cancelled Shares (each term as
defined in the accompanying proxy statement/prospectus)) will be automatically cancelled, extinguished and converted into the right to receive (A) for common stock and series A-1 and series A-2 preferred stock, a fraction of a share of
New ZeroFox Common Stock, (B) for common stock and series A-1 and series A-2 preferred stock, a portion of $50,000,000 in cash consideration (subject to certain adjustments for cash, working capital, debt and transaction expenses, and
net of liquidation preferences, as provided in the Business Combination Agreement), and (C) for series A-1, series A-2 and series B preferred stock, a liquidation preference amount of $0.361 per share, in each case, in accordance with
the Business Combination Agreement and on the basis of a pre-money enterprise value of IDX of $338,750,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as described in further detail in the
accompanying proxy statement/prospectus), (b) each issued, outstanding and unexercised warrant to purchase shares of IDX common stock or preferred stock as of immediately prior to the IDX Effective Time will be assumed and converted
into a comparable warrant to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the IDX Total Per Share
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Consideration or IDX Total Preferred Per Share Consideration (each such term as
defined in the accompanying proxy statement/prospectus), as applicable, and (c) each outstanding and unexercised option to purchase shares of IDX common stock (whether vested or unvested) as of immediately prior to the IDX Effective Time will
be assumed and converted into a comparable option to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the IDX Total Per Share Consideration.
In connection with the foregoing and concurrently with the execution
of the Business Combination Agreement, L&F entered into subscription agreements (the “Common Equity Subscription Agreements”) with certain investors (the “Common
Equity PIPE Investors”), including, among others, L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity
affiliated with Adam Gerchen, our chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of our board of directors), certain existing shareholders of ZeroFox (including
funds affiliated with New Enterprise Associates and Highland Capital, and Alsop Louie Partners (the “ZeroFox Investors”)), and certain existing shareholders of IDX (including funds affiliated with Blue
Venture Fund, Peloton Equity and ForgePoint Capital (the “IDX Investors”)). Pursuant to the Common Equity Subscription Agreements, the Common Equity PIPE Investors agreed to subscribe for and purchase,
and L&F agreed to issue and sell to such investors, on the Closing Date, an aggregate of 2,000,000 shares of New ZeroFox Common Stock in exchange for an aggregate purchase price of $20,000,000 (the “Common
Equity PIPE Financing”). The New ZeroFox Common Stock to be issued pursuant to the Common Equity Subscription Agreements will be issued in a private placement not registered under the Securities Act of 1933, as amended (the “Securities Act”). L&F has agreed to grant the Common Equity PIPE Investors certain registration rights in connection with the Common Equity PIPE Financing. The Common Equity PIPE Financing is contingent
upon, among other things, the Closing of the Business Combination.
In addition, on December 16, 2021, the ZeroFox Investors purchased
PIK promissory notes issued by ZeroFox (the “ZeroFox PIK Promissory Notes”) for an aggregate purchase price of $5,000,000. Such ZeroFox PIK Promissory Notes accrue interest that will be paid-in-kind at a
rate of 5.0% per annum and mature upon the earlier of the Closing and the one-year anniversary of the date of issuance. If the Closing occurs, the repayment of the original principal amount of the ZeroFox PIK Promissory Notes may be offset
against amounts owed by the ZeroFox Investors under their Common Equity Subscription Agreements. In addition, if the Closing occurs, any portion of the Closing cash consideration to which the IDX Investors are entitled in connection with the
consummation of the Business Combination may be reduced to fund the subscription amounts the IDX Investors would otherwise be required to pay pursuant to the Common Equity Subscription Agreements.
In connection with the foregoing and concurrently with the execution
of the Business Combination Agreement, L&F entered into convertible notes subscription agreements (the “Convertible Notes Subscription Agreements”) with Monarch Alternative Capital LP, L&F
Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) and an affiliate of Corbin Capital Partners, LP (collectively, the “Convertible Notes Investors”), in respect of $150,000,000 aggregate principal amount of unsecured convertible notes due 2025 (the “Notes”) to be issued in connection with the Closing of
the Business Combination (the “Convertible Notes Financing”). The principal terms of the Notes are set forth in the form of indenture attached as an exhibit to the Convertible Notes Subscription
Agreements (a form of which is attached as Annex E to the accompanying proxy statement/prospectus), which indenture will be entered into by L&F, the guarantors party thereto and the indenture trustee (the “Indenture”),
and the form of global note attached thereto. The Notes will bear interest at a rate of 7.00% per annum, payable quarterly in cash; provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum. The Notes will be
convertible at an initial conversion price of $11.50 per share, subject to customary anti-dilution adjustments, including with respect to stock-splits and stock dividends, dividends and other distributions, above-market tender offers,
below-market rights offerings and spin-offs (the “Conversion Price”), and will mature on the date that is three years following the closing of the Convertible Notes Financing. New ZeroFox may, at its
election, force conversion of the Notes after the first anniversary of the issuance of the Notes (the “Conversion Trigger Date”), subject to a holder’s prior right to convert, if the volume-weighted
average trading price of the New ZeroFox Common Stock (x) for the first year after the Conversion Trigger Date, is greater than or equal to 150% of the Conversion Price for at least 20 trading days during a period of 30 consecutive trading days
and (y) for the second year after the Conversion Trigger Date, is greater than or equal to 130% of the
Conversion Price for at least 20 trading days during a period of 30 consecutive
trading days. Upon conversion of any Note, New ZeroFox shall have the option to settle the conversion in cash, shares of New ZeroFox Common Stock or a combination of both. Each holder of a Note will have the right to cause New ZeroFox to
repurchase for cash all or a portion of the Notes held by such holder at any time upon the occurrence of a “fundamental change”, a customary definition provided in the Indenture, at a price equal to par plus accrued and unpaid interest. In the
event of a conversion in connection with a “make-whole fundamental change,” as defined in the Indenture, the Conversion Price will be adjusted by a usual and customary make-whole fundamental change “make-whole table” provided in the Indenture.
L&F has agreed to grant the Convertible Notes Investors certain registration rights in connection with the Convertible Notes Financing. The Convertible Notes Financing is contingent upon, among other things, the Closing of the Business
Combination.
Additionally, in connection with the foregoing and concurrently with
the execution of the Business Combination Agreement, (i) L&F, (ii) JAR Sponsor, LLC, a Delaware limited liability company (the “Sponsor”), Albert Goldstein and Joseph Lieberman, (iii) ZeroFox,
(iv) IDX, and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the limited purposes set forth therein), entered into an Amended and Restated Sponsor Support Letter Agreement. On January 31, 2022, (i) L&F,
(ii) the Sponsor, Albert Goldstein, Joseph Lieberman and Kurt Summers, Jr. (together with the Sponsor, the “Sponsor Holders”), (iii) ZeroFox, (iv) IDX, and (v) Jeffrey C. Hammes, Adam Gerchen, Tom
Gazdziak and Richard Levy (solely for the limited purposes set forth therein), entered into a Second Amended and Restated Sponsor Support Letter Agreement (the “Sponsor Support Letter Agreement”).
Pursuant to the Sponsor Support Letter Agreement, the Sponsor Holders have agreed to subject an aggregate of 1,293,750 shares of New ZeroFox Common Stock held by such Sponsor Holders to an earnout, whereby such shares will be forfeited unless
the following volume-weighted average share price thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the Closing: one-third
vesting if the volume-weighted average share price equals or exceeds $12.50; one-third vesting if the volume-weighted average share price equals or exceeds $15.00; and one-third vesting if the volume-weighted average share price equals or
exceeds $17.50. In addition, the Sponsor Holders have agreed to (i) vote in favor of the Business Combination Agreement and the transactions contemplated thereby (including the Mergers), (ii) waive the anti-dilution or similar protection with
respect to the Founder Shares (as defined in the Sponsor Support Letter Agreement) (whether resulting from the transactions contemplated by the Common Equity PIPE Financing, the Convertible Notes Financing, the Domestication, the Mergers or
otherwise), (iii) be bound by certain other covenants and agreements related to the Business Combination, and (iv) not transfer (subject to customary exceptions) any Founder Shares until the earlier of (a) one year after the Closing, (b) the
share price equaling or exceeding $12.00 on a volume-weighted average price basis for any 20 trading days within any 30 trading day period commencing at least 150 days after the Closing, and (c) the completion of a transaction that results in
all shareholders having the right to exchange shares for cash, securities or other property.
In addition to the Business Combination Proposal, L&F
shareholders are being asked to consider and vote upon (a) a proposal to approve certain amendments to L&F's existing amended and restated memorandum and articles of association (the “Existing Governing
Documents”) (the “Articles Amendment Proposal”), (b) a proposal to approve the Domestication (the “Domestication Proposal”), (c) a proposal to approve the
proposed certificate of incorporation of New ZeroFox upon the Domestication, a copy of which is attached to the accompanying proxy statement/prospectus as Annex B (the “Proposed Certificate of Incorporation”),
and the proposed bylaws of New ZeroFox upon the Domestication, a copy of which is attached to the accompanying proxy statement/prospectus as Annex C (the “Proposed Bylaws”) (the “Governing Documents Proposal”), (d) on a non-binding advisory basis, proposals related to material differences between the Existing Governing Documents and the Proposed Certificate of Incorporation and Proposed Bylaws (the “Advisory Governing Documents Proposals”), (e) a proposal to approve, for purpose of complying with the NYSE American Company Guide Section 713(a)(ii), the issuance of shares of New ZeroFox Common Stock in
connection with the Business Combination, the Common Equity PIPE Financing and the Convertible Notes Financing (the “Listing Proposal”), (f) a proposal to approve and adopt the ZeroFox Holdings, Inc. 2022
Incentive Equity Plan, a copy of which is attached to the accompanying proxy statement/prospectus as Annex H (the “Incentive Equity Plan Proposal”) (g) a proposal to approve and adopt the ZeroFox Holdings
Inc. 2022 Employee Stock Purchase Plan, a copy of which is attached to the accompanying proxy statement/prospectus as Annex I (the “Employee Stock Purchase Plan Proposal”), (h) a proposal to elect each of
the eight (8) directors named in
the proxy statement/prospectus to serve on the board of directors of New ZeroFox
until their respective successors are duly elected and qualified (the “Director Election Proposal”), and (i) a proposal to adjourn the Shareholder Meeting to a later date or dates to the extent necessary
(the “Adjournment Proposal”).
The Business Combination Proposal, the Domestication Proposal, the
Governing Documents Proposal, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal and the Director Election Proposal (collectively, the “Condition Precedent
Proposals”) will be presented to the shareholders for a vote only if the Articles Amendment Proposal is approved. Each of the Condition Precedent Proposals is conditioned on the approval and adoption of each of the other Condition
Precedent Proposals, and the Business Combination will be consummated only if each of the Condition Precedent Proposals is approved by the shareholders. The Advisory Governing Documents Proposals will be presented to the shareholders for a vote
only if the Business Combination Proposal is approved. The Articles Amendment Proposal and the Adjournment Proposal are not conditioned upon the approval of any other proposal, though the special resolution contemplated by the Articles
Amendment Proposal will be adopted only if the Business Combination Proposal is approved. Each of these proposals is more fully described in the accompanying proxy statement/prospectus, which each shareholder is encouraged to read carefully and
in its entirety.
The Adjournment Proposal asks shareholders to approve an adjournment
of the Shareholder Meeting to a later date or dates if necessary to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Shareholder Meeting, there are insufficient L&F ordinary shares
represented (either in person or by proxy) to constitute a quorum necessary to conduct business at the Shareholder Meeting or to approve the Articles Amendment Proposal, the Business Combination Proposal, the Domestication Proposal, the
Governing Documents Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal or the Director Election Proposal.
In connection with the Business Combination, certain related
agreements have been entered into, or will be entered into on or prior to the Closing Date, including the Sponsor Support Letter Agreement, the Common Equity Subscription Agreements, the Convertible Notes Subscription Agreements and the
Registration Rights Agreement (as defined in the accompanying proxy statement/prospectus). See the section titled “Proposal No. 2 — The Business Combination Proposal — Related Agreements” in the
accompanying proxy statement/prospectus for more information.
Pursuant to the Existing Governing Documents, a holder of
L&F’s Class A Ordinary Shares (such holder, a “Public Shareholder” and such shares, the “Public Shares”) may request that L&F
redeem all or a portion of such Class A Ordinary Shares for cash if the Business Combination is consummated. The redemption rights include the requirement that a holder must identify itself in writing as a beneficial holder and provide its
legal name, phone number and address to Continental Stock Transfer & Trust Company (“Continental”) in order to validly redeem its shares. Public
Shareholders may elect to redeem their Class A Ordinary Shares even if they vote “For” the Business Combination Proposal. If the Business Combination is not consummated, the Class A Ordinary Shares will be returned to
the respective holder, broker or bank. If the Business Combination is consummated, and if a Public Shareholder properly exercises its right to redeem all or a portion of the Class A Ordinary Shares that it holds and timely delivers its shares
to Continental, L&F will redeem such Class A Ordinary Shares for a per-share price, payable in cash, equal to the pro rata portion of the trust account established at the consummation of the L&F IPO (as such term is defined in the
accompanying proxy statement/prospectus), calculated as of two business days prior to the consummation of the Business Combination. For illustrative purposes, as of May 27, 2022, the record date for the Shareholder Meeting, this would have
amounted to approximately $10.16 per issued and outstanding Public Share. If a Public Shareholder exercises its redemption rights in full, then it will be electing to exchange its Class A Ordinary Shares for cash and will no longer own
Class A Ordinary Shares. See “Shareholder Meeting — Redemption Rights” in the proxy statement/prospectus for a detailed description of the procedures to be followed if you wish to
redeem your Class A Ordinary Shares for cash. Holders must complete the procedures for electing to redeem their Class A Ordinary Shares in the manner described in the accompanying proxy
statement/prospectus prior to 5:00 p.m., Eastern Time, on , 2022 (two business days before the Shareholder Meeting) in order for their shares to be redeemed.
Notwithstanding the foregoing, a Public Shareholder, together with
any affiliate of such Public Shareholder or any other person with whom such Public Shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted
from redeeming its Class A Ordinary Shares with respect to more than an aggregate of
15% of the outstanding Class A Ordinary Shares, without our prior consent. Accordingly, if a Public Shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the outstanding Class A Ordinary Shares, then any such
shares in excess of that 15% limit would not be redeemed for cash, without our prior consent.
The Sponsor Holders have, pursuant to the Sponsor Support Letter
Agreement, agreed to, among other things, vote all of their ordinary shares in favor of the proposals being presented at the Shareholder Meeting and waive their anti-dilution rights with respect to their Class B Ordinary Shares in connection
with the consummation of the Business Combination and the related transactions. Such shares will be excluded from the pro rata calculation used to determine the per-share redemption price. As of the date of the accompanying proxy
statement/prospectus, the Sponsor Holders own approximately 55.7% of the issued and outstanding ordinary shares.
The Business Combination Agreement is subject to the satisfaction or
waiver of certain other closing conditions as described in the accompanying proxy statement/prospectus, including the condition that there will be not less than $170,000,000 of available closing acquiror cash, comprised of the aggregate cash
proceeds from L&F's trust account, together with the net cash proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing, after deducting any amounts paid to Public Shareholders that exercise their redemption rights
in connection with the Business Combination. There can be no assurance that the parties to the Business Combination Agreement would waive any such provision of the Business Combination Agreement.
L&F is providing the accompanying proxy statement/prospectus and
accompanying proxy card to L&F’s shareholders in connection with the solicitation of proxies to be voted at the Shareholder Meeting and at any postponements or adjournments of the Shareholder Meeting. Information about the Shareholder
Meeting, the Business Combination and other related business to be considered by L&F’s shareholders at the Shareholder Meeting is included in the accompanying proxy statement/prospectus. Whether or not you
plan to attend the Shareholder Meeting, all of L&F’s shareholders are urged to read the accompanying proxy statement/prospectus, including the Annexes and other documents referred to therein, carefully and in their entirety. You should
also carefully consider the risk factors described in the section titled “Risk Factors” beginning on page 62 of the
accompanying proxy statement/prospectus.
After careful consideration, the board of
directors of L&F has unanimously approved the Business Combination Agreement and the transactions contemplated thereby, including the Mergers, and unanimously recommends that shareholders vote “FOR” the adoption of the Business Combination
Agreement and approval of the transactions contemplated thereby, including the Mergers, and “FOR” all other proposals presented to L&F’s shareholders in the accompanying proxy statement/prospectus. When you consider the recommendation of
these proposals by the board of directors of L&F, you should keep in mind that L&F’s directors and officers have interests in the Business Combination that may conflict with your interests as a shareholder. See the sections titled “Proposal No. 2 — The Business Combination Proposal — Interests of Certain Persons in the Business Combination,” “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate
Opportunity Doctrine” and “Risk Factors” in the accompanying proxy statement/prospectus for a further
discussion of these considerations.
The approval of each of the Articles Amendment Proposal, the
Domestication Proposal and the Governing Documents Proposal requires a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued ordinary
shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting. The approval of each of the Business Combination Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the
Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal and the Adjournment Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders
of the issued ordinary shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting. The approval of the Director Election Proposal requires an ordinary resolution under Cayman Islands law,
being the affirmative vote of at least a majority of the votes cast by holders of the issued Class B Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting. The approval of each
of the proposals other than the Articles Amendment Proposal, the Domestication Proposal and the Governing Documents Proposal will not require the
affirmative vote of the Public Shareholders based on the ownership of the Sponsor
Holders; however, all proposals other than the Adjournment Proposal will be presented for a vote only if the Articles Amendment Proposal is approved, and each of the Condition Precedent Proposals is conditioned on the approval and adoption of
each of the other Condition Precedent Proposals.
Your vote is very important. Whether or not you plan to attend the Shareholder Meeting, please vote as soon as possible by following the instructions in the accompanying proxy statement/prospectus to make sure that your shares are represented
at the Shareholder Meeting. If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your shares are
represented and voted at the Shareholder Meeting. The Condition Precedent Proposals will be presented to the shareholders for a vote only if the Articles Amendment Proposal is approved. The Business Combination will be consummated only if the
Condition Precedent Proposals are approved at the Shareholder Meeting. Each of the Condition Precedent Proposals is conditioned on the approval and adoption of each of the other Condition Precedent Proposals. The Advisory Governing Documents
Proposals will be presented to the shareholders for a vote only if the Business Combination Proposal is approved. The Articles Amendment Proposal and the Adjournment Proposal are not conditioned on the approval of any other proposal set forth
in the accompanying proxy statement/prospectus, though the special resolution contemplated by the Articles Amendment Proposal will be adopted only if the Business Combination Proposal is approved.
If you sign, date and return your proxy card without indicating how
you wish to vote, your proxy will be voted FOR each of the proposals presented at the Shareholder Meeting. If you fail to return your proxy card or fail to instruct your bank, broker or other nominee how to vote, and do not attend the
Shareholder Meeting in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the Shareholder Meeting but will otherwise not have any effect on whether the proposals are
approved. If you are a shareholder of record and you attend the Shareholder Meeting and wish to vote in person, you may withdraw your proxy and vote in person.
TO EXERCISE YOUR REDEMPTION RIGHTS, YOU MUST DEMAND IN WRITING THAT
YOUR CLASS A ORDINARY SHARES ARE REDEEMED FOR A PRO RATA PORTION OF THE FUNDS HELD IN THE TRUST ACCOUNT AND TENDER YOUR SHARES TO L&F’S TRANSFER AGENT AT LEAST TWO BUSINESS DAYS PRIOR TO THE VOTE AT THE SHAREHOLDER MEETING. IN ORDER TO
EXERCISE YOUR REDEMPTION RIGHT, YOU NEED TO IDENTIFY YOURSELF AS A BENEFICIAL HOLDER AND PROVIDE YOUR LEGAL NAME, PHONE NUMBER AND ADDRESS IN YOUR WRITTEN DEMAND. YOU MAY TENDER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE
TRANSFER AGENT OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING THE DEPOSITORY TRUST COMPANY’S DWAC (DEPOSIT WITHDRAWAL AT CUSTODIAN) SYSTEM. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL BE RETURNED TO YOU OR YOUR
ACCOUNT. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS. See “Shareholder Meeting—
Redemption Rights” in the accompanying proxy statement/prospectus for a detailed description of the procedures to be followed if you wish to redeem your Class A Ordinary Shares for cash.
On behalf of L&F’s board of directors, I would like to thank you
for your support and look forward to the successful completion of the Business Combination.
Sincerely,
Jeffrey C. Hammes
Chairman of the Board of Directors
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS, PASSED UPON THE MERITS OR FAIRNESS OF THE BUSINESS COMBINATION OR RELATED TRANSACTIONS OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.
The accompanying proxy statement/prospectus is dated , 2022 and is
first being mailed to the shareholders of L&F on or about , 2022.
L&F ACQUISITION CORP.
150 North Riverside Plaza, Suite 5200
Chicago, IL 60606
NOTICE OF EXTRAORDINARY GENERAL MEETING
TO BE HELD ON , 2022
To the Shareholders of L&F Acquisition Corp.:
NOTICE IS HEREBY GIVEN that an extraordinary general meeting of
L&F Acquisition Corp., a Cayman Islands exempted company (“L&F”), will be held on , 2022 at a.m., Eastern Time, at the offices of Kirkland & Ellis LLP located at 601 Lexington Avenue,
New York, New York 10022, and via a virtual meeting, or at such other time, on such other date and at such other place to which the meeting may be postponed or adjourned (the “Shareholder Meeting”).
Due to the current novel coronavirus (“COVID-19”) global pandemic, there may be restrictions in place in many jurisdictions relating to the ability to conduct in-person meetings. As part of our precautions regarding COVID-19, we are
planning for the meeting to be held virtually over the Internet, but the physical location of the meeting will remain at the location specified above for the purposes of our amended and restated memorandum and articles of association. If you
wish to attend the Shareholder Meeting in person, you must reserve your attendance at least two business days in advance of the Shareholder Meeting by contacting L&F’s investor relations department at info@lfacquisitioncorp.com by 9:00
a.m., Eastern Time, on (two business days prior to the meeting date).
You are cordially invited to attend the Shareholder Meeting to
conduct the following items of business and/or consider, and if thought fit, approve the following resolutions:
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1.
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Proposal No. 1 — The Articles Amendment Proposal — RESOLVED, as a special resolution,
that subject to the approval of Proposal No. 2 (the Business Combination Proposal);
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(a)
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Article 49.2(b) be deleted in its entirety and be replaced with the following new Article 49.2(b):
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“provide Members with the opportunity to have their Shares repurchased by means of a
tender offer for a per-Share repurchase price payable in cash, equal to the aggregate amount then on deposit in the Trust Account, calculated as of two business days prior to the consummation of such Business Combination, including interest
earned on the Trust Account (which interest shall be net of taxes paid or payable, if any), divided by the number of then issued Public Shares. Such obligation to repurchase Shares is subject to the completion of the proposed Business
Combination to which it relates.”
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(b)
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Article 49.4 be deleted in its entirety and be replaced with the following new Article 49.4:
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“At a general meeting called for the purposes of approving a Business Combination
pursuant to this Article, in the event that such Business Combination is approved by Ordinary Resolution, the Company shall be authorised to consummate such Business Combination.”
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(c)
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the following final sentence of Article 49.5 be deleted in its entirety:
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“The Company shall not redeem Public Shares that would cause the Company’s net
tangible assets to be less than US$5,000,001 following such redemptions (the “Redemption Limitation”).”
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(d)
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the final sentence of Article 49.8 be deleted in its entirety and be replaced with the following new final sentence of Article
49.8:
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“The Company shall not provide such redemption in this Article if it would cause the
Company’s net tangible assets to be less than US$5,000,001 following such redemption.”
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2.
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Proposal No. 2 — The Business Combination Proposal — RESOLVED, as an ordinary
resolution, that L&F’s entry into the Business Combination Agreement, dated as of December 17, 2021 (as amended, supplemented or otherwise modified from time to time, the “Business Combination
Agreement”), by and among L&F, L&F Acquisition Holdings, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F (“L&F Holdings”), ZF Merger
Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“ZF Merger Sub”), IDX
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Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of
L&F Holdings (“IDX Merger Sub”), IDX Forward Merger Sub, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F Holdings (“IDX
Forward Merger Sub”), ZeroFox, Inc., a Delaware corporation (“ZeroFox”), and ID Experts Holdings, Inc., a Delaware corporation (“IDX”), a copy of which is
attached to the proxy statement/prospectus as Annex A, pursuant to which, among other things, following the de-registration of L&F as an exempted company in the Cayman Islands and the transfer by way of continuation and domestication of
L&F as a corporation in the State of Delaware (i) ZF Merger Sub will merge with and into ZeroFox (the “ZF Merger”), with ZeroFox being the surviving entity in the ZF Merger and continuing (immediately
following the ZF Merger) as a direct, wholly-owned subsidiary of L&F Holdings, (ii) immediately following the ZF Merger, IDX Merger Sub will merge with and into IDX (the “IDX Merger”), with IDX being
the surviving entity in the IDX Merger (referred to herein as “Transitional IDX Entity”) and continuing (immediately following the IDX Merger) as a direct, wholly-owned subsidiary of L&F Holdings, and
(iii) immediately following the IDX Merger, Transitional IDX Entity will merge with and into IDX Forward Merger Sub (the “IDX Forward Merger”), with IDX Forward Merger Sub being the surviving entity in
the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned subsidiary of L&F Holdings, and the transactions contemplated thereby (collectively, the “Business
Combination”), be approved, ratified and confirmed in all respects.
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3.
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Proposal No. 3 — The Domestication Proposal — RESOLVED, as a special resolution, that
L&F be transferred by way of continuation to Delaware pursuant to Part XII of the Companies Act (As Revised) of the Cayman Islands and Section 388 of the General Corporation Law of the State of Delaware and, immediately upon being
de-registered in the Cayman Islands, L&F be continued and domesticated as a corporation under the laws of the State of Delaware and, conditional upon, and with effect from, the registration of L&F as a corporation in the State
of Delaware, the name of L&F be changed from “L&F Acquisition Corp.” to “ZeroFox Holdings, Inc.”
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4.
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Proposal No. 4 — The Governing Documents Proposal — RESOLVED, as a special resolution,
that the amended and restated memorandum and articles of association of L&F currently in effect be amended and restated by the deletion in their entirety and the substitution in their place of the proposed new certificate of
incorporation and proposed new bylaws (copies of each of which are attached to the proxy statement/prospectus as Annex B and Annex C, respectively), including, without limitation, the authorization of the change in authorized share
capital as indicated therein and the change of name to “ZeroFox Holdings, Inc.”
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5.
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Proposal No. 5 — The Advisory Governing Documents Proposals
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•
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Advisory Governing Documents Proposal 5A — RESOLVED, as an ordinary resolution, on an
advisory non-binding basis, that the authorized share capital of L&F is increased from (i) 500,000,000 Class A Ordinary Shares, par value $0.0001 per share, 50,000,000 Class B Ordinary Shares, par value $0.0001 per share, and
1,000,000 preference shares, par value $0.0001 per share, to (ii) 1,000,000,000 shares of ZeroFox Holdings, Inc. common stock, par value $0.0001 per share, and 100,000,000 shares of ZeroFox Holdings, Inc. preferred stock, par value
$0.0001 per share.
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•
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Advisory Governing Documents Proposal 5B — RESOLVED, as an ordinary resolution, on an
advisory non-binding basis, that the ZeroFox Holdings, Inc. board is authorized to issue any or all shares of ZeroFox Holdings, Inc. preferred stock in one or more classes or series, with such terms and conditions as may be expressly
determined by the ZeroFox Holdings, Inc. board and as may be permitted by the Delaware General Corporation Law.
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•
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Advisory Governing Documents Proposal 5C — RESOLVED, as an ordinary resolution, on an
advisory non-binding basis, that the Court of Chancery of the State of Delaware will be the exclusive forum for certain shareholder litigation and the federal district courts of the United States of America will be the exclusive forum
for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, unless ZeroFox Holdings, Inc. consents in writing to the selection of an alternative forum.
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•
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Advisory Governing Documents Proposal 5D — RESOLVED, as an ordinary resolution, on an
advisory non-binding basis, that any action required or permitted to be taken by the shareholders of ZeroFox Holdings, Inc. must be effected at a duly called annual or special meeting of shareholders of ZeroFox Holdings, Inc. and may
not be effected by any consent by such shareholders.
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•
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Advisory Governing Documents Proposal 5E — RESOLVED, as an ordinary resolution, on an
advisory non-binding basis, that, subject to the rights of holders of preferred stock of ZeroFox Holdings, Inc., any director or the entire ZeroFox Holdings, Inc. board may be removed from office at any time, but only for cause, and
only by the affirmative vote of the holders of a majority of the issued and outstanding capital stock of ZeroFox Holdings, Inc. entitled to vote in the election of directors, voting together as a single class.
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•
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Advisory Governing Documents Proposal 5F — RESOLVED, as an ordinary resolution, on an
advisory non-binding basis, that the proposed new certificate of incorporation may be amended by shareholders in accordance with the voting standards set forth in Article XI, Section 1 of the proposed new certificate of incorporation
and the proposed new bylaws may be amended by shareholders in accordance with the voting standards set forth in Article X of the proposed new bylaws.
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•
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Advisory Governing Documents Proposal 5G — RESOLVED, as an ordinary resolution, on an
advisory non-binding basis, that the removal of provisions in L&F’s existing amended and restated memorandum and articles of association related to its status as a blank check company that will no longer apply upon the consummation
of the Business Combination be approved.
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6.
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Proposal No. 6 — The Listing Proposal — RESOLVED, as an ordinary resolution, that for
the purposes of complying with NYSE American Company Guide Section 713(a)(ii), the issuance of shares of ZeroFox Holdings, Inc. common stock in connection with the Business Combination, the Common Equity PIPE Financing and the
Convertible Notes Financing (as such terms are defined in the proxy statement/prospectus) be approved.
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7.
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Proposal No. 7 — The Incentive Equity Plan Proposal — RESOLVED, as an ordinary
resolution, that L&F’s adoption of the ZeroFox Holdings, Inc. 2022 Incentive Equity Plan be approved, ratified and confirmed in all respects.
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8.
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Proposal No. 8 — The Employee Stock Purchase Plan Proposal — RESOLVED, as an ordinary
resolution, that L&F’s adoption of the ZeroFox Holdings, Inc. 2022 Employee Stock Purchase Plan be approved, ratified and confirmed in all respects.
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9.
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Proposal No. 9 — The Director Election Proposal — RESOLVED, as an ordinary resolution,
that the persons named below be elected to serve on the ZeroFox Holdings, Inc. board of directors upon the consummation of the Business Combination to serve initial terms as provided in the proposed new certificate of incorporation.
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Name of Director
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Class of Directorship
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Peter Barris
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I
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Corey M. Mulloy
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I
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Sean Cunningham
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I
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Samskriti King
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II
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Thomas F. Kelly
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II
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James C. Foster
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III
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Todd Headley
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III
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Adam Gerchen
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III
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10.
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Proposal No. 10 — The Adjournment Proposal — RESOLVED, as an ordinary resolution, that
the adjournment of the Shareholder Meeting to a later date or dates if necessary, to permit further solicitation and votes of proxies if, based upon the tabulated votes at the time of the Shareholder Meeting, there are insufficient
L&F ordinary shares represented (either in person or by proxy) to constitute a quorum necessary to conduct business at the Shareholder Meeting or to approve the
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Articles Amendment Proposal, the Business Combination Proposal, the Domestication
Proposal, the Governing Documents Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal or the Director Election Proposal be approved, ratified
and confirmed in all respects.
Each of the Business Combination Proposal, the Domestication
Proposal, the Governing Documents Proposal, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal and the Director Election Proposal (collectively, the “Condition
Precedent Proposals”) is conditioned on the approval and adoption of each of the other Condition Precedent Proposals. The Condition Precedent Proposals will be presented to the shareholders for a vote only if the Articles Amendment
Proposal is approved. The Advisory Governing Documents Proposals will be presented to the shareholders for a vote only if the Business Combination Proposal is approved. The Articles Amendment Proposal and the Adjournment Proposal are not
conditioned on any other proposal, though the special resolution contemplated by the Articles Amendment Proposal will be adopted only if the Business Combination Proposal is approved.
The above matters are more fully described in the accompanying proxy
statement/prospectus, which also includes, as Annex A, a copy of the Business Combination Agreement. You are urged to read carefully and in its entirety the accompanying proxy statement/prospectus, including
the Annexes thereto and accompanying financial statements of L&F, ZeroFox and IDX.
The record date for the Shareholder Meeting for L&F shareholders
is May 27, 2022. Only L&F shareholders at the close of business on that date may vote at the Shareholder Meeting or any postponement or adjournment thereof. L&F shareholders are entitled to one vote at the Shareholder Meeting for each
L&F Ordinary Share held of record as of the record date.
L&F is providing the accompanying proxy statement/prospectus and
accompanying proxy card to L&F’s shareholders in connection with the solicitation of proxies to be voted at the Shareholder Meeting and at any postponements or adjournments of the Shareholder Meeting. Information about the Shareholder
Meeting, the Business Combination and other related business to be considered by L&F’s shareholders at the Shareholder Meeting is included in the accompanying proxy statement/prospectus. Whether or not you
plan to attend the Shareholder Meeting, all of L&F’s shareholders are urged to read the accompanying proxy statement/prospectus, including the Annexes and other documents referred to therein, carefully and in their entirety. You should
also carefully consider the risk factors described in the sections titled “Risk Factors” beginning on page 62 of the
accompanying proxy statement/prospectus.
After careful consideration, the board of
directors of L&F has unanimously approved the Business Combination Agreement and the transactions contemplated thereby, including the Mergers, and unanimously recommends that shareholders vote “FOR” the adoption of the Business Combination
Agreement and approval of the transactions contemplated thereby, including the Mergers, and “FOR” all other proposals presented to L&F’s shareholders in the accompanying proxy statement/prospectus. When you consider the recommendation of
these proposals by the board of directors of L&F, you should keep in mind that L&F’s directors and officers have interests in the Business Combination that may conflict with your interests as a shareholder. See the sections entitled “Proposal No. 2 — The Business Combination Proposal — Interests of Certain Persons in the Business Combination,” “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate
Opportunity Doctrine” and “Risk Factors” in the accompanying proxy statement/prospectus for a further
discussion of these considerations.
Pursuant to the Existing Governing Documents, a holder of L&F’s
Class A Ordinary Shares (such holder, a “Public Shareholder” and such shares, the “Public Shares”) may request that L&F redeem all or a portion of such Class A
Ordinary Shares for cash if the Business Combination is consummated. The redemption rights include the requirement that a holder must identify itself in writing as a beneficial holder and provide its legal name, phone number and address to
Continental Stock Transfer & Trust Company (“Continental”) in order to validly redeem its shares. Public Shareholders may elect to redeem their Class A Ordinary
Shares even if they vote “For” the Business Combination Proposal. If the Business Combination is not consummated, the Class A Ordinary Shares will be returned to the respective holder, broker or bank. If the Business Combination is
consummated, and if a Public Shareholder properly exercises its right to redeem all or a portion of the Class A Ordinary Shares that it holds and timely delivers its shares to Continental, L&F will redeem such Class A Ordinary Shares for a
per-share price, payable in cash, equal to the pro rata portion of the trust account
established at the consummation of the L&F IPO (as such term is defined in the
accompanying proxy statement/prospectus), calculated as of two business days prior to the consummation of the Business Combination. For illustrative purposes, as of May 27, 2022, the record date for the Shareholder Meeting, this would have
amounted to approximately $10.16 per issued and outstanding Public Share. If a Public Shareholder exercises its redemption rights in full, then it will be electing to exchange its Class A Ordinary Shares for cash and will no longer own Class A
Ordinary Shares. See “Shareholder Meeting— Redemption Rights” in the accompanying proxy statement/prospectus for a detailed description of the procedures to be followed if you wish to redeem your Class A
Ordinary Shares for cash. Holders must complete the procedures for electing to redeem their Class A Ordinary Shares in the manner described in the accompanying proxy statement/prospectus prior to 5:00 p.m.,
Eastern Time, on , 2022 (two business days before the Shareholder Meeting) in order for their shares to be redeemed.
Notwithstanding the foregoing, a Public Shareholder, together with
any affiliate of such Public Shareholder or any other person with whom such Public Shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), will be restricted from redeeming its Class A Ordinary Shares with respect to more than an aggregate of 15% of the outstanding Class A Ordinary Shares, without our prior consent. Accordingly, if a Public
Shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the outstanding Class A Ordinary Shares, then any such shares in excess of that 15% limit would not be redeemed for cash, without our prior consent.
JAR Sponsor, LLC, Albert Goldstein, Joseph Lieberman and Kurt Summers
(the “Sponsor Holders”) have, pursuant to the Sponsor Support Letter Agreement, agreed to, among other things, vote all of their ordinary shares in favor of the proposals being presented at the
Shareholder Meeting and waive their anti-dilution rights with respect to their Class B Ordinary Shares in connection with the consummation of the Business Combination. Such shares will be excluded from the pro rata calculation used to determine
the per-share redemption price. As of the date of the accompanying proxy statement/prospectus, the Sponsor Holders own approximately 55.7% of the issued and outstanding ordinary shares. See “Proposal No. 2 —
The Business Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” in the accompanying proxy statement/prospectus for more information related to the Sponsor Support
Letter Agreement.
The Business Combination Agreement is subject to the satisfaction or
waiver of certain other closing conditions as described in the accompanying proxy statement/prospectus. There can be no assurance that the parties to the Business Combination Agreement would waive any such provision of the Business Combination
Agreement.
The approval of each of the Articles Amendment Proposal, the
Domestication Proposal and the Governing Documents Proposal requires a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued ordinary
shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting. The approval of each of the Business Combination Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the
Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal and the Adjournment Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders
of the issued ordinary shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting. The approval of the Director Election Proposal requires an ordinary resolution under Cayman Islands law,
being the affirmative vote of at least a majority of the votes cast by holders of the issued Class B Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting. The Advisory
Governing Documents Proposals are voted upon on a non-binding advisory basis only. The approval of each of the proposals other than the Articles Amendment Proposal, the Domestication Proposal and the Governing Documents Proposal will not
require the affirmative vote of the Public Shareholders based on the ownership of the Sponsor Holders; however, all proposals other than the Adjournment Proposal will be presented for a vote only if the Articles Amendment Proposal is approved,
and each of the Condition Precedent Proposals is conditioned on the approval and adoption of each of the other Condition Precedent Proposals.
Your vote is very important. Whether or not you plan to attend the Shareholder Meeting, please vote as soon as possible by following the instructions in the accompanying proxy statement/prospectus to make
sure that your shares are represented at the Shareholder Meeting.
If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your shares are represented and voted at the
Shareholder Meeting.
If you sign, date and return your proxy card without indicating how
you wish to vote, your proxy will be voted FOR each of the proposals presented at the Shareholder Meeting. If you fail to return your proxy card or fail to instruct your bank, broker or other nominee how to vote, and do not attend the
Shareholder Meeting in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the Shareholder Meeting but will otherwise not have any effect on whether the proposals are
approved.
Your attention is directed to the accompanying proxy
statement/prospectus following this notice (including the Annexes and other documents referred to herein) for a more complete description of the proposed Business Combination and related transactions and each of the proposals. You are
encouraged to read the accompanying proxy statement/prospectus carefully and in its entirety, including the Annexes and other documents referred to herein. If you have any questions or need assistance voting your ordinary shares, please contact
Morrow Sodali LLC, our proxy solicitor, by calling (800) 662-5200 (toll-free), or banks and brokers can call (203) 658-9400, or by emailing LNFA.info@investor.morrowsodali.com.
Thank you for your participation. We look forward to your continued
support.
By Order of the Board of Directors of L&F Acquisition Corp.,
Jeffrey C. Hammes
Chairman of the Board of Directors
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This document, which forms part of a registration statement on Form
S-4 filed with the U.S. Securities and Exchange Commission (the “SEC”) by L&F (File No. 333-262570), constitutes a prospectus of L&F under Section 5 of the U.S. Securities Act of 1933, as amended,
with respect to certain securities of L&F to be issued in connection with the Business Combination described below. This document also constitutes a notice of meeting and a proxy statement of L&F under Section 14(a) of the Securities
Exchange Act of 1934, as amended, for the Shareholder Meeting of L&F to be held in connection with the Business Combination and related matters and at which L&F shareholders will be asked to consider and vote upon a proposal to approve
and adopt the Business Combination Agreement and the Business Combination, among other matters. All share and per share information in this proxy statement/prospectus, including the number of Public Shares required to approve the proposals to
be voted on, reflect the Extension Amendment Redemptions. See “Summary of the Proxy Statement / Prospectus — The Shareholder Meeting — Quorum and Vote of L&F Shareholders” and “Information about L&F — Extension of Time to Complete a Business Combination.”
You may request copies of this proxy
statement/prospectus and any other publicly available information concerning L&F, without charge, by written request to L&F Acquisition Corp., 150 North Riverside Plaza, Suite 5200 Chicago, IL 60606, or by telephone request at (312)
701-1777; or Morrow Sodali, our proxy solicitor, by calling (800) 662-5200 (toll free), or banks and brokers can call (203) 658-9400, or by emailing LNFA.info@investor.morrowsodali.com, or from the SEC through the SEC website at
https://www.sec.gov.
In order for L&F’s shareholders to receive
timely delivery of the documents in advance of the Shareholder Meeting to be held on , 2022, you must request the information no later than , 2022 (five business days prior to the date of the Shareholder Meeting).
Unless otherwise stated or unless the context
otherwise requires, the terms “we,” “us,” “our,” and “L&F” refer to L&F Acquisition Corp. The terms “New ZeroFox,” “Company”, “combined company” and “post-Business Combination company” refer to ZeroFox Holdings, Inc. and its
subsidiaries following the consummation of the Business Combination. The term “ZeroFox” refers to ZeroFox, Inc., together with its subsidiaries, prior to the Business Combination. The term “IDX” refers to ID Experts Holdings, Inc., together
with its subsidiary, Identity Theft Guard Solutions, Inc. (“ITGS”), prior to the Business Combination.
In this proxy statement/prospectus, references to:
“Adjournment Proposal” means
the proposal as an ordinary resolution, to approve the adjournment of the Shareholder Meeting to a later date or dates if necessary to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the
Shareholder Meeting, there are insufficient L&F Ordinary Shares represented (either in person or by proxy) to constitute a quorum necessary to conduct business at the Shareholder Meeting or to approve the Articles Amendment Proposal, the
Business Combination Proposal, the Domestication Proposal, the Governing Documents Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal or the
Director Election Proposal.
“Advisory Governing Documents
Proposals” mean the proposals as ordinary resolutions and on a non-binding advisory basis, to approve certain material differences between the Existing Governing Documents and the Proposed Governing Documents.
“Articles Amendment Proposal”
means the proposal as a special resolution that the amendment of the Existing Governing Documents be approved.
“Available Closing Acquiror Cash”
means the aggregate cash proceeds from L&F’s Trust Account, together with the net cash proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing, after deducting any amounts paid to Public Shareholders that exercise
their redemption rights in connection with the Business Combination.
“Available Closing Acquiror Cash
Condition” means the condition to the Closing that the Available Closing Acquiror Cash shall not be less than $170,000,000.
iii
“Business Combination”
means the transactions contemplated by the Business Combination Agreement.
“Business Combination Agreement”
means the business combination agreement, dated as of December 17, 2021 by and among L&F, L&F Holdings, the Merger Subs, ZeroFox and IDX, as it may be amended and supplemented from time to time. A copy of the Business Combination
Agreement is attached to this proxy statement/prospectus as Annex A.
“Business Combination Proposal”
means the proposal as an ordinary resolution, that the Business Combination Agreement, and the consummation of the transactions contemplated thereby be approved, ratified and confirmed in all respects.
“Cayman Islands Companies Act”
means the Companies Act (As Revised) of the Cayman Islands as the same may be amended from time to time.
“Class A Ordinary Shares” or
“Public Shares” means the Class A ordinary shares, par value $0.0001 per share, of L&F.
“Class B Ordinary Shares”
means the Class B ordinary shares, par value $0.0001 per share, of L&F.
“Closing” means the closing
of the Business Combination.
“Closing Date” means the
date of the Closing.
“Code” means the Internal
Revenue Code of 1986, as amended.
“Common Equity PIPE Financing”
means the transactions contemplated by the Common Equity Subscription Agreements, pursuant to which the Common Equity PIPE Investors have collectively committed to subscribe for an aggregate of 2,000,000 shares of New ZeroFox Common Stock for
aggregate gross proceeds of $20,000,000 to be consummated in connection with Closing.
“Common Equity PIPE Investors”
means the investors in the Common Equity PIPE Financing pursuant to the Common Equity Subscription Agreements.
“Common Equity Subscription
Agreements” means the subscription agreements, dated December 17, 2021, entered into between L&F and each of the Common Equity PIPE Investors in connection with the Common Equity PIPE Financing, a form of which is attached hereto
as Annex D.
“Condition Precedent Proposals”
means the Business Combination Proposal, the Domestication Proposal, the Governing Documents Proposal, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal and the Director Election Proposal, each
of which is conditioned on the approval and adoption of each of the others.
“Continental” means
Continental Stock Transfer & Trust Company.
“Convertible Notes Financing”
means the transactions contemplated by the Convertible Notes Subscription Agreements, pursuant to which the Convertible Notes Investors have collectively committed to subscribe for an aggregate principal amount of $150,000,000 of 7.00%/8.75%
Convertible Senior Cash/PIK Toggle Notes with an initial conversion price of $11.50 per share of New ZeroFox Common Stock, on the terms and subject to the conditions set forth in the Convertible Notes Subscription Agreements and the Indenture,
to be consummated in connection with Closing.
“Convertible Notes Investors”
means investors in the Convertible Notes Financing pursuant to the Convertible Notes Subscription Agreements.
“Convertible Notes Subscription
Agreements” means the convertible notes subscription agreements, dated December 17, 2021, entered into between L&F and each of the Convertible Notes Investors in connection with the Convertible Notes Financing, a form of which is
attached hereto as Annex E.
“DGCL” means the Delaware
General Corporation Law, as amended.
“Director Election Proposal”
means the proposal as an ordinary resolution to elect eight (8) directors, effective upon the Closing, to serve staggered three-year terms on the New ZeroFox Board as set forth in the Proposed Certificate of Incorporation, and until such
directors’ successors have been duly elected and qualified, or until such directors’ earlier death, resignation, retirement or removal.
iv
“DLLCA” means the Delaware
Limited Liability Company Act, as amended.
“Domestication” means the
transfer by way of continuation and deregistration of L&F as an exempted company incorporated in the Cayman Islands and the continuation and domestication of L&F as a corporation incorporated in the State of Delaware.
“Domestication Proposal”
means the proposal as a special resolution, that the Domestication be approved, ratified and confirmed in all respects.
“DWAC” means The Depository
Trust Company’s deposit/withdrawal at custodian system.
“Effective Time” means the
time at which the IDX Forward Merger becomes effective.
“Employee Stock Purchase Plan
Proposal” means the proposal as an ordinary resolution to approve and adopt the ESPP.
“ESPP” means the ZeroFox
Holdings, Inc. 2022 Employee Stock Purchase Plan, a form of which is attached hereto as Annex I.
“Exchange Act” means the
U.S. Securities Exchange Act of 1934, as amended.
“Existing Governing Documents”
means the amended and restated memorandum and articles of association of L&F (as amended by the Extension Articles Amendment).
“Extension Amendment Proposal”
means the proposal presented at the Extension Meeting to amend the amended and restated memorandum and articles of association of L&F to extend the date by which L&F must complete its initial business combination from May 23, 2022 to
August 24, 2022.
“Extension Articles Amendment”
means the amendment to the amended and restated memorandum and articles of association of L&F as proposed in the Extension Amendment Proposal approved as a special resolution passed at the Extension Meeting.
“Extension Amendment Redemptions”
means the redemption by L&F shareholders of 13,824,311 Class A Ordinary Shares in connection with the approval and implementation of the Extension Amendment Proposal.
“Extension Meeting” means the
extraordinary general meeting of L&F shareholders held on May 3, 2022 to consider the Extension Amendment Proposal.
“Founder Shares” means the
aggregate 4,312,500 Class B Ordinary Shares that are currently owned by the L&F Initial Shareholders, of which 4,202,767 Class B Ordinary Shares are held by the Sponsor, 20,000 Class B Ordinary Shares are held by Albert Goldstein, 50,000
Class B Ordinary Shares are held by Joseph Lieberman and 39,733 Class B Ordinary Shares are held by Kurt Summers, and the New ZeroFox Common Stock that will be issued upon the automatic conversion of the Class B Ordinary Shares at the time of
L&F’s Domestication as described herein.
“GAAP” means U.S. generally
accepted accounting principles.
“Governing Documents Proposal”
means the proposal as a special resolution, that upon the Domestication, the Existing Governing Documents be amended and restated by the deletion in their entirety and the substitution in their place of the Proposed Certificate of Incorporation
and Proposed Bylaws.
“IDX” means ID Experts
Holdings, Inc., a Delaware corporation.
“IDX Capital Stock” means the
IDX Common Stock and the IDX Preferred Stock.
“IDX Cancelled Shares” means
all shares of IDX Capital Stock held in IDX’s treasury immediately prior to the IDX Effective Time or owned by L&F or IDX Merger Sub immediately prior to the IDX Effective Time, which automatically will be cancelled and will cease to exist
at the IDX Effective Time.
“IDX Common Stock” means the
common stock of IDX, par value $0.0001 per share.
“IDX Dissenting Shares” means
any shares of capital stock of IDX issued and outstanding immediately prior to the Closing and held by a holder who has not voted in favor of the IDX Merger or consented thereto in writing and who has properly exercised and perfected appraisal
rights for such shares in accordance with Section 262 of the DGCL, and has not effectively withdrawn or lost such appraisal rights.
v
“IDX Effective Time” means
the time of the filing of a certificate of merger with Secretary of State of the State of Delaware in order to effect the IDX Merger, or such later time as specified in such certificate of merger, upon which the IDX Merger is consummated.
“IDX Forward Merger Sub”
means IDX Forward Merger Sub, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F Holdings.
“IDX Forward Merger” means
the merger of IDX Transitional Entity with and into IDX Forward Merger Sub.
“IDX Merger” means the
merger of IDX Merger Sub with and into IDX.
“IDX Merger Sub” means IDX
Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings.
“IDX Preferred Stock” means
the preferred stock of IDX (series A-1 preferred stock, par value $0.0001 per share, series A-2 preferred stock, par value $0.0001 per share, and series B preferred stock, par value $0.0001 per share).
“Incentive Equity Plan” means
the ZeroFox Holdings, Inc. 2022 Incentive Equity Plan, a form of which is attached hereto as Annex H.
“Incentive Equity Plan Proposal”
means the proposal as an ordinary resolution to approve and adopt the Incentive Equity Plan.
“Indenture” means the
indenture to be entered into by L&F, the guarantors party thereto and the indenture trustee related to the issuance of an aggregate principal amount of $150,000,000 of 7.00%/8.75% Convertible Senior Cash/PIK Toggle Notes.
“Investment Amount” means,
collectively the amounts received in connection with the Common Equity PIPE Financing and the Convertible Notes Financing.
“Investment Company Act”
means the Investment Company Act of 1940, as amended.
“L&F” means L&F
Acquisition Corp., a Cayman Islands exempted company, prior to the consummation of the Domestication.
“L&F Board” means
L&F’s board of directors.
“L&F Closing Stock Price”
means an amount equal to the volume weighted average price per share rounded to four decimal places (with amounts 0.00005 and above rounded up) of the Class A Ordinary Shares on the NYSE American or NASDAQ, as applicable, for the five
consecutive trading days ending with the complete trading day ending three Business Days prior to the Closing Date.
“L&F Holdings” means
L&F Acquisition Holdings, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F.
“L&F Initial Shareholders”
or “Sponsor Holders” means the Sponsor, Albert Goldstein, Joseph Lieberman and Kurt Summers.
“L&F IPO” means L&F’s
initial public offering of its units, ordinary shares and warrants pursuant to its registration statement on Form S-1 declared effective by the SEC on November 18, 2020 (SEC File No. 333-249497).
“L&F Ordinary Shares”
means the Class A Ordinary Shares and the Class B Ordinary Shares.
“L&F Parties” means
L&F, L&F Holdings and the Merger Subs.
“L&F Private Placement Warrants”
means the 5,450,000 warrants held by the Sponsor and the 2,138,430 warrants held by Jefferies LLC that were issued in a private placement at the time of the L&F IPO, each of which is exercisable for one Class A Ordinary Share at an exercise
price of $11.50 per share.
“L&F Public Units” means
the units issued in the L&F IPO, consisting of one Class A Ordinary Share and one-half of one L&F Public Warrant.
vi
“L&F Public Warrants”
means warrants to acquire Class A Ordinary Shares, issued as part of the L&F Public Units, at an initial exercise price of $11.50 per share.
“L&F Warrant Agreement”
means the warrant agreement, dated as of November 23, 2020, by and between L&F and Continental (as amended or amended and restated from time to time).
“L&F Warrants” means
the L&F Private Placement Warrants and the L&F Public Warrants.
“Listing Proposal” means the
proposal as an ordinary resolution to approve the issuance of more than 20% of L&F’s issued and outstanding ordinary shares in connection with the Business Combination, the Common Equity Financing and the Convertible Notes Financing.
“Mergers” means following the
Domestication, (i) the merger of ZF Merger Sub with and into ZeroFox, with ZeroFox being the surviving entity and continuing as a direct, wholly-owned subsidiary of L&F Holdings, (ii) the merger of IDX Merger Sub with and into IDX, with IDX
being the surviving entity and continuing as a direct, wholly-owned subsidiary of L&F Holding (“IDX Transitional Entity”), and (iii) the merger of IDX Transitional Entity with and into IDX Forward Merger Sub, with IDX Forward Merger Sub
being the surviving entity and continuing as a direct, wholly-owned subsidiary of L&F Holdings.
“Merger Subs” means ZF Merger
Sub, IDX Merger Sub and IDX Forward Merger Sub.
“Morrow Sodali” means Morrow
Sodali LLC, L&F’s proxy solicitor.
“Nasdaq” means The Nasdaq
Stock Market LLC.
“New ZeroFox” or “Company” means ZeroFox Holdings, Inc. (f.k.a. L&F Acquisition Corp.) after the Domestication and the Business Combination.
“New ZeroFox Board” means the
board of directors of New ZeroFox.
“New ZeroFox Common Stock”
means the common stock, par value $0.0001 per share, of New ZeroFox.
“New ZeroFox Preferred Stock”
means the preferred stock, par value $0.0001 per share, of New ZeroFox.
“New ZeroFox Private Placement
Warrants” means warrants representing the right to purchase shares of New ZeroFox Common Stock following the Domestication on the same contractual terms and conditions as the L&F Private Placement Warrants.
“New ZeroFox Public Warrants”
means the warrants representing the right to purchase shares of New ZeroFox Common Stock following the Domestication on the same contractual terms and conditions as the L&F Public Warrants.
“New ZeroFox Warrants” means
the New ZeroFox Private Placement Warrants and the New ZeroFox Public Warrants.
“Notes” means $150,000,000
aggregate principal amount of unsecured convertible notes due in 2025 to be issued in connection with the Convertible Notes Financing.
“NYSE” means the New York
Stock Exchange.
“NYSE American” means NYSE
American LLC.
“OPM” means the U.S. Office
of Personnel Management.
“OPM Contract” means the
contract between OPM and IDX, a copy of which has been filed as an exhibit to the registration statement, of which this proxy statement/prospectus forms a part.
“Proposed Bylaws” means the
proposed bylaws of New ZeroFox, to be effective upon the Domestication, a form of which is attached to this proxy statement/prospectus as Annex C.
“Proposed Certificate of
Incorporation” means the proposed certificate of incorporation of New ZeroFox to be effective upon the Domestication, a form of which is attached to this proxy statement/prospectus as Annex B.
“Proposed Governing Documents”
means the Proposed Certificate of Incorporation and the Proposed Bylaws.
“Public Shareholders” means
the holders of Class A Ordinary Shares that were sold in the L&F IPO (whether they were purchased in the L&F IPO or thereafter in the open market).
vii
“Record Date” means May
27, 2022.
“Redemption” means the
redemption of Class A Ordinary Shares for the Redemption Price.
“Redemption Deadline” means
5:00 p.m., Eastern Time, on , 2022 (two business days before the Shareholder Meeting).
“Redemption Price” means the
per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the Business Combination, including interest earned on the funds held in the
Trust Account and not previously released to L&F to pay L&F’s taxes, divided by the number of then outstanding Class A Ordinary Shares.
“SEC” means the United
States Securities and Exchange Commission.
“Securities Act” means the
Securities Act of 1933, as amended.
“Shareholder Meeting” means
the extraordinary general meeting of shareholders of L&F at a.m., Eastern Time, on , 2022, at the offices of Kirkland & Ellis LLP located at 601 Lexington Avenue, 50th Floor, New York, New York 10022, and via a virtual
meeting, or at such other time, on such other date and at such other place to which the meeting may be postponed or adjourned.
“Sponsor” means JAR Sponsor,
LLC, a Delaware limited liability company.
“Sponsor Group” means the
Sponsor, the L&F directors and officers and entities affiliated with the L&F directors and officers.
“Target Companies” means
ZeroFox and IDX.
“Transfer Agent” means
Continental.
“Trust Account” means the
trust account established at the consummation of the L&F IPO that holds the proceeds of the L&F IPO and is maintained by Continental, acting as trustee.
“ZeroFox” means ZeroFox,
Inc., a Delaware corporation.
“ZeroFox Board” means the
board of directors of ZeroFox.
“ZeroFox Common Stock” means
the common stock of ZeroFox, par value $0.00001 per share.
“ZeroFox Preferred Stock”
means the preferred stock of ZeroFox (series Seed preferred stock, par value $0.00001 per share, series A preferred stock, par value $0.00001 per share, series B preferred stock, par value $0.00001 per share, series C preferred stock, par value
$0.00001 per share, series C-1 preferred stock, par value $0.00001 per share, series D preferred stock, par value $0.00001 per share, series D-1 preferred stock, par value $0.00001 per share, series D-2 preferred stock, par value $0.00001 per
share, and series E preferred stock, par value $0.00001 per share).
“ZF Cancelled Shares” means
all shares of ZeroFox Common Stock held in ZeroFox’s treasury immediately prior to the ZF Effective Time or owned by L&F or ZF Merger Sub immediately prior to the ZF Effective Time, which automatically will be cancelled and will cease to
exist at the ZF Effective Time.
“ZF Dissenting Shares” means
any shares of capital stock of ZeroFox issued and outstanding immediately prior to the Closing and held by a holder who has not voted in favor of the ZF Merger or consented thereto in writing and who has properly exercised and perfected
appraisal rights for such shares in accordance with Section 262 of the DGCL, and has not effectively withdrawn or lost such appraisal rights.
“ZF Effective Time” means the
time of the filing of a certificate of merger with Secretary of State of the State of Delaware in order to effect the ZF Merger, or such later time as specified in such certificate of merger, upon which the ZF Merger is consummated.
“ZF Mandatory Conversion”
means the conversion of the ZeroFox Preferred Stock into shares of ZeroFox Common Stock immediately prior to the Closing.
“ZF Merger” means the merger
of ZF Merger Sub with and into ZeroFox.
“ZF Merger Sub” means ZF
Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings.
viii
This proxy statement/prospectus includes references to the
trademarks, trade names and service marks belonging to other entities. Solely for convenience, trademarks, trade names and service marks referred to in this proxy statement/prospectus may appear without the ® or TM symbols, but such references
are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks, trade names and service marks. L&F does not intend its use or display of
other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of it by, any other companies.
Information contained in this proxy statement/prospectus concerning
the market and the industry in which ZeroFox and IDX compete, including their market positions, general expectations of market opportunities and market sizes, are based on information from various third-party sources, publicly available
information, various industry publications, internal data and estimates, and assumptions made by ZeroFox and IDX based on such sources and ZeroFox’s and IDX’s knowledge of the external cybersecurity market and data breach response market.
Internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which ZeroFox and IDX operate and ZeroFox’s and IDX’s respective management’s understanding of industry
conditions. This information and any estimates provided herein involve numerous assumptions and limitations, and you are cautioned not to give undue weight to such information. Third-party sources generally state that the information contained
in such sources have been obtained from sources believed to be reliable. Although we believe that such information is reliable, there can be no assurance as to the accuracy or completeness of such information. Industry and market data could be
wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data
gathering process and other limitations and uncertainties. We have not independently verified any third-party information and each publication speaks as of its original publication date (and not as of the date of this proxy
statement/prospectus). In addition, we do not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein. The industry in which ZeroFox and
IDX operates is subject to a high degree of uncertainty and risk. As a result, the estimates and market and industry information provided in this proxy statement/prospectus are subject to change.
The statements contained in this proxy statement/prospectus that are
not purely historical are forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding L&F’s expectations, hopes, beliefs, intentions or strategies regarding the future. The information
included in this proxy statement/prospectus in relation to the Target Companies has been provided by the Target Companies and their respective management teams, and forward-looking statements include statements relating to the expectations of
the Target Companies’ management teams, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any
underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and
similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this proxy statement/prospectus may include, for example,
statements about:
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L&F’s ability to complete the Business Combination, or, if L&F does not consummate the Business Combination, any other
initial business combination;
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L&F’s ability to obtain financing to complete the Business Combination;
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the expected benefits of the Business Combination;
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New ZeroFox’s expansion plans and opportunities; and
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New ZeroFox’s future financial and operating performance after the Business Combination.
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The forward-looking statements contained in this proxy
statement/prospectus are based on current expectations and beliefs of L&F’s and the Target Companies’ managements concerning future developments and
ix
their potential effects on the Business Combination and the Target Companies. There
can be no assurance that future developments affecting L&F and the Target Companies will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond L&F’s and
the Target Companies’ control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not
limited to, the items in the following list, which summarizes some of the principal risks relating to the Business Combination and L&F’s and the Target Companies’ businesses:
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the occurrence of any event, change or other circumstance that could delay, impede or prevent the Business Combination or give
rise to the termination of the Business Combination Agreement;
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defects, errors, or vulnerabilities in ZeroFox’s platform, the failure of ZeroFox’s platform to block malware or prevent a
security breach, misuse of ZeroFox’s platform, or risks of product liability claims would harm ZeroFox’s reputation and adversely impact the combined company’s business, operating results, and financial condition;
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if ZeroFox’s enterprise platform offerings do not interoperate with its customers’ network and security infrastructure, or with
third-party products, websites or services, the combined company’s results of operations may be harmed;
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ZeroFox may not timely and cost-effectively scale and adapt its existing technology to meet its customers’ performance and other
requirements;
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ZeroFox’s success depends, in part, on the integrity and scalability of its systems and infrastructure. System interruption and
the lack of integration, redundancy and scalability in these systems and infrastructure may adversely affect the combined company’s business, financial condition, and results of operations;
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ZeroFox has a history of losses, and the combined company may not be able to achieve or sustain profitability in the future;
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adverse general and industry-specific economic and market conditions and reductions in customer spending, in either the private
or public sector, including as a result of geopolitical uncertainty such as the ongoing conflict between Russia and Ukraine, may reduce demand for ZeroFox’s platform or products and solutions, which could harm the combined company’s
business, financial condition and results of operations;
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the COVID-19 pandemic could adversely affect the combined company’s business, operating results, and financial condition;
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ZeroFox faces intense competition and could lose market share to its competitors, which could adversely affect the combined
company’s business, financial condition, and results of operations;
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if organizations do not adopt cloud, and/or SaaS-delivered external cybersecurity solutions that may be based on new and
untested security concepts, the combined company’s ability to grow its business and results of operations may be adversely affected;
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if ZeroFox fails to adapt to rapid technological change, evolving industry standards and changing customer needs, requirements
or preferences, the combined company’s ability to remain competitive could be impaired;
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the combined company may need to raise additional capital to maintain and expand its operations and invest in new solutions,
which capital may not be available on acceptable terms, or at all;
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one U.S. government customer has accounted for a substantial portion of IDX’s revenues and is expected to account for a
substantial portion of the combined company’s revenues following the Business Combination. If IDX’s largest customer does not renew its contract with IDX (or renews at reduced spending levels), or if IDX’s relationship with its largest
customer is impaired or terminated, IDX’s revenues could decline, and the combined company’s business, financial condition, and results of operations would be adversely affected; and
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other risks and uncertainties discussed elsewhere in this proxy statement/prospectus, including in the section entitled “Risk
Factors.”
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Should one or more of these risks or uncertainties materialize, or
should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as may be required under applicable securities laws. Before a shareholder grants its proxy or instructs how its votes should be cast or voted on the proposals set forth in this proxy
statement/prospectus, it should be aware that the occurrence of the events described in the section titled “Risk Factors” and elsewhere in this proxy statement/prospectus may adversely affect L&F or the Target Companies.
xi
This summary highlights selected information
from this proxy statement/prospectus and does not contain all of the information that is important to you. To better understand the proposals to be submitted for a vote at the Shareholder Meeting, including the Business Combination Proposal,
you should read this entire document carefully and in its entirety, including the Annexes and accompanying financial statements of L&F, ZeroFox and IDX. The Business Combination Agreement is the legal document that governs the Business
Combination and the other transactions that will be undertaken in connection therewith. The Business Combination Agreement is attached hereto as Annex A and is also described in detail in this proxy statement/prospectus in the section
entitled “The Business Combination Proposal — The Business Combination Agreement.” This proxy statement/prospectus also includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking
Statements.”
Parties to the Business Combination
L&F
L&F is a blank check company organized as a Cayman Islands
exempted company on November 18, 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or entities.
Our Class A Ordinary Shares and the L&F Public Warrants are
currently listed on the NYSE American under the symbols “LNFA” and “LNFA WS,” respectively. Certain of our Class A Ordinary Shares and L&F Public Warrants currently trade as units consisting of one Class A Ordinary Share and one-half of
one redeemable L&F Public Warrant, and are listed on the NYSE American under the symbol “LNFA.U.” In connection with the Domestication, the units will automatically separate into their component securities and, as a result, will no longer
trade as an independent security. Upon the Domestication, our name will change from “L&F Acquisition Corp.” to “ZeroFox Holdings, Inc.” We intend to list the New ZeroFox Common Stock and New ZeroFox Warrants on Nasdaq under the symbols
“ZFOX” and “ZFOXW,” respectively, upon the Closing.
L&F’s principal executive offices are located at 150 North
Riverside Plaza, Suite 5200, Chicago, Illinois 60606 and its phone number is (312) 705-2786.
L&F Holdings
L&F Holdings is a Delaware limited liability company and a
direct, wholly-owned subsidiary of L&F formed on November 23, 2021. In connection with the Business Combination, L&F Holdings is operating as the holding company and wholly owns each of the Merger Subs. L&F Holdings’ principal
executive offices are located at 150 North Riverside Plaza, Suite 5200, Chicago, Illinois 60606 and its phone number is (312) 705-2786.
ZF Merger Sub
ZF Merger Sub is a Delaware corporation and a direct, wholly-owned
subsidiary of L&F Holdings formed on November 23, 2021. In connection with the Business Combination, ZF Merger Sub will merge with and into ZeroFox, with ZeroFox continuing as the surviving company. ZF Merger Sub’s principal executive
offices are located at 150 North Riverside Plaza, Suite 5200, Chicago, Illinois 60606 and its phone number is (312) 705-2786.
IDX Merger Sub
IDX Merger Sub is a Delaware corporation and a direct, wholly-owned
subsidiary of L&F Holdings formed on November 23, 2021. In connection with the Business Combination, IDX Merger Sub will merge with and into IDX, with IDX continuing as the surviving company and referred to in this proxy
statement/prospectus as “Transitional IDX Entity.” IDX Merger Sub’s principal executive offices are located at 150 North Riverside Plaza, Suite 5200, Chicago, Illinois 60606 and its phone number is
(312) 705-2786.
IDX Forward Merger Sub
IDX Forward Merger Sub is a Delaware limited liability company and
a direct, wholly-owned subsidiary of L&F Holdings formed on November 23, 2021. In connection with the Business Combination, Transitional IDX Entity will merge with and into IDX Forward Merger Sub immediately after the IDX Merger, with IDX
Forward Merger Sub continuing as the surviving company. IDX Forward Merger Sub’s principal executive offices are located at 150 North Riverside Plaza, Suite 5200, Chicago, Illinois 60606, and its phone number is (312) 705-2786.
1
ZeroFox
ZeroFox, Inc., a Delaware corporation, is an enterprise
cybersecurity software-as-a-service provider of digital attack detection and protection services. ZeroFox’s patented technology collects and processes content, rich media, electronic posts, messages, global intelligence and threat actor
activity across the digital landscape, including social media sites, public, deep and dark web forums, mobile app stores and other digital platforms and discrete content sources. Using artificial intelligence-based analysis and threat
intelligence capabilities, the ZeroFox platform identifies and remediates targeted phishing attacks, credential and account compromise, data exfiltration and brand hijacking threats. ZeroFox offers its services on a subscription basis.
ZeroFox’s principal executive offices are located at 1834 S.
Charles Street, Baltimore, Maryland 21230 and its phone number is (855) 936-9369.
For more information about ZeroFox, see the sections entitled “Business of ZeroFox” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox.”
IDX
ID Experts Holdings, Inc., a Delaware corporation, is a data
security company that provides data breach response services and identity and privacy protection services to its customers.
IDX’s principal executive offices are located at 10300 SW Greenburg
Road, Suite 570, Portland, Oregon 97223, and its phone number is (800) 298-7558.
For more information about IDX, see the sections entitled “Business of ZeroFox—IDX History and Business Overview” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of IDX.”
Summary of the Business Combination Agreement
Upon the terms and subject to the conditions of the Business
Combination Agreement, in accordance with the DGCL, the DLLCA, and other applicable laws, (i) ZF Merger Sub will be merged with and into ZeroFox, with ZeroFox being the surviving entity in the ZF Merger and continuing (immediately following
the ZF Merger) as a direct, wholly-owned subsidiary of L&F Holdings, (ii) IDX Merger Sub will be merged with and into IDX, with IDX being the surviving entity in the IDX Merger as the Transitional IDX Entity and continuing (immediately
following the IDX Merger) as a direct, wholly-owned subsidiary of L&F Holdings (the “Transitional IDX Entity”), and (iii) Transitional IDX Entity will be merged with and into IDX Forward Merger Sub,
with IDX Forward Merger Sub being the surviving entity in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned Subsidiary of L&F Holdings.
Consideration Received under the Business Combination Agreement
In accordance with the terms and subject to the conditions of the
Business Combination Agreement, (i) at the ZF Effective Time, (a) each share of ZeroFox Common Stock (including shares of ZeroFox restricted stock) issued and outstanding immediately prior to the ZF Effective Time (after giving effect to the
ZF Mandatory Conversion and other than ZF Dissenting Shares and ZF Cancelled Shares) will be automatically cancelled and extinguished and converted into the right to receive a fraction of a share of New ZeroFox Common Stock determined in
accordance with the Business Combination Agreement on the basis of a pre-money enterprise value of ZeroFox of $866,250,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as described in further detail in
this proxy statement/prospectus, the “ZF Closing Stock Per Share Consideration”), (b) each issued, outstanding and unexercised warrant to purchase shares of ZeroFox Common Stock or ZeroFox Preferred
Stock as of immediately prior to the ZF Effective Time will be assumed and converted into a comparable warrant to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the ZF
Closing Stock Per Share Consideration, (c) each outstanding and unexercised option to purchase shares of ZeroFox Common Stock (whether vested or unvested) as of immediately prior to the ZF Effective Time will be assumed and converted into a
comparable option to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the ZF Closing Stock Per Share Consideration; and (ii) at the IDX Effective Time, (a) each share of IDX
Common Stock and IDX Preferred Stock issued and outstanding immediately prior
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to the IDX Effective Time (other than IDX Dissenting Shares and IDX Cancelled
Shares) will be automatically cancelled and extinguished and converted into the right to receive (A) for IDX Common Stock and series A-1 and series A-2 IDX Preferred Stock, a fraction of a share of New ZeroFox Common Stock, (B) for IDX Common
Stock and series A-1 and series A-2 IDX Preferred Stock, a portion of $50,000,000 in cash consideration (subject to certain adjustments for cash, working capital, debt and transaction expenses, and net of liquidation preferences, as provided
in the Business Combination Agreement), and (C) for series A-1, series A-2 and series B IDX Preferred Stock, a liquidation preference amount of $0.361 per share, in each case, in accordance with the Business Combination Agreement and on the
basis of a pre-money enterprise value of IDX of $338,750,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as described in further detail in this proxy statement/prospectus), (b) each issued,
outstanding and unexercised warrant to purchase shares of IDX Common Stock or IDX Preferred Stock as of immediately prior to the IDX Effective Time will be assumed and converted into a comparable warrant to purchase shares of New ZeroFox
Common Stock determined in accordance with the Business Combination Agreement based on the IDX Total Per Share Consideration or IDX Total Preferred Per Share Consideration (each such term as defined in this proxy statement/prospectus), as
applicable, and (c) each outstanding and unexercised option (as of immediately prior to the IDX Effective Time) to purchase shares of IDX Common Stock (whether vested or unvested) will be assumed and converted into a comparable option to
purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the IDX Total Per Share Consideration.
For additional information regarding the consideration payable
under the Business Combination Agreement, see the section in this proxy statement/prospectus entitled “The Business Combination Proposal — Consideration to be Received in the Business Combination.”
Organizational Structure
The diagram below depicts a simplified version of our
organizational structure immediately before and immediately following the completion of the Domestication, the Mergers and the Business Combination.
L&F before the
Business Combination
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Simplified Organizational
Structure after giving effect to the Domestication, Mergers and Business Combination
Following the completion of the Domestication, the Mergers and the
Business Combination, as described above, our organizational structure will be what is commonly referred to as a holding and operational company structure. This organizational structure will allow New ZeroFox to retain an indirect equity
ownership in each of ZeroFox and IDX through units that it holds in L&F Holdings (to be renamed ZeroFox Holdings, LLC in connection with the Closing), an entity that is disregarded for U.S. federal income tax purposes. The parties agreed
to structure the Business Combination in this manner for tax and other business purposes, and we do not believe that our organizational structure will give rise to any significant business or strategic benefit or detriment. See the section
entitled “Risk Factors — Risks Related to L&F, the Business Combination and the Company” for additional information on our organizational structure.
Equity Ownership Upon Closing
On May 3, 2022, L&F held the Extension Meeting to consider the
Extension Amendment Proposal. In connection with the approval and implementation of the Extension Amendment Proposal, holders of 13,824,311 Class A Ordinary Shares properly exercised their right to redeem their shares. As of the date of this
proxy
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statement/prospectus (and after giving effect to the Extension Amendment
Redemptions), there are (i) 3,425,689 Class A Ordinary Shares issued and outstanding and (ii) 4,312,500 Class B Ordinary Shares issued and outstanding. In addition, as of the date of this proxy statement/prospectus, there are outstanding
5,450,000 L&F Private Placement Warrants held by the Sponsor, 2,138,430 L&F Private Placement Warrants held by Jefferies and 8,625,000 L&F Public Warrants. Each whole warrant entitles the holder thereof to purchase one Class A
Ordinary Share and, following the Domestication, will entitle the holder thereof to purchase one share of New ZeroFox Common Stock. Therefore, as of the date of this proxy statement/prospectus (without giving effect to the Business
Combination and assuming that none of the Class A Ordinary Shares are redeemed in connection with the Business Combination), L&F’s fully-diluted share capital (after giving effect to the exercise of all of the L&F Private Placement
Warrants and all of the L&F Public Warrants) would be 23,951,619 L&F Ordinary Shares.
The following table illustrates varying ownership levels in New
ZeroFox Common Stock immediately following the consummation of the Business Combination based on the varying levels of redemptions by the Public Shareholders and the following additional assumptions: (i) 83,222,734 shares of New ZeroFox
Common Stock are issued to the ZeroFox shareholders at Closing in both a no redemption scenario and a maximum redemption scenario; (ii) 27,905,045 shares of New ZeroFox Common Stock are issued to the IDX shareholders at Closing in both a no
redemption scenario and a maximum redemption scenario; (iii) all outstanding ZeroFox warrants and IDX warrants will be exercised on a cash basis immediately prior to the Closing; (iv) 2,000,000 shares of New ZeroFox Common Stock are issued in
the Common Equity PIPE Financing; (v) no New ZeroFox Public Warrants and New ZeroFox Private Placement Warrants issued in connection with the Business Combination to purchase New ZeroFox Common Stock that will be outstanding immediately
following Closing have been exercised; (vi) no Notes issued in the Convertible Notes Financing have been converted; and (vii) all outstanding vested and unvested ZeroFox options and IDX options are converted into New ZeroFox Options (as
defined in this proxy statement/prospectus) exercisable for shares of New ZeroFox Common Stock.
Based on these assumptions, and assuming that no outstanding
Class A Ordinary Shares are redeemed in connection with the Business Combination, there would be approximately 120,865,968 shares of New ZeroFox Common Stock outstanding immediately following the consummation of the Business Combination. If
the actual facts are different than these assumptions, the ownership percentages in New ZeroFox will be different.
For example, there are currently outstanding an aggregate of
16,213,430 L&F Warrants to acquire our Class A Ordinary Shares, which are comprised of 7,588,430 L&F Private Placement Warrants and 8,625,000 L&F Public Warrants sold as part of the L&F Public Units sold in the L&F IPO.
Each outstanding L&F Warrant would be exercisable as a New ZeroFox Warrant commencing 30 days following the Closing for one share of New ZeroFox Common Stock. If we assume that each outstanding warrant is exercised and one share of New
ZeroFox Common Stock is issued as a result of such exercise, with payment to New ZeroFox of the exercise price of $11.50 per warrant for one share, our fully-diluted share capital would increase by a total of 16,213,430 shares, with
$186,454,445 paid to New ZeroFox to exercise the warrants. In addition, an aggregate principal amount of $150,000,000 of Notes will be issued in the Convertible Notes Financing. The Notes may be converted at a conversion price of $11.50 per
share of New ZeroFox Common Stock. If we assume that the Notes (excluding any paid-in-kind interest) are converted in full and settled fully in shares, our fully-diluted share capital would increase by a total of 13,043,475 shares.
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Share Ownership in New ZeroFox
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No redemptions(1)
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Maximum
redemptions(2)
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Percentage of
Outstanding Shares
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Percentage of
Outstanding Shares
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L&F Public Shareholders(3)
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2.8%
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L&F Initial Shareholders(4)
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3.6%
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3.7%
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Common Equity PIPE Investors(5)
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1.7%
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1.7%
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ZeroFox Shareholders(6)
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68.9%
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70.9%
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IDX Shareholders(7)
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23.1%
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23.8%
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(1)
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Amounts do not sum due to rounding.
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(2)
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Assumes that all 3,425,689 Class A Ordinary Shares outstanding are redeemed for an aggregate payment of approximately
$34,786,000 (based on the estimated per share redemption price of approximately $10.15 per share) from the Trust Account. As the proceeds (without taking into account offering expenses) from the Common Equity PIPE Financing and the
Convertible Notes Financing are expected to satisfy the Available Closing Acquiror Cash Condition, the maximum redemption scenario reflects the redemption of 100% of the Class A Ordinary Shares held by the Public Shareholders; amounts
do not sum due to rounding.
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(3)
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Represents shares of New ZeroFox Common Stock to be issued upon conversion of 3,425,689 Class A Ordinary Shares issued in
connection with the L&F IPO.
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(4)
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Represents shares of New ZeroFox Common Stock to be issued upon conversion of 4,312,500 Class B Ordinary Shares acquired by the
L&F Initial Shareholders prior to or in connection with the L&F IPO (including 20,000 shares held by Albert Goldstein, 50,000 shares held by Joseph Lieberman and 39,733 shares currently held by Kurt Summers). Includes
1,293,750 shares of New ZeroFox Common Stock held by the L&F Initial Shareholders under both scenarios that are subject to forfeiture if certain earnout conditions are not satisfied, as the shares are issued and outstanding as of
the closing date of the Business Combination.
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(5)
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Consists of 2,000,000 shares of New ZeroFox Common Stock to be issued in the Common Equity PIPE Financing.
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(6)
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Includes 1,694,533 shares of New ZeroFox Common Stock to be issued in exchange for shares of ZeroFox Common Stock assumed to be
issued upon the cash exercise of ZeroFox warrants prior to the Closing.
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(7)
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Includes 185,305 shares of New ZeroFox Common Stock to be issued in exchange for shares of IDX Capital Stock assumed to be
issued upon the cash exercise of IDX warrants prior to the Closing.
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The numbers of shares and percentage interests set forth above have
been presented for illustrative purposes only and do not necessarily reflect what New ZeroFox’s share ownership will be after the Closing. For more information about the consideration to be received in the Business Combination, these
scenarios and the underlying assumptions, see “Unaudited Pro Forma Condensed Combined Financial Information” and “Business Combination Proposal — The Business
Combination Agreement — Consideration to be Received in the Business Combination.”
Conditions to Completion of the Business Combination Agreement
The Business Combination Agreement is subject to the satisfaction
or waiver of certain customary closing conditions, including, among others:
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all applicable waiting periods (and any extensions) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the
rules and regulations promulgated thereunder (the “HSR Act”) in respect of the Business Combination will have expired or been terminated (which expired on January 31, 2022);
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the absence of laws or governmental orders prohibiting the Domestication or the Business Combination;
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required shareholder approvals of L&F (the requisite shareholder approvals of ZeroFox and IDX having been obtained);
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the Common Equity PIPE Financing and the Convertible Notes Financing (and the funding of the Investment Amount) will have been
consummated or will be consummated substantially concurrently with the Closing in accordance with the terms of the applicable subscription agreements;
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the effectiveness of the registration statement, of which this proxy statement/prospectus is a part;
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the listing or approval for listing on Nasdaq or the NYSE of the New ZeroFox Common Stock to be issued or reserved for
issuance in connection with the Business Combination;
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(i) the aggregate net cash proceeds from the Trust Account (after deducting any amounts paid to Public Shareholders that
exercise their redemption rights in connection with the Business Combination), together with the net cash proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing, equaling no less than $170,000,000; and (ii)
L&F will have at least $5,000,001 in tangible net assets (as determined in accordance with Rule 3a51-1(g)(1) under the Exchange Act) (the “Tangible Net Assets Condition”). The parties to the
Business Combination Agreement have waived the Tangible Net Assets Condition, subject to the approval of the Articles Amendment Proposal and the Business Combination Proposal.
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the accuracy of the representations and warranties of ZeroFox, IDX and L&F as of the date of the Business Combination
Agreement and as of the Closing (subject to customary materiality qualifiers);
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each of the covenants and agreements of IDX, ZeroFox and L&F to be performed or complied with under the Business
Combination Agreement prior to or at Closing having been performed or complied with in all material respects;
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no Company Material Adverse Effect (as such term is defined in this proxy statement/prospectus) on the part of ZeroFox or IDX
or Acquiror Material Adverse Effect (as such term is defined in this proxy statement/prospectus) on the part of L&F occurring after the date of the Business Combination Agreement and continuing at the Effective Time; and
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other customary de-SPAC deal conditions.
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Other conditions to the obligation of ZeroFox and IDX to consummate
the Business Combination include, among others, the condition that the Domestication will have been completed as provided for in the Business Combination Agreement.
For additional information regarding the conditions to the
completion of the Business Combination Agreement, see the section in this Proxy Statement entitled “The Business Combination Proposal – Conditions to the Closing of the Business Combination.”
Effect of the Domestication on Existing L&F Equity
The Domestication will result in, among other things, the
following, each of which will occur prior to the Effective Time on the Closing Date:
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each issued and outstanding Class A Ordinary Share will be converted, on a one-for-one basis, into one share of New ZeroFox
Common Stock;
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each issued and outstanding L&F Class B Ordinary Share will be converted, on a one-for-one basis, into one share of New
ZeroFox Common Stock;
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•
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each issued and outstanding L&F Public Warrant and L&F Private Placement Warrant exercisable for one Class A Ordinary
Share will be converted, on a one-for-one basis, into one warrant exercisable for one share of New ZeroFox Common Stock; and
|
|
•
|
the governing documents of L&F will be replaced by the Proposed Certificate of Incorporation and the Proposed Bylaws as
described in this proxy statement/prospectus and L&F’s name will change to “ZeroFox Holdings, Inc.”
|
Related Agreements
Sponsor Support Letter Agreement
Concurrently with the execution of the Business Combination
Agreement, (i) L&F, (ii) the Sponsor, Albert Goldstein and Joseph Lieberman, (iii) ZeroFox, (iv) IDX, and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the limited purposes set forth therein) entered into
an Amended and Restated Sponsor Support Letter Agreement. On January 31, 2022, (i) L&F, (ii) the Sponsor Holders, (iii) ZeroFox, (iv) IDX, and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the limited
purposes set forth therein), entered into a Second Amended and Restated Sponsor Support Letter Agreement, a copy of which is attached hereto as Annex F (the “Sponsor Support Letter Agreement”). Pursuant
to the Sponsor Support Letter Agreement, the Sponsor Holders have agreed to subject an aggregate of 1,293,750 shares of New ZeroFox Common Stock held by such Sponsor Holders to an earnout, whereby such shares will be forfeited unless the
following volume-weighted average share price thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the Closing: one-third vesting
if the volume-weighted average share price equals or exceeds $12.50; one-third vesting if the volume-weighted average share price equals or exceeds $15.00; and one-third vesting if the volume-weighted average share price equals or exceeds
$17.50. In addition, the Sponsor Holders have agreed to (i) vote in favor of the Business Combination Agreement and the transactions contemplated thereby (including the Mergers), (ii) waive the anti-dilution or similar protection with respect
to the Founder Shares (whether resulting from the transactions contemplated by the Common Equity PIPE Financing, the Convertible Notes Financing, the Domestication, the Mergers or otherwise), (iii) be bound by certain other covenants and
agreements related to the Business Combination, and (iv) not transfer (subject to customary exceptions) any Founder Shares until the earlier of (a) one year after the Closing, (b) the share price equaling or exceeding $12.00 on a
volume-weighted average price basis for any 20 trading days within any 30 trading day period commencing at least 150 days after the Closing, and (c) the completion of a transaction that results in all shareholders having the right to exchange
shares for cash, securities or other property.
8
Common Equity PIPE Financing
Concurrently with the execution of the Business Combination
Agreement, L&F entered into subscription agreements (the “Common Equity Subscription Agreements”) with certain investors, including, among others, L&F Acquisition Holdings Fund, LLC (an
affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam Gerchen, L&F’s chief executive officer and a director of L&F), JCH
Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board), certain existing shareholders of ZeroFox (including funds affiliated with New Enterprise Associates and Highland Capital, and Alsop Louie
Partners (the “ZeroFox Investors”)), and certain existing shareholders of IDX (including funds affiliated with Blue Venture Fund, Peloton Equity and ForgePoint Capital (the “IDX Investors”)). Pursuant to the Common Equity Subscription Agreements, the Common Equity PIPE Investors agreed to subscribe for and purchase, and L&F agreed to issue and sell to such investors, on the Closing Date, an
aggregate of 2,000,000 shares of New ZeroFox Common Stock in exchange for an aggregate purchase price of $20,000,000.
In addition, on December 16, 2021, the ZeroFox Investors purchased
PIK promissory notes issued by ZeroFox (the “ZeroFox PIK Promissory Notes”) for an aggregate purchase price of $5,000,000. Such ZeroFox PIK Promissory Notes accrue interest that will be paid-in-kind at
a rate of 5.0% per annum and mature upon the earlier of the Closing and the one-year anniversary of the date of issuance. If the Closing occurs, the repayment of the original principal amount of the ZeroFox PIK Promissory Notes may be offset
against amounts owed by the ZeroFox Investors under their Common Equity Subscription Agreements.
In addition, if the Closing occurs, any portion of Closing cash
consideration to which the IDX Investors are entitled in connection with the consummation of the Business Combination may be reduced to fund the subscription amount the IDX Investors would otherwise be required to pay pursuant to the Common
Equity Subscription Agreements.
The closing of the Common Equity PIPE Financing is contingent upon,
among other things, the substantially concurrent consummation of the Business Combination. The Common Equity Subscription Agreements provide that L&F will grant the investors in the Common Equity PIPE Financing certain customary
registration rights.
Convertible Notes Financing
In connection with signing the Business Combination Agreement,
L&F entered into Convertible Notes Subscription Agreements with the Convertible Notes Investors, in respect of $150,000,000 aggregate principal amount of unsecured convertible notes due in 2025 (the “Notes”)
to be issued in connection with the Convertible Notes Financing. The principal terms of the Notes are set forth in the form of indenture attached as an exhibit to the Convertible Notes Subscription Agreements, which indenture will be entered
into by L&F, the guarantors party thereto and the indenture trustee (the “Indenture”), and the form of global note attached thereto. The Notes will bear interest at a rate of 7.00% per annum,
payable quarterly in cash; provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum. The Notes will be convertible at an initial conversion price of $11.50 per share, subject to customary anti-dilution
adjustments, including with respect to stock-splits and stock dividends, dividends and other distributions, above-market tender offers, below-market rights offerings and spin-offs (the “Conversion Price”),
and will mature on the date that is three years following the closing of the Convertible Notes Financing. New ZeroFox may, at its election, force conversion of the Notes after the first anniversary of the issuance of the Notes (the “Conversion Trigger Date”), subject to a holder’s prior right to convert, if the volume-weighted average trading price of the New ZeroFox Common Stock (x) for the first year after the Conversion Trigger
Date, is greater than or equal to 150% of the Conversion Price for at least 20 trading days during a period of 30 consecutive trading days and (y) for the second year after the Conversion Trigger Date, is greater than or equal to 130% of the
Conversion Price for at least 20 trading days during a period of 30 consecutive trading days. Upon conversion of any Note, New ZeroFox shall have the option to settle the conversion in cash, shares of New ZeroFox Common Stock or a combination
of both. Each holder of a Note will have the right to cause New ZeroFox to repurchase for cash all or a portion of the Notes held by such holder at any time upon the occurrence of a “fundamental change”, a customary definition provided in the
Indenture (a “Fundamental Change”), at a price equal to par plus accrued and unpaid interest. In the event of a conversion in connection with a make-whole fundamental change, as defined in the
Indenture, the Conversion Price will be adjusted by a usual and customary make-whole Fundamental Change “make-whole table” provided in the Indenture. The Indenture includes restrictive covenants that, among other things, will limit
9
the ability of New ZeroFox to incur senior debt in excess of $50,000,000,
subject to certain qualifications and exceptions set forth in the Indenture. The Indenture also will include customary events of default. The closing of the Convertible Notes Financing is contingent upon, among other things, the
substantially concurrent consummation of the Business Combination. L&F has agreed to execute a registration rights agreement for the benefit of the Convertible Notes Investors, providing for customary demand, shelf and piggyback
registration rights, substantially similar to the rights granted to the Common Equity PIPE Investors, and otherwise in form and substance acceptable to the Convertible Notes Investors and L&F.
Registration Rights Agreement
At the Closing, New ZeroFox, the Sponsor Holders, Jefferies LLC (“Jefferies”) and certain shareholders of ZeroFox and IDX will enter into an Amended and Restated Registration Rights Agreement, substantially in the form attached hereto as Annex G (the “Registration Rights Agreement”) pursuant to which, among other things, New ZeroFox will grant the other parties customary registration rights with respect to shares of New ZeroFox, and former shareholders
of ZeroFox and IDX will be subject to a 180-day lock-up period following execution of the Registration Rights Agreement during which period such shareholders may not transfer their shares (subject to customary exceptions). The lock-up period
described above will not apply to any shares acquired in the Common Equity PIPE Financing or shares issuable upon conversion of the Notes.
Proposed Certificate of Incorporation and
Proposed Bylaws of New ZeroFox
Prior to the Closing, L&F will amend and restate, subject to
receipt of L&F shareholder approval, the Existing Governing Documents by the deletion in their entirety and the substitution in their place of the Proposed Certificate of Incorporation and Proposed Bylaws.
Proposals to be Submitted at the Shareholder Meeting
The following is a summary of the proposals to be presented to
shareholders at the Shareholder Meeting of L&F and certain transactions contemplated by the Business Combination Agreement. The transactions contemplated by the Business Combination Agreement will be consummated only if the Condition
Precedent Proposals are approved at the Shareholder Meeting. Each of the Condition Precedent Proposals is conditioned on the approval and adoption of each of the other Condition Precedent Proposals. The Condition Precedent Proposals will be
presented to the shareholders for a vote only if the Articles Amendment Proposal is approved. The Advisory Governing Documents Proposals will be presented to the shareholders for a vote only if the Business Combination Proposal is approved.
The Articles Amendment Proposal and the Adjournment Proposal are not conditioned upon the approval of any other proposal set forth in this proxy statement/prospectus, though the special resolution contemplated by the Articles Amendment
Proposal will be adopted only if the Business Combination Proposal is approved.
The Articles Amendment Proposal
As discussed in this proxy statement/prospectus, L&F is asking
its shareholders to approve by special resolution the Articles Amendment Proposal. Prior to presenting any other proposals to shareholders, including the Condition Precedent Proposals, L&F will ask its shareholders to approve the Articles
Amendment Proposal, under Cayman Islands law to delete (i) the limitation on share repurchases prior to the consummation of a business combination that would cause L&F's net tangible assets to be less than $5,000,001 following such
repurchases, (ii) the limitation that L&F shall not consummate a business combination if it would cause L&F's net tangible assets to be less than $5,000,001 and (iii) the limitation that L&F shall not redeem Public Shares that
would cause L&F's net tangible assets to be less than $5,000,001 following such redemptions. The approval of the Articles Amendment Proposal requires a special resolution under Cayman Islands law, being the affirmative vote of at least a
two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
We encourage shareholders to carefully consider the information set
forth below under “Proposal No. 1– The Articles Amendment Proposal.”
10
The Business Combination Proposal
L&F is asking its shareholders to approve by ordinary
resolution the Business Combination Agreement, pursuant to which, among other things, on the date of the Closing, following the consummation of the Domestication and the Mergers, the Target Companies shall become wholly-owned subsidiaries of
New ZeroFox.
For more information about the transactions contemplated by the
Business Combination Agreement, we encourage shareholders to carefully consider the information set forth below under “Proposal No. 2 – The Business Combination Proposal” and the Business Combination
Agreement, which is attached as Annex A to this proxy statement/prospectus.
The Domestication Proposal
L&F is asking its shareholders to approve by special resolution
the Domestication Proposal. The consummation of the Domestication is a condition to closing the Business Combination pursuant to the terms of the Business Combination Agreement. The Domestication Proposal, if approved, will authorize a change
of L&F’s jurisdiction of incorporation from the Cayman Islands to the State of Delaware. Accordingly, while L&F is currently incorporated as an exempted company under the Cayman Islands Companies Act, upon the Domestication, New
ZeroFox will be governed by the DGCL.
For more information about the Domestication Proposal, we encourage
shareholders to carefully consider the information set forth below under “Proposal No. 3 – The Domestication Proposal.”
The Governing Documents Proposal
L&F is asking its shareholders to approve by special resolution
the Governing Documents Proposal. L&F will ask its shareholders to approve the replacement of the Existing Governing Documents, under Cayman Islands law, with the Proposed Certificate of Incorporation and Proposed Bylaws, under the DGCL,
including the authorization of the change in authorized share capital as indicated therein and the change of name of L&F to “ZeroFox Holdings, Inc.”
For more information about the Governing Documents Proposal, we
encourage shareholders to carefully consider the information set forth below under “Proposal No. 4 – The Governing Documents Proposal” and the full text of the Proposed Certificate of Incorporation and
Proposed Bylaws of New ZeroFox attached hereto as Annex B and Annex C, respectively.
The Advisory Governing Documents Proposals
L&F is asking its shareholders to approve, by ordinary
resolutions and on a non-binding advisory basis, the following governance proposals in connection with the replacement of the Existing Governing Documents, under Cayman Islands law, with the Proposed Governing Documents, under the DGCL.
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•
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Advisory Governing Documents Proposal A — A proposal to increase the authorized share capital of L&F from (i) 500,000,000
Class A Ordinary Shares, 50,000,000 Class B Ordinary Shares and 1,000,000 preference shares, par value $0.0001 per share, to (ii) 1,000,000,000 shares of New ZeroFox Common Stock and 100,000,000 shares of New ZeroFox Preferred Stock.
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•
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Advisory Governing Documents Proposal B — A proposal to authorize the New ZeroFox Board to issue any or all shares of New
ZeroFox Preferred Stock in one or more classes or series, with such terms and conditions as may be expressly determined by the New ZeroFox Board and as may be permitted by the DGCL.
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•
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Advisory Governing Documents Proposal C — A proposal to adopt Delaware as the exclusive forum for certain shareholder
litigation and the federal district courts of the United States of America as the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, unless New ZeroFox consents in writing to the
selection of an alternative forum.
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•
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Advisory Governing Documents Proposal D — A proposal to require that any action required or permitted to be taken by the
shareholders of New ZeroFox must be effected at a duly called annual or special meeting of shareholders of New ZeroFox and may not be effected by any consent in writing by such shareholders.
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11
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•
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Advisory Governing Documents Proposal E — A proposal to require that, subject to the rights of holders of preferred stock of
New ZeroFox, any director or the entire New ZeroFox Board may be removed from office at any time, but only for cause, and only by the affirmative vote of the holders of a majority of the issued and outstanding capital stock of New
ZeroFox entitled to vote in the election of directors, voting together as a single class.
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•
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Advisory Governing Documents Proposal F — A proposal to approve the amendment provisions in the Proposed Certificate of
Incorporation and Proposed Bylaws, which set forth the voting standards by which shareholders of New ZeroFox may approve certain amendments to the Proposed Certificate of Incorporation and Proposed Bylaws, respectively.
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•
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Advisory Governing Documents Proposal G — A proposal to remove provisions in L&F’s current Existing Governing Documents
related to L&F’s status as a blank check company that will no longer apply upon the consummation of the Business Combination.
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For more information about the Advisory Governing Documents
Proposals, we encourage shareholders to carefully consider the information set forth below under “Proposal No. 5 - The Advisory Governing Documents Proposals” and the full text of the Proposed
Certificate of Incorporation and Proposed Bylaws of New ZeroFox attached hereto as Annex B and Annex C, respectively.
The Listing Proposal
L&F is asking its shareholders to approve by ordinary
resolution the Listing Proposal. We are seeking shareholder approval for the issuance of New ZeroFox Common Stock in connection with the Business Combination, the Common Equity PIPE Financing and the Convertible Notes Financing pursuant to
NYSE American Company Guide Section 713(a)(ii).
For more information about the Listing Proposal, we encourage
shareholders to carefully consider the information set out below under “Proposal No. 6 - The Listing Proposal.”
The Incentive Equity Plan Proposal
L&F is asking its shareholders to approve by ordinary
resolution the Incentive Equity Plan Proposal. Pursuant to the Incentive Equity Plan, a number of shares of New ZeroFox Common Stock equal to ten per cent (10%) of the shares of New ZeroFox Common Stock that are issued and outstanding as of
the Effective Time will be reserved for issuance under the Incentive Equity Plan, subject to annual increase and recycling provisions described in more detail in the Incentive Equity Plan Proposal and in the Incentive Equity Plan.
For more information about the Incentive Equity Plan Proposal, we
encourage shareholders to carefully consider the information set out under “Proposal No. 7 - The Incentive Equity Plan Proposal” and the full text of the Incentive Equity Plan attached hereto as Annex
H.
The Employee Stock Purchase Plan Proposal
L&F is asking its shareholders to approve by ordinary
resolution the Employee Stock Purchase Plan Proposal. Pursuant to the ESPP, a number of shares of New ZeroFox Common Stock equal to two percent (2%) of the number of shares of New ZeroFox Common Stock that are issued and outstanding as of the
Effective Time will be reserved for issuance under the ESPP, subject to annual increase and recycling provisions described in more detail in the Employee Stock Purchase Plan Proposal and in the ESPP.
For more information about the Employee Stock Purchase Plan
Proposal, we encourage shareholders to carefully consider the information set out in the section entitled “Proposal No. 8 - The Employee Stock Purchase Plan Proposal” and the full text of the ESPP
attached hereto as Annex I.
The Director Election Proposal
L&F is asking its shareholders to approve by ordinary
resolution the Director Election Proposal.
For more information about the Director Election Proposal, we
encourage shareholders to carefully consider the information set out in the section under “Proposal No. 9 - The Director Election Proposal.”
12
The Adjournment Proposal
L&F is asking its shareholders to approve by ordinary
resolution the Adjournment Proposal to adjourn the Shareholder Meeting to a later date or dates, if necessary, to permit further solicitation and votes of proxies if, based upon the tabulated L&F Ordinary Shares voted at the time of the
Shareholder Meeting, there are insufficient L&F Ordinary Shares represented (either in person or by proxy) to constitute a quorum or to approve the Articles Amendment Proposal, the Business Combination Proposal, the Domestication
Proposal, the Governing Documents Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal or the Director Election Proposal.
For more information about the Adjournment Proposal, we encourage
shareholders to carefully consider the information set out under “Proposal No. 10 - The Adjournment Proposal.”
The Shareholder Meeting
Date, Time and Place of the Shareholder Meeting
The Shareholder Meeting of L&F will be held on , 2022 at
a.m., Eastern Time, at the offices of Kirkland & Ellis LLP (“K&E”) located at 601 Lexington Avenue, New York, New York 10022, and via a virtual meeting, or at such other time, on such other date
and at such other place to which the meeting may be postponed or adjourned.
Due to the COVID-19 global pandemic, there may be restrictions
in place in many jurisdictions relating to the ability to conduct in-person meetings. As part of our precautions regarding COVID-19, we are planning for the meeting to be held virtually over the Internet, but the physical location of the
meeting will remain at the location specified above for the purposes of our Existing Governing Documents. If you wish to attend the Shareholder Meeting in person, you must reserve your attendance at least two business days in advance of the
Shareholder Meeting by contacting L&F’s investor relations department at info@lfacquisitioncorp.com by 9:00 a.m., Eastern Time, on (two business days prior to the meeting date).
Registering for the Shareholder Meeting
If you are a registered shareholder, you will receive a proxy card
from the Transfer Agent. The form contains instructions on how to attend the virtual Shareholder Meeting including the URL address, along with your control number. You will need your control number for access. If you do not have your control
number, contact the Transfer Agent at 917-262-2373, or email proxy@continentalstock.com.
You can pre-register to attend the virtual Shareholder Meeting
starting , 2022 at 9:00 a.m., Eastern Time (five business days prior to the meeting date). Enter the URL address into your browser https://www.cstproxy.com/lfacquisitioncorp/am2022, and enter your control number, name and email address.
Once you pre-register you can vote or enter questions in the chat box. At the start of the Shareholder Meeting you will need to log in again using your control number and will also be prompted to enter your control number if you vote during
the Shareholder Meeting.
Shareholders who hold their investments through a bank or broker,
will need to contact the Transfer Agent to receive a control number. If you plan to vote at the Shareholder Meeting you will need to have a legal proxy from your bank or broker or if you would like to join and not vote, the Transfer Agent
will issue you a guest control number with proof of ownership. Either way you must contact the Transfer Agent for specific instructions on how to receive the control number. The Transfer Agent can be contacted at the number or email address
above. Please allow up to 72 hours prior to the meeting for processing your control number.
If you do not have access to the Internet, you can listen only
to the meeting by dialing 1 800-450-7155 (or +1 857-999-9155 if you are located outside the United States and Canada (standard rates apply)) and when prompted enter the pin number 8345951#. Please note that you will not be able to vote or
ask questions at the Shareholder Meeting if you choose to participate telephonically.
Voting Power; Record Date
L&F shareholders will be entitled to vote or direct votes to be
cast at the Shareholder Meeting if they owned L&F Ordinary Shares at the close of business on May 27, 2022, which is the “record date” for the Shareholder Meeting. Shareholders will have one vote for each L&F Ordinary Share owned at
the close of
13
business on the Record Date. If your shares are held in “street name” or are in a
margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted. The L&F Warrants do not have voting rights. As of the close of business on the record date,
there were 7,738,189 L&F Ordinary Shares issued and outstanding, of which 3,425,689 were issued and outstanding Class A Ordinary Shares.
Quorum and Vote of L&F Shareholders
A quorum of L&F shareholders is necessary to hold a valid
meeting. A quorum will be present at the Shareholder Meeting if the holders of a majority of the issued and outstanding L&F Ordinary Shares are present (in person or by proxy) or, being a non-natural person, duly represented in person or
by proxy at the Shareholder Meeting. Abstentions will be counted as present for purposes of determining a quorum. As of the Record Date for the Shareholder Meeting, 3,869,095 L&F Ordinary Shares would be required to achieve a quorum.
The L&F Initial Shareholders have, pursuant to the Sponsor
Support Letter Agreement, agreed to, among other things, vote all of their L&F Ordinary Shares in favor of the proposals being presented at the Shareholder Meeting. As of the date of this proxy statement/prospectus, the L&F Initial
Shareholders own approximately 55.7% of the issued and outstanding L&F Ordinary Shares. As a result, as of the Record Date, in addition to the shares of the L&F Initial Shareholders, no additional L&F Ordinary Shares held by
Public Shareholders would be required to be present at the Shareholder Meeting to achieve a quorum. The following table reflects the number of Public Shares required to approve each proposal.
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Proposal
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| |
Approval
Standard
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Number of Additional Public Shares Required To
Approve Proposal
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|||
| |
If Only Quorum is
Present and All Present
Shares Cast Votes
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| |
If All Shares Are
Present and All Present
Shares Cast Votes
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|||||
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Articles Amendment Proposal
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| |
Special
Resolution 1
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| |
0
|
| |
846,293
|
|
Business Combination Proposal
|
| |
Ordinary
Resolution 2
|
| |
0
|
| |
0
|
|
Domestication Proposal
|
| |
Special
Resolution1
|
| |
0
|
| |
846,293
|
|
Governing Documents Proposal
|
| |
Special
Resolution1
|
| |
0
|
| |
846,293
|
|
Each Advisory Governing Documents Proposal
|
| |
Ordinary
Resolution2
|
| |
0
|
| |
0
|
|
Listing Proposal
|
| |
Ordinary
Resolution2
|
| |
0
|
| |
0
|
|
Incentive Equity Plan Proposal
|
| |
Ordinary
Resolution2
|
| |
0
|
| |
0
|
|
Employee Stock Purchase Plan Proposal
|
| |
Ordinary
Resolution2
|
| |
0
|
| |
0
|
|
Adjournment Proposal
|
| |
Ordinary
Resolution2
|
| |
0
|
| |
0
|
|
1
|
Under Cayman law, a special resolution requires the affirmative vote of at least a two-thirds (2/3) majority of the votes cast
by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
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|
2
|
Under Cayman law, an ordinary resolution requires the affirmative vote of at least a majority of the votes cast by the holders
of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
|
See “Proposal No. 2 — The
Business Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” for more information related to the Sponsor Support Letter
Agreement.
The proposals presented at the Shareholder Meeting require the
following votes:
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(i)
|
Articles Amendment Proposal: The approval of the Articles
Amendment Proposal requires a special
|
14
resolution under Cayman Islands law, being the affirmative vote of at least a
two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
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(ii)
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Business Combination Proposal: The approval of the Business
Combination Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or
represented by proxy and entitled to vote thereon at the Shareholder Meeting.
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|
(iii)
|
Domestication Proposal: The approval of the Domestication Proposal
requires a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented
by proxy and entitled to vote thereon at the Shareholder Meeting.
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|
(iv)
|
Governing Documents Proposal: The approval of the Governing
Documents Proposal requires a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in
person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
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|
(v)
|
Advisory Governing Documents Proposal: The approval of each of the
Advisory Governing Documents Proposals, on a non-binding advisory basis, requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued
L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
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|
(vi)
|
Listing Proposal: The approval of the Listing Proposal requires an
ordinary resolution under Cayman Islands laws, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to
vote thereon at the Shareholder Meeting.
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|
(vii)
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Director Election Proposal: The approval of the Director Election
Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued Class B Ordinary Shares who are present in person or represented by
proxy and entitled to vote thereon at the Shareholder Meeting. Pursuant to the Sponsor Support Letter Agreement, the L&F Initial Shareholders have agreed to vote their Class B Ordinary Shares in favor of the Director Election
Proposal and the election of the director nominees is therefore assured.
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(viii)
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Incentive Equity Plan Proposal: The approval of the Incentive
Equity Plan Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or
represented by proxy and entitled to vote thereon at the Shareholder Meeting.
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|
(ix)
|
Employee Stock Purchase Plan Proposal: The approval of the
Employee Stock Purchase Plan Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present
in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
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|
(x)
|
Adjournment Proposal: The approval of the Adjournment Proposal
requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and
entitled to vote thereon at the Shareholder Meeting.
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Redemption Rights
Holders of Class A Ordinary Shares may seek to redeem their shares
for cash, regardless of whether they vote for or against, or whether they abstain from voting on, the Business Combination Proposal. Any shareholder holding Class A Ordinary Shares may demand that L&F redeem such shares for a full pro
rata portion of the Trust Account (which, for illustrative purposes, was approximately $10.16 per share as of May 27, 2022, the record date for the meeting), calculated as of two business days prior to the Shareholder Meeting. If a holder
properly seeks redemption as described in this proxy statement/prospectus and the Business Combination is consummated, L&F will redeem these shares for a pro rata portion of funds deposited in the Trust Account and
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the holder will no longer own these shares following the Business Combination.
Additional terms and conditions apply. See the section entitled “Shareholder Meeting — Redemption Rights” of this proxy statement/prospectus for additional information.
Appraisal Rights
L&F Shareholders have no appraisal rights in connection with
the Business Combination or the Domestication under the Cayman Islands Companies Act or under the DGCL.
Proxy Solicitation
Proxies may be solicited by mail, telephone or in person. L&F
has engaged Morrow Sodali to assist in the solicitation of proxies.
If a shareholder grants a proxy, it may still vote its shares in
person if it revokes its proxy before the Shareholder Meeting. A shareholder also may change its vote by submitting a later-dated proxy as described in the section entitled “Shareholder Meeting — Revoking
Your Proxy.”
Recommendation of the Board
The L&F Board believes that the Business Combination Proposal
and the other proposals to be presented at the Shareholder Meeting are in the best interests of L&F and its shareholders and unanimously recommends that its shareholders vote “FOR” the Articles Amendment Proposal, “FOR” the Business
Combination Proposal, “FOR” the Domestication Proposal, “FOR” the Governing Documents Proposal, “FOR” each of the Advisory Governing Documents Proposals, “FOR” the Listing Proposal, “FOR” the Incentive Equity Plan Proposal, “FOR” the Employee
Stock Purchase Plan Proposal, “FOR” the Director Election Proposal and “FOR” the Adjournment Proposal, in each case, if presented to the Shareholder Meeting.
The existence of financial and personal interests of one or more of
L&F’s directors may result in a conflict of interest on the part of such director(s) between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for himself or
themselves in determining to recommend that shareholders vote for the proposals. See the sections titled “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business
Combination”, “Proposal No. 2 — The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Risk Factors”
for a further discussion of these considerations.
The L&F Board’s Reasons for the Approval of the Business
Combination
The L&F Board, in evaluating the transaction with the Target
Companies, consulted with L&F’s management, K&E and Jefferies. In reaching its unanimous resolution (a) that the terms and conditions of the Business Combination Agreement and the transactions contemplated thereby, including the
Business Combination and Domestication, are advisable, fair to and in the best interests of L&F and its shareholders and (b) to recommend that the shareholders approve the transactions contemplated by the Business Combination Agreement,
the L&F Board considered a wide variety of factors in connection with its evaluation of the Business Combination. In light of the complexity of those factors, the L&F Board, as a whole, did not consider it practicable to, nor did it
attempt to, quantify or otherwise assign relative weights to the specific factors it took into account in reaching its decision. The L&F Board viewed its decision as being based on all of the information available and the factors
presented to and considered by it. Individual members of the L&F Board may have given different weight to different factors. This explanation of the reasons for the L&F Board’s approval of the Business Combination, and all other
information presented in this section, is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Note Regarding Forward-Looking Statements.”
Before reaching its decision, the L&F Board reviewed the
results of the due diligence conducted by L&F’s management and advisors, which included:
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extensive meetings and calls with ZeroFox and IDX management to understand and analyze ZeroFox’s and IDX’s respective
businesses;
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review of diligence materials and interviews conducted by K&E and L&F’s other advisors and, with respect to IDX,
Venable LLP and ZeroFox’s other advisors;
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review of contracts, material liabilities and other material matters;
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consultation with L&F’s management and legal counsel and financial advisor;
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review of ZeroFox’s and IDX’s respective consolidated financial statements;
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research on industry trends;
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research on comparable companies;
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research on comparable transactions; and
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reviews of certain projections provided by the Target Companies.
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The factors considered by the L&F Board included, but were
not limited to, the following:
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the consideration to be offered in connection with the Business Combination, including the amount and type thereof;
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the Target Companies’ management teams and experience running cybersecurity businesses with a track record of success in
driving growth;
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the Target Companies’ ability to scale their combined platform and provide unique solutions that create barriers to entry with
defensible, market-leading positions;
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the Target Companies’ industry, being a large and expanding market with significant whitespace opportunities, where unmet
market needs may be uncovered to create opportunities for innovation;
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industry tailwinds that drive accelerated growth and further adoption of the Target Companies’ products and solutions;
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the Target Companies’ financial characteristics, including consistent organic revenue growth with recurring subscription
revenue bases and the ability to generate attractive unit economics and returns on capital as New ZeroFox; and
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the Target Companies’ ability to capitalize on operating leverage and improve margins while executing on numerous, tangible
growth initiatives.
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In the course of its deliberations, the L&F Board considered a
variety of uncertainties, risks and other potentially negative reasons relevant to the Business Combination including, but not limited to the following:
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the risk that the potential benefits of the Business Combination and Domestication may not be fully achieved, or may not be
achieved within the expected timeframe and the significant fees, expenses and time and effort of management associated with completing the Business Combination and Domestication;
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the risk that the Business Combination and transactions contemplated thereby might not be consummated or completed in a timely
manner or that the closing might not occur despite our best efforts, including by reason of a failure to obtain the approval of our shareholders, litigation challenging the Business Combination or that an adverse judgment granting
permanent injunctive relief could indefinitely enjoin the consummation of the Business Combination;
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the risk that the cost savings and growth initiatives of each Target Company’s long-term growth strategy may not be fully
achieved or may not be achieved within the expected timeframe;
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the risk that changes in the regulatory and legislative landscape or new industry developments may adversely affect the
business benefits anticipated to result from the Business Combination;
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the potential that a significant number of L&F shareholders elect to redeem their Class A Ordinary Shares prior to the
consummation of the Business Combination and pursuant to the Existing Governing Documents, which would potentially make the Business Combination more difficult or impossible to complete;
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the risks and costs to L&F if the Business Combination is not completed, including the risk of diverting management focus
and resources from other business combination opportunities, which could result in L&F being unable to effect an initial business combination by May 23, 2022 (which date was extended to August 24, 2022 as a result of the adoption
of the Extension Amendment Proposal at the Extension Meeting);
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competition in the cybersecurity software-as-a-service industry is intense and, as a result, ZeroFox may fail to attract and
retain users, which may negatively impact ZeroFox’s operations and growth prospects;
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economic downturns and market conditions beyond the Target Companies’ control, including a reduction in spending which could
adversely affect each Target Company’s business, financial condition, results of operations and prospects;
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the requirements of being a public company, including compliance with the SEC’s requirements regarding internal controls over
financial reporting, may strain New ZeroFox’s resources and divert management’s attention, and the increases in legal, accounting and compliance expenses that will result from the Business Combination may be greater than each Target
Company anticipates;
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ZeroFox’s cybersecurity software-as-a-service business may be subject to regulatory scrutiny;
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New ZeroFox may invest in or acquire other businesses, or may invest or spend the proceeds of the Business Combination in ways
with which the investors may not agree or which may not yield a return, and New ZeroFox’s business may suffer if it is unable to successfully integrate acquired businesses into its company or otherwise manage the growth associated
with multiple acquisitions; and
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ZeroFox's history of net losses in combination with the fact that the pro forma expectation that New ZeroFox would be cash
flow positive.
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In addition to considering the factors described above, the L&F
Board also considered other factors including, without limitation:
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the Sponsor, members of the L&F Board and other executive officers of L&F and the Sponsor have interests in the
Business Combination Proposal, the other Proposals described in this proxy statement/prospectus and the Business Combination that are different from, or in addition to, those of L&F shareholders generally. For more information on
this discussion, see sections entitled “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination” and “Proposal
No. 2 - Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” of this proxy statement/prospectus; and
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the various risks associated with the Business Combination, the business of ZeroFox and IDX and the business of L&F, as
described in the section entitled “Risk Factors” of this proxy statement/prospectus.
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After considering the foregoing potentially negative and
potentially positive reasons, the L&F Board concluded, in its business judgment, that the potentially positive reasons relating to the Business Combination, Domestication and the other related transactions outweighed the potentially
negative reasons.
Interests of Certain Persons in the Business Combination
In considering the recommendation of the L&F Board to vote in
favor of the Business Combination, shareholders should be aware that, aside from their interests as shareholders, our Sponsor and our directors, officers and advisors and the Target Companies’ current owners have interests in the Business
Combination that are different from, or in addition to, those of our other shareholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the Business Combination, and in recommending to
our shareholders that they approve the Business Combination. Shareholders should take these interests into account in deciding whether to approve the Business Combination. These interests include, among other things:
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the fact that the Sponsor and L&F’s directors and officers have agreed not to redeem any Class A Ordinary Shares held by
them in connection with a shareholder vote to approve the Business Combination;
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the fact that the Sponsor Holders are obligated to vote in favor of the Business Combination;
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the fact that the Sponsor has irrevocably waived the anti-dilution adjustments set forth in L&F’s organizational
documents, or any other anti-dilution or similar adjustment rights to which the Sponsor may otherwise be entitled related to or arising from the Business Combination;
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the fact that the Sponsor Holders paid an aggregate amount of $25,000 for the Founder Shares, which will convert into
4,312,500 shares of New ZeroFox Common Stock in accordance with the terms of L&F’s organizational documents and such securities will have a significantly higher value at the time of the Business Combination;
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the fact that the Sponsor paid $5,450,000 for 5,450,000 L&F Private Placement Warrants, each of which is exercisable
commencing on the later of 12 months from the closing of the L&F IPO and 30 days following the Closing for one Class A Ordinary Share at $11.50 per share; if we do not consummate an initial business combination by August 24, 2022,
then the proceeds from the sale of the L&F Private Placement Warrants will be part of the liquidating distribution to the Public Shareholders and the warrants held by our Sponsor will be worthless;
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the fact that the L&F Initial Shareholders, including the Sponsor (and certain of L&F’s officers and directors who
are members of the Sponsor), have invested in L&F an aggregate of $5,475,000, comprised of the $25,000 purchase price for 4,312,500 Founder Shares and the $5,450,000 purchase price for 5,450,000 L&F Private Placement
Warrants. Subsequent to the initial purchase of the Founder Shares by the Sponsor, the Sponsor transferred 20,000 Founder Shares to Mr. Albert Goldstein and 50,000 Founder Shares to Senator Joseph Lieberman at a nominal purchase
price of $0.004 per Founder Share prior to the closing of the L&F IPO and 39,733 Founder Shares to Mr. Kurt Summers shortly after his being appointed to the L&F Board in December 2021 for no cash consideration. Assuming a
trading price of $10.09 per Class A Ordinary Share and approximately $0.35 per L&F Public Warrant (based upon the respective closing prices of the Class A Ordinary Shares and the L&F Public Warrants on the NYSE American on
June 28, 2022), the 4,312,500 Founder Shares and 5,450,000 Private Placement Warrants would have an implied aggregate market value of $45,420,625. Even if the trading price of the shares of New ZeroFox Common Stock were as low as
$1.27 per share, the aggregate market value of the Founder Shares alone (without taking into account the value of the L&F Private Placement Warrants) would be approximately equal to the initial investment in L&F by the
L&F Initial Shareholders. As a result, the L&F Initial Shareholders are likely to be able to make a substantial profit on their investment in L&F at a time when shares of New ZeroFox Common Stock have lost significant
value. On the other hand, if L&F liquidates without completing a business combination before August 24, 2022, the L&F Initial Shareholders will lose their entire investment in L&F;
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the fact that the Sponsor and L&F’s officers and directors will benefit from the completion of a business combination and
may be incentivized to complete an acquisition of a less favorable target company or on terms less favorable to shareholders rather than liquidate;
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the fact that the L&F Initial Shareholders including the Sponsor (and the L&F’s officers and directors who are members
of the Sponsor) can earn a positive rate of return on their investment, even if other L&F shareholders experience a negative rate of return in New ZeroFox;
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the fact that the L&F Initial Shareholders and L&F’s other current officers and directors have agreed to waive their
rights to liquidating distributions from the Trust Account with respect to any L&F Ordinary Shares (other than Public Shares) held by them if L&F fails to complete an initial business combination by August 24, 2022;
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the fact that, at the option of the Sponsor, any amounts outstanding under any loan made by the Sponsor or any of its
affiliates to L&F in an aggregate amount of up to $1,500,000 may be converted into L&F Private Placement Warrants in connection with the consummation of the Business Combination;
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the fact that the Sponsor and L&F’s officers and directors will lose their entire investment in L&F and will not be
reimbursed for any loans extended, fees due or out-of-pocket expenses if an initial business combination is not consummated by August 24, 2022. As of the date of this proxy statement/prospectus there are no loans extended, fees due or
outstanding out-of-pocket expenses for which the Sponsor and L&F’s officers and directors are awaiting reimbursement;
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the fact that if the Trust Account is liquidated, including in the event L&F is unable to complete an initial business
combination within the required time period, the Sponsor has agreed to indemnify L&F to ensure that the proceeds in the Trust Account are not reduced below $10.15 per L&F Public Share, or such lesser per Public Shares amount
as is in the Trust Account on the liquidation date, by the
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claims of prospective target businesses with which L&F has entered into an
acquisition agreement or claims of any third party for services rendered or products sold to L&F, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;
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the fact that L&F may be entitled to distribute or pay over funds held by L&F outside the Trust Account to the Sponsor
or any of its affiliates prior to the Closing;
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the fact that (i) L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity
affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam Gerchen, our chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the
chairman of the L&F Board) and an affiliate of Corbin Capital Partners, LP, a significant security holders of L&F, have executed and delivered Common Equity Subscription Agreements for an aggregate amount of $10,000,000,
(ii) L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) and an affiliate of Corbin Capital Partners, LP, a significant security
holder of L&F, have executed and delivered Convertible Notes Subscription Agreements for an aggregate principal amount of $30,000,000, and (iii) Adam Gerchen (our chief executive officer and director of L&F) is a limited
partner in funds managed by Monarch Capital, and that Monarch Capital has executed and delivered a Convertible Notes Subscription Agreement for an aggregate principal amount of $120,000,000;
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the fact that L&F has agreed to pay Jefferies, L&F’s co-PIPE placement agent and financial advisor, and sole
underwriter in the L&F IPO: (i) a cash fee for their services in connection with the L&F IPO in an aggregate amount equal to 5.5% of the gross proceeds of the L&F IPO, with 2.0% of the gross proceeds being paid to the
underwriters at the time the L&F IPO was completed and 3.5% of the gross proceeds (i.e., the deferred underwriting fee) being payable, and conditioned, upon consummating an initial business combination; the aggregate underwriting
fee is fixed at 5.5% of the gross proceeds from the L&F IPO and will not be adjusted based on the number of shares that are redeemed in connection with the Business Combination; the deferred underwriting fee of $6,037,500
represents approximately 17.6% and 35.2% of the aggregate proceeds from the L&F IPO, net of redemptions (after giving effect to the Extension Amendment Redemptions), in the no redemption and 50% redemption scenarios, respectively;
(ii) a placement agency fee as a percentage of the aggregate gross proceeds received or to be received from one or more commitments for financing the Business Combination from sources other than any affiliates of ZeroFox, IDX or
L&F, and split with Stifel (defined below); and (iii) financial advisory fees as a fixed amount related to capital markets financial advice and assistance in connection with the Business Combination, as applicable, upon completion
of the Business Combination;
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the fact that, Stifel, Nicolaus & Company, Incorporated (“Stifel”), co-PIPE
placement agent for the Common Equity PIPE Financing and a creditor of ZeroFox, will be entitled to receive a placement agency fee as a percentage of the aggregate gross proceeds received or to be received from one or more commitments
for financing the Business Combination from sources other than any affiliates of ZeroFox, IDX or L&F, and split with Jefferies, upon completion of the Business Combination;
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the fact that (i) James C. Foster, Peter Barris, Corey Mulloy, Samskriti King, and Todd Headley, current directors of ZeroFox,
(ii) Thomas F. Kelly and Sean Cunningham, current directors of IDX and (iii) Adam Gerchen, current chief executive officer of the Sponsor, are each expected to be directors, and James C. Foster is expected to be the chief executive
officer, of New ZeroFox after the consummation of the Business Combination. As such, in the future each of the aforementioned will receive any cash fees, stock options, stock awards or other remuneration that New ZeroFox’s board of
directors determines to pay them and any applicable compensation as described under the section titled “Executive and Director Compensation”; and
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the fact that the Sponsor Group will have paid an aggregate of approximately $7,975,000 for its investment in New ZeroFox,
including the investments of L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam
Gerchen, our chief executive officer and a director of L&F) and JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board) in the Common Equity PIPE Financing, as summarized in the table
below, and,
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following the consummation of the Business Combination, the aggregate value of
the Sponsor Group’s investment will be approximately $47,943,125, based upon the respective closing prices of the Class A Ordinary Shares and the L&F Public Warrants on the NYSE American on June 28, 2022.
The L&F Board concluded that the potentially disparate
interests would be mitigated because (i) these interests were disclosed in the prospectus for L&F’s IPO and are disclosed in this proxy statement/prospectus, (ii) most of these disparate interests would exist with respect to a business
combination by L&F with any other target business or businesses, and (iii) the Sponsor Group will hold equity interests in New ZeroFox with value that, after the Closing, will be based on the future performance of New ZeroFox Common
Stock. In addition, L&F’s independent directors reviewed and considered these interests during their evaluation of the Business Combination and in unanimously approving, as members of the L&F Board, the Business Combination Agreement
and the related agreements and the transactions contemplated thereby, including the Business Combination.
Based on its review of the forgoing considerations, the L&F
Board concluded that the potentially negative factors associated with the Business Combination were outweighed by the potential benefits that it expects the L&F shareholders will receive as a result of the Business Combination. The
L&F Board realized that there can be no assurance about future results, including results considered or expected as disclosed in the foregoing reasons.
For more information about the factors the L&F Board considered
in evaluating and recommending the Business Combination to the L&F shareholders, see “Proposal No. 2 - The Business Combination Proposal — The L&F Board's Reasons for the Approval of the Business
Combination”, “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination” and “Proposal No. 2 - The Business Combination Proposal — Conflicts of
Interest and Waiver of Corporate Opportunity Doctrine.”
Sponsor Group Beneficial Ownership of L&F Prior to Closing
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Securities held by
Sponsor Group
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Sponsor Cost at L&F’s
Initial Public Offering
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Class A Ordinary Shares
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—
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—
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Founder Shares
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4,312,500
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$25,000
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L&F Private Placement Warrants
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5,450,000
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$5,450,000
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Total
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$5,475,000
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Sponsor Group Beneficial Ownership of New ZeroFox
Following the Closing(1)
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Securities held by
Sponsor Group at Closing
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Value per
Security as of
June 28, 2022
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Sponsor Group
Cost at Closing
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Total
Value
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New ZeroFox Common Stock Issued Pursuant to the
Common Equity PIPE Financing
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250,000
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$10.09
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$2,500,000
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$2,522,500
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New ZeroFox Common Stock Issued to Holders of Founder
Shares
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4,312,500(2)
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$10.09
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—
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$43,513,125
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New ZeroFox Private Placement Warrants
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5,450,000
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$0.35(3)
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—
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$1,907,500
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Total
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$2,500,000
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$47,943,125
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(1)
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Does not include New ZeroFox Common Stock issuable upon conversion of the Notes that are convertible at an initial conversion
price of $11.50 per share.
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(2)
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Includes 1,293,750 shares of New ZeroFox Common Stock which will be subject to an earnout, whereby such shares will be
forfeited unless certain volume-weighted average share price thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the
Closing. See “Proposal No. 2 — Business Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” for more information related to the Sponsor Support Letter Agreement.
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(3)
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Approximately $0.35 based on the closing price of the L&F Public Warrants on June 28, 2022, which was $0.3498.
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At any time prior to the Shareholder Meeting, during a period when
they are not then aware of any material nonpublic information regarding L&F or our securities, L&F’s Initial Shareholders, the Target Companies and/or
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their respective affiliates may purchase shares and/or warrants from investors, or
they may enter into transactions with such investors and others to provide them with incentives to acquire shares of L&F Ordinary Shares. In such transactions, the purchase price for the Class A Ordinary Shares will not exceed the
redemption price. In addition, the persons described above will waive redemption rights, if any, with respect to the Class A Ordinary Shares they acquire in such transactions. However, any Class A Ordinary Shares acquired by the persons
described above would not be voted in connection with the Business Combination Proposal.
The purpose of such share purchases and other transactions would be
to increase the likelihood that the conditions to the consummation of the Business Combination are satisfied or to provide additional equity financing. This may result in the completion of our Business Combination that may not otherwise have
been possible. While the exact nature of any such incentives has not been determined as of the date of this proxy statement/prospectus, they might include, without limitation, arrangements to protect such investors or holders against
potential loss in value of their shares, including the granting of put options.
Entering into any such incentive arrangements may have a depressive
effect on the Class A Ordinary Shares. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares
he owns, either prior to or immediately after the Shareholder Meeting.
As of the date of this proxy statement/prospectus, there have been
no such discussions and no agreements to such effect have been entered into with any such investor or holder. L&F will file a Current Report on Form 8-K prior to the Shareholder Meeting to disclose any arrangements entered into or
significant purchases made by any of the aforementioned persons. Any such report will include (i) the amount of Class A Ordinary Shares purchased and the purchase price; (ii) the purpose of such purchases; (iii) the impact of such purchases
on the likelihood that the Business Combination transaction will be approved; (iv) the identities or characteristics of security holders who sold shares if not purchased in the open market or the nature of the sellers; and (v) the number of
Class A Ordinary Shares for which L&F has received redemption requests.
The existence of financial and personal interests of our directors
and officers may result in conflicts of interest, including a conflict between what may be in the best interests of New ZeroFox and its shareholders and what may be best for a director’s personal interests when determining to recommend that
Public Shareholders vote for the proposals. See the sections titled “Risk Factors,” “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons
in the Business Combination”, “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Beneficial
Ownership of Securities” for more information and other risks.
Conflicts of Interest and Waiver of Corporate Opportunity Doctrine
Under Cayman Islands law, directors and officers of a Cayman
Islands company owe certain duties to the company, including, but not limited to, the following fiduciary duties:
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duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole;
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duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose;
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directors should not improperly fetter the exercise of future discretion;
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duty to exercise powers fairly as between different classes of shareholders;
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duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal
interests; and
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duty to exercise independent judgment.
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In addition to the above, directors also owe a duty of care which
is not fiduciary in nature. This duty has been defined as a requirement to act as a reasonably diligent person having both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions
as are carried out by that director in relation to the company and the general knowledge skill and experience of that director.
As set out above, directors have a duty not to put themselves in a
position of conflict and this includes a duty not to engage in self-dealing, or to otherwise benefit as a result of their position. However, in some
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instances what would otherwise be a breach of this duty can be forgiven or
authorized in advance by the shareholders provided that there is full disclosure by the directors. This can be done by way of permission granted in the Existing Governing Documents or alternatively by shareholder approval at general meetings.
As detailed below, our Existing Governing Documents provide such permission through a waiver of the corporate opportunities doctrine. The Existing Governing Documents provide that (a) we renounce any interest or expectancy in, or in being
offered an opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for our directors and officers, on the one hand, and us, on the other and (b) our directors and officers shall have no duty to
communicate or offer any such corporate opportunity to us and shall not be liable to us for breach of any fiduciary duty as a member, director and/or officer solely by reason of the fact that such party pursues or acquires such corporate
opportunity for itself, himself or herself, directs such corporate opportunity to another person, or does not communicate information regarding such corporate opportunity to us. We do not believe that the fiduciary duties or contractual
obligations of our officers or directors will materially affect our ability to complete the Business Combination.
While the Existing Governing Documents included the waiver of
corporate opportunities as described in the preceding paragraph, our compliance with such provision did not affect or otherwise limit L&F’s search for an acquisition target. Given the large target universe considered by L&F’s
management team, which included initial contact with more than 120 companies and non-disclosure agreements with approximately 15 companies, the L&F Board does not believe that the other fiduciary duties or contractual obligations of
L&F’s officers and directors materially affected L&F’s ability to source a potential business combination. Please see “Proposal No. 2 — Business Combination Proposal — Background to the Business
Combination” for more information about L&F’s search for targets in the potential business combination.
In addition to those interests of certain persons in the Business
Combination listed above, investors should also be aware of the following other conflicts of interest:
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Our Sponsor, officers or directors may have a conflict of interest with respect to evaluating a business combination and
financing arrangements as we may obtain loans from the Sponsor or an affiliate of the Sponsor (including Victory Park Capital Advisors, LLC) or any of our officers or directors to finance transaction costs in connection with the
Business Combination. In particular, affiliate funds associated with Victory Park Capital Advisors, LLC, including (a) L&F Acquisition Holdings Fund, LLC, (b) Corbin ERISA Opportunity Fund, (c) JCH Investments LLC, and (d) GCP-OI
I, LLC are participants in the Common Equity PIPE Financing and Convertible Notes Financing. L&F Acquisition Holdings Fund, LLC is affiliated with Richard Levy, a director of L&F. Corbin ERISA Opportunity Fund is an affiliate
of Corbin Capital Partners, LP and such entity is an equityholder of our Sponsor. JCH Investments LLC is an entity affiliated with Jeffrey C. Hammes, chairman of the L&F Board. GCP-OI I, LLC is an entity affiliated with L&F’s
CEO, Adam Gerchen.
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Additionally, L&F’s CEO, Adam Gerchen, has a passive and immaterial interest in funds affiliated with Monarch Alternative
Capital LP, a participant in the Convertible Notes Financing. For more information on the affiliate financing arrangements in connection with the Business Combination please see “Certain Relationships
and Related Party Transactions - L&F Related Party Transactions.”
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None of us, our Sponsor, nor any of our officers or directors are
affiliated with either ZeroFox or IDX prior to the consummation of the Business Combination. The L&F Board concluded that the potentially disparate interests would be mitigated because (i) these interests were disclosed in the prospectus
for the L&F IPO and are included in this proxy statement/prospectus, (ii) most of these disparate interests would exist with respect to a business combination by L&F with any other target business or businesses, and (iii) the Sponsor
Group will hold equity interests in New ZeroFox with value that, after the Closing, will be based on the future performance of New ZeroFox Common Stock. In addition, L&F’s independent directors reviewed and considered these interests
during their evaluation of the Business Combination and in unanimously approving, as members of the L&F Board, the Business Combination Agreement and the related agreements and the transactions contemplated thereby, including the Business
Combination.
For more information about the factors the L&F Board considered
in evaluating and recommending the Business Combination to the L&F shareholders, see “Proposal No. 2 - The Business Combination Proposal — The L&F Board’s Reasons for the Approval of the Business
Combination” and “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination.”
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Certain Other Interests in the Business Combination
In addition to the interests of L&F’s directors and officers in
the Business Combination, shareholders should be aware that Jefferies has financial interests that are different from, or in addition to, the interests of our shareholders.
Jefferies was the sole underwriter in the L&F IPO, and, upon
consummation of the Business Combination, Jefferies is entitled to $6,037,500 of deferred underwriting commissions. Jefferies agreed to waive its rights to the deferred underwriting commissions held in the Trust Account in the event L&F
does not complete an initial business combination within 18 months of the closing of the L&F IPO (as such date may be extended by approval of the L&F shareholders). Accordingly, if the Business Combination, or any other initial
business combination, is not consummated by that time and L&F is therefore required to be liquidated, the underwriter of the L&F IPO, will not receive any of the deferred underwriting commissions and such funds will be returned to
L&F’s Public Shareholders upon its liquidation.
As described further below, Jefferies is also providing certain
services in connection with the Business Combination and will receive compensation in connection therewith. Jefferies’ receipt of the deferred underwriting commission of $6,037,500 is not dependent on its provision of such services but
instead is only conditioned on the completion of an initial business combination within 18 months of the closing of the L&F IPO (as such date may be extended by approval of the L&F shareholders).
Furthermore, Jefferies and Stifel were engaged by L&F as
co-placement agents with respect to the Common Equity PIPE Financing and Convertible Notes Financing and solely as relating to Jefferies, as L&F’s financial advisor. L&F decided to retain each of Jefferies and Stifel as co-placement
agents for the Common Equity PIPE Financing and Convertible Notes Financing based primarily on each of Jefferies’ and Stifel’s extensive knowledge, strong market position and positive reputation in equity capital and convertible notes markets
and their respective experienced and capable investment banking teams. Similarly, L&F decided to retain Jefferies as its financial advisor based primarily on its leading investment banking franchise with a strong track record of advising
on complex, transformational transactions.
In addition, under the terms of each of Jefferies’ engagements,
L&F agreed to reimburse Jefferies for its reasonable out-of-pocket expenses, including the fees and disbursements of its outside attorneys, and to indemnify Jefferies and certain related parties against liabilities, including liabilities
under federal securities laws, in each case, in connection with, as a result of, or relating to its respective engagements. In connection with Jefferies’ and Stifel’s services as co-placement agents, Jefferies and Stifel’s collective
placement fee is equal to 3.0% of the aggregate proceeds received or to be received from the sale of securities through the Common Equity PIPE Financing or the Convertible Notes Financing. The sale of an aggregate of $50,000,000 of securities
pursuant to the Common Equity Subscription Agreements and Convertible Notes Subscription Agreements to affiliates of L&F, the ZeroFox Investors and the IDX Investors is not subject to the 3.0% placement fee.
Jefferies therefore has an interest in L&F completing a
business combination that will result in the payment of the deferred underwriting commissions to Jefferies as the underwriter of the L&F IPO and the payment of financial advisory and placement agent fees, which total $12,412,500. In
considering approval of the Business Combination, our shareholders should consider the different roles of Jefferies in light of the deferred underwriting commissions Jefferies is entitled to receive if the Business Combination is consummated
within 18 months of the closing of the L&F IPO (or such later date as may be approved by L&F’s shareholders).
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Sources and Uses of Funds for the Business Combination
The following table summarizes the sources and uses for funding the
Business Combination, assuming (i) none of the Class A Ordinary Shares held by the Public Shareholders are redeemed in connection with the Business Combination and (ii) all of the outstanding Class A Ordinary Shares are redeemed in connection
with the Business Combination. Where actual amounts are not known or knowable, the figures below represent L&F’s good faith estimate of such amounts. For more information, see “Unaudited Pro Forma
Condensed Combined Financial Information.”
(U.S. dollars in millions)
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Assuming
No
Redemptions(1)
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Assuming
Maximum
Redemptions(2)
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Sources
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Cash and investments held in Trust Account(3)
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$35
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$35
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Issuance to ZeroFox and IDX Shareholders(4)
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$1,111
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$1,111
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Convertible Notes
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$150
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$150
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PIPE Investment
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$20
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$20
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Total Sources
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$1,316
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$1,316
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Uses
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ZeroFox and IDX Shareholders equity consideration(4)
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$1,111
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$1,111
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Cash Consideration to IDX Shareholders(5)
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$50
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$50
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Fees and Expenses
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$32
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$32
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Redemptions by Public Shareholders
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$—
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$35
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Cash to Balance Sheet
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$123
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$88
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Total Uses
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$1,316
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$1,316
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(1)
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Assumes that no Public Shareholder exercises redemption rights with respect to its Class A Ordinary Shares for a pro rata
portion of the Trust Account.
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(2)
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Assumes that all 3,425,689 Class A Ordinary Shares held by the Public Shareholders are redeemed for an aggregate payment of
approximately $34,786,000 (based on the estimated per share redemption price of approximately $10.15 per share) from the Trust Account. As the proceeds (without taking into account offering expenses) from the Common Equity PIPE
Financing and the Convertible Notes Financing are expected to satisfy the Available Closing Acquiror Cash Condition, the maximum redemption scenario reflects the redemption of 100% of the Class A Ordinary Shares held by the Public
Shareholders.
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(3)
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Cash held in the Trust Account as of May 4, 2022 (after giving effect to the Extension Amendment Redemptions).
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(4)
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Assumes that (A) 83,222,734 shares of New ZeroFox Common Stock are issued to the holders of ZeroFox Common Stock in connection
with the Business Combination based on a per share consideration of 0.2866 of a share of New ZeroFox Common Stock, (B) 27,905,045 shares of New ZeroFox Common Stock are issued to the holders of IDX Capital Stock in connection with the
Business Combination based on a per share consideration of 0.6177 of a share of New ZeroFox Common Stock, (C) all outstanding ZeroFox warrants and IDX warrants will be exercised immediately prior to the Closing, and (D) all
outstanding vested and unvested ZeroFox options and IDX options are converted into New ZeroFox Options exercisable for shares of New ZeroFox Common Stock.
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(5)
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This amount is subject to a working capital adjustment. Includes amounts to be used to discharge certain IDX indebtedness and
transaction expenses (which otherwise would reduce cash consideration).
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Certain Material United States Federal Income Tax Considerations
As discussed more fully under “Certain
Material United States Federal Income Tax Considerations,” the Domestication generally should qualify as an F Reorganization. However, L&F has not requested, and does not intend to request, a ruling from the IRS as to the U.S.
federal income tax consequences of the Domestication. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a contrary position. Accordingly, each U.S. Holder of our securities is urged to
consult its tax advisor with respect to the particular tax consequences of the Domestication to such U.S. Holder. If the Domestication qualifies as a reorganization within the meaning of Section 368(a)(1)(F) of the Code, U.S. Holders (as
defined in “Certain Material United States Federal Income Tax Considerations — U.S. Holders” below) will be subject to
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Section 367(b) of the Code and, as a result of the Domestication, as well as the
“passive foreign investment company,” or PFIC, rules of the Code (discussed in the section entitled “Certain Material United States Federal Income Tax Considerations — U.S. Holders — PFIC Considerations” below):
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a U.S. Holder that holds Public Shares that have a fair market value of less than $50,000 on the date of the Domestication and
that is not a U.S. Shareholder (as defined herein) on the date of the Domestication generally will not recognize any gain or loss and will not be required to include any part of L&F’s earnings in income;
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a U.S. Holder that holds Public Shares that have a fair market value of $50,000 or more on the date of the Domestication and
that is not a U.S. Shareholder (as defined herein) on the date of the Domestication generally will recognize gain (but not loss) on the exchange of L&F Public Shares for ZeroFox Holdings, Inc.’s Common Stock pursuant to the
Domestication. As an alternative to recognizing gain, such U.S. Holder may file an election to include in income as a deemed dividend the “all earnings and profits amount,” as defined in the U.S. Department of the Treasury Regulations
under Section 367(b) of the Code, attributable to its Public Shares provided certain other requirements are satisfied; and
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a U.S. Holder that, on the date of the Domestication, owns (directly or constructively) 10% or more of the total combined
voting power of all classes of our stock entitled to vote or 10% or more of the total value of all classes of our stock (a “U.S. Shareholder”) generally will be required to
include in income as a deemed dividend the “all earnings and profits amount” attributable to its Public Shares provided certain other requirements are satisfied.
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L&F does not expect to have significant cumulative earnings and
profits through the date of the Domestication.
Furthermore, even if the Domestication qualifies as an F
Reorganization, a U.S. Holder of L&F Public Shares or L&F Public Warrants may, in certain circumstances, still recognize gain (but not loss) upon the exchange of its L&F Public Shares or L&F Public Warrants for the common
stock or warrants of ZeroFox Holdings, Inc. pursuant to the Domestication under the PFIC rules of the Code. Proposed Treasury Regulations with a retroactive effective date have been promulgated under Section 1291(f) of the Code which
generally require that a U.S. person who disposes of stock of a PFIC (including for this purpose exchanging public warrants for newly issued warrants in the Domestication) must recognize gain equal to the excess, if any, of the fair market
value of the common stock or warrants of ZeroFox Holdings, Inc. received in the Domestication and the U.S. Holder’s adjusted tax basis in the corresponding L&F Public Shares or L&F Public Warrants surrendered in exchange therefor,
notwithstanding any other provision of the Code. Because L&F is a blank check company with no current active business, L&F takes the position that it is classified as a PFIC for U.S. federal income tax purposes. As a result, these
proposed Treasury Regulations, if finalized in their current form, would generally require a U.S. Holder of L&F Public Shares or L&F Public Warrants to recognize gain on the exchange of such shares or warrants for common stock or
warrants of ZeroFox Holdings, Inc. pursuant to the Domestication, unless, in the case of only common stock, such U.S. Holder has made certain tax elections with respect to such U.S. Holder’s Public Shares. A U.S. Holder cannot currently
make the aforementioned elections with respect to such U.S. Holder’s public warrants. The tax on any such gain so recognized would be imposed at the rate applicable to ordinary income and an interest charge would apply based on complex
rules designed to offset the tax deferral to such U.S. Holder on the undistributed earnings, if any, of L&F. It is not possible to determine at this time whether, in what form, and with what effective date, final Treasury Regulations
under Section 1291(f) of the Code will be adopted. For a more complete discussion of the potential application of the PFIC rules to U.S. Holders as a result of the Domestication, see the discussion in the section entitled “Certain Material United States Federal Income Tax Considerations — U.S. Holders — PFIC Considerations.”
Additionally, the Domestication may cause non-U.S. Holders (as
defined in “Certain Material United States Federal Income Tax Considerations — Non-U.S. Holders”) to become subject to U.S. federal income withholding taxes on any dividends paid in respect of such
non-U.S. Holder’s ZeroFox Holdings, Inc.’s public shares after the Domestication.
The tax consequences of the Domestication are complex and will
depend on a holder’s particular circumstances. All holders are urged to consult their tax advisor on the tax consequences to them of the
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Domestication, including the applicability and effect of U.S. federal, state, local
and foreign income and other tax laws. For a more complete discussion of the U.S. federal income tax considerations of the Domestication, see “Certain Material United States Federal Income Tax Considerations.”
For a description of the tax consequences for shareholders
exercising redemption rights in connection with the Business Combination, see the sections entitled “Certain Material United States Federal Income Tax Considerations — U.S. Holders — Effects to U.S. Holders
of Exercising Redemption Rights” and “Certain Material United States Federal Income Tax Considerations — Non- U.S. Holders — Effects of Exercising Redemption Rights to Non-U.S. Holders.”
Anticipated Accounting Treatment of the Business Combination
The anticipated accounting treatment for the Business Combination
may be different under the varying redemption assumptions with a combining entity being an accounting acquirer in one scenario and an accounting acquiree in another scenario.
Scenario 1, No Redemption Scenario
With respect to the Business Combination, under a no redemption
scenario, ZeroFox will be treated as the accounting acquirer and L&F and IDX will be treated as acquired companies for accounting purposes. This determination is primarily based on the facts that subsequent to the Business Combination:
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ZeroFox shareholders will have a majority of the voting power of New ZeroFox;
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ZeroFox will designate a majority of the governing body of New ZeroFox;
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ZeroFox’s senior management will comprise all of the senior management of New ZeroFox; and
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the largest single shareholder of the combined company will be a legacy owner of ZeroFox.
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As a result of ZeroFox being considered the accounting acquirer in
the Business Combination, the business combination between ZeroFox and L&F represents a reverse merger and will be accounted for as a reverse capitalization in accordance with U.S. GAAP. Accordingly, for accounting purposes, the business
combination between ZeroFox and L&F will be treated as the equivalent of ZeroFox issuing shares for the net assets of L&F, accompanied by a recapitalization. The net assets of ZeroFox will be stated at historical cost. No goodwill or
other intangible assets will be recorded.
As ZeroFox is determined to be the accounting acquirer in the
Business Combination, the acquisition of IDX will be considered a business combination under ASC 805, Business Combinations, and will be accounted for using the acquisition method of accounting. The
consideration transferred to effect the acquisition will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration transferred over the fair values of assets
acquired and liabilities assumed will be recorded as goodwill.
Scenario 2, Maximum Redemption Scenario
With respect to the Business Combination, under a maximum
redemption scenario, L&F will be treated as the accounting acquirer and ZeroFox and IDX as acquired companies for accounting purposes.
Upon consummation of the Business Combination, ZeroFox is
considered a variable interest entity as the equity at risk is not sufficient to fund expected future cash flow needs, including funding future projected losses and servicing existing debt obligations. L&F will be considered the primary
beneficiary as its ownership will provide the power to direct the activities that most significantly impact ZeroFox’s performance and the obligation to absorb the losses and/or receive the benefits of ZeroFox that could potentially be
significant to ZeroFox.
We assessed the possibility that IDX could be the accounting
acquirer upon consummation of the Business Combination. IDX is considered a business under ASC 805, Business Combinations. IDX is not considered the accounting acquirer in the Business Combination
based on evaluation of the following factors:
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IDX shareholders will not have the largest voting interest in New ZeroFox;
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IDX will not comprise all of the ongoing operations of New ZeroFox;
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IDX will not designate a majority of the governing body of New ZeroFox;
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IDX senior management will not have a substantive role in the senior management of New ZeroFox; and
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the largest single owner of the combined company will not be a legacy owner of IDX.
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L&F’s acquisitions of ZeroFox and IDX will be considered
business combinations under ASC 805, Business Combinations and will be accounted for using the acquisition method of accounting. The consideration transferred will be allocated to the assets acquired
and liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration transferred to effect the acquisitions over the fair values of assets acquired and liabilities assumed will be recorded as goodwill.
Regulatory Matters
Under the HSR Act and the rules that have been promulgated
thereunder by the U.S. Federal Trade Commission (“FTC”), certain transactions may not be consummated unless certain specified information has been furnished to the Antitrust Division of the Department
of Justice (“Antitrust Division”) and the FTC and certain waiting period requirements have been satisfied. The Business Combination is subject to these requirements and may not be completed until the
expiration of a 30-day waiting period following the filing of the required Notification and Report Forms with the Antitrust Division and the FTC or until early termination of the waiting period is granted. On December 30, 2021, L&F,
ZeroFox and IDX filed the required forms under the HSR Act with the Antitrust Division and the FTC. The waiting period expired on January 31, 2022.
At any time before or after consummation of the Business
Combination, notwithstanding termination of the waiting period under the HSR Act, the applicable competition authorities in the United States or any other applicable jurisdiction could take such action under applicable antitrust laws as such
authority deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Business Combination, seeking to unwind the Business Combination, conditionally approving the Business Combination upon
divestiture of certain New ZeroFox assets, subjecting the completion of the Business Combination to regulatory conditions or seeking other remedies. Private parties may also seek to take legal action under the antitrust laws under certain
circumstances. L&F cannot assure you that the Antitrust Division, the FTC, any state attorney general, or any other government authority will not attempt to challenge the Business Combination on antitrust grounds, and, if such a challenge
is made, L&F cannot assure you as to its result.
None of L&F, ZeroFox and IDX are aware of any material
regulatory approvals or actions that are required for completion of the Business Combination other than the expiration or early termination of the waiting period under the HSR Act. It is presently contemplated that if any such additional
regulatory approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.
Summary Risk Factors
In evaluating the Business Combination and the proposals to be
considered and voted on at the Shareholder Meeting, you should carefully review and consider the risk factors set forth under the section titled “Risk Factors” beginning on page 62
of this proxy statement/prospectus. Some of these risks are summarized below.
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Defects, errors, or vulnerabilities in ZeroFox’s platform, the failure of ZeroFox’s platform to block malware or prevent a
security breach, misuse of ZeroFox’s platform, or risks of product liability claims would harm ZeroFox’s reputation and adversely impact the combined company’s business, operating results, and financial condition.
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If ZeroFox’s enterprise platform offerings do not interoperate with its customers’ network and security infrastructure, or
with third-party products, websites or services, the combined company’s results of operations may be harmed.
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ZeroFox may not timely and cost-effectively scale and adapt its existing technology to meet its customers’ performance and
other requirements.
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ZeroFox’s success depends, in part, on the integrity and scalability of its systems and infrastructure. System interruption
and the lack of integration, redundancy and scalability in these systems and infrastructure may adversely affect the combined company’s business, financial condition, and results of operations.
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ZeroFox has a history of losses, and the combined company may not be able to achieve or sustain profitability in the future.
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If organizations do not adopt cloud, and/or SaaS-delivered external cybersecurity solutions that may be based on new and
untested security concepts, the combined company’s ability to grow its business and results of operations may be adversely affected.
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ZeroFox faces intense competition and could lose market share to its competitors, which could adversely affect the combined
company’s business, financial condition, and results of operations.
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Adverse general and industry-specific economic and market conditions and reductions in customer spending, in either the
private or public sector, including as a result of geopolitical uncertainty such as the ongoing conflict between Russia and Ukraine, may reduce demand for ZeroFox’s platform or products and solutions, which could harm the combined
company’s business, financial condition and results of operations.
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The COVID-19 pandemic could adversely affect the combined company’s business, operating results, and financial condition.
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If ZeroFox fails to adapt to rapid technological change, evolving industry standards and changing customer needs, requirements
or preferences, the combined company’s ability to remain competitive could be impaired.
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Historically, one U.S. government customer has accounted for a substantial portion of IDX’s revenues and is expected to
account for a substantial portion of the combined company’s revenues following the Business Combination. If IDX’s largest customer does not renew its contract with IDX (or renews at reduced spending levels), or if IDX’s relationship
with its largest customer is impaired or terminated, IDX’s revenues could decline, and the combined company’s business, financial condition, and results of operations would be adversely affected.
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We may need to raise additional capital to maintain and expand our operations and invest in new solutions, which capital may
not be available on terms acceptable to us, or at all, and which could reduce our ability to compete and could harm our business.
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There may not be an active trading market for the New ZeroFox Common Stock, which may make it difficult to sell shares of New
ZeroFox Common Stock.
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L&F’s shareholders will experience dilution due to the issuance of shares of New ZeroFox Common Stock, and securities that
are exercisable for shares of New ZeroFox Common Stock to the Target Companies’ security holders as consideration in the Business Combination, and the issuance of shares of New ZeroFox Common Stock to the Common Equity PIPE Investors
in the Common Equity PIPE Financing or upon the conversion of the Notes.
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Since the L&F Initial Shareholders, including L&F’s officers and directors, have interests that are different, or in
addition to (and which may conflict with), the interests of the Public Shareholders, a conflict of interest may have existed in determining whether the Business Combination with the Target Companies is appropriate as our initial
business combination. Such interests include that the Sponsor, as well as our officers and directors, will lose their entire investment in us if our business combination is not completed.
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L&F has not obtained an opinion from an independent investment banking firm or another independent firm, and consequently,
you have no assurance from an independent source that the terms of the Business Combination are fair to L&F from a financial point of view.
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The level of due diligence conducted in connection with the Business Combination may not be as high as would be the case if
the Target Companies became a public company through an underwritten public offering, which could result in defects with the Target Companies’ business or problems with the Target Companies’ management being overlooked.
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The process of taking a company public by means of a business combination with a special purpose acquisition company (“SPAC”) is different from taking a company public through an underwritten offering and may create risks for our unaffiliated investors.
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The unaudited pro forma financial information included in the section entitled “Unaudited Pro Forma Condensed Combined
Financial Information” may not be representative of the Company’s results if the Business Combination is completed.
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The Notes to be issued and outstanding after consummation of the Business Combination may impact our financial results, result
in the dilution of our shareholders, create downward pressure on the price of New ZeroFox Common Stock, and restrict our ability to raise additional capital or take advantage of future opportunities.
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We may not have the ability to raise the funds necessary to settle in cash conversions of the Notes, repurchase the Notes upon
a fundamental change or repay the Notes in cash at their maturity, and our future debt may contain limitations on our ability to pay cash upon conversion, redemption or repurchase of the Notes.
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We may still incur substantially more debt or take other actions that would diminish our ability to make payments on the Notes
when due.
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L&F does not have a specified maximum redemption threshold. The absence of such a redemption threshold may make it
possible for L&F to complete the Business Combination with which a substantial majority of its shareholders does not agree.
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ZeroFox management has limited experience in operating a public company.
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The questions and answers below highlight
selected information from this proxy statement/prospectus and only briefly address some commonly asked questions about the Shareholder Meeting and the proposals to be presented at the Shareholder Meeting, including with respect to the proposed
Business Combination. The following questions and answers do not include all the information that may be important to L&F shareholders. Shareholders are urged to read carefully this entire proxy statement/prospectus, including the Annexes
and the other documents referred to herein.
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Q:
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Why am I receiving this proxy statement?
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A:
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L&F is proposing to consummate a business combination with the Target Companies. L&F, L&F Holdings, ZF Merger Sub,
IDX Merger Sub, IDX Forward Merger Sub, ZeroFox, and IDX have entered into the Business Combination Agreement, the terms of which are described in this proxy statement/prospectus. You are being asked to consider and vote on the Business
Combination. The Business Combination Agreement, among other things, provides for (i) the Domestication, (ii) the merger of ZF Merger Sub with and into ZeroFox, with ZeroFox being the surviving company in the ZF Merger and continuing
(immediately following the ZF Merger) as a direct, wholly-owned subsidiary of L&F Holdings, (iii) the merger of IDX Merger Sub with and into IDX, with Transitional IDX Entity being the surviving company in the IDX Merger and
continuing (immediately following the IDX Merger) as a direct, wholly-owned subsidiary of L&F Holdings, and (iv) the merger of Transitional IDX Entity with and into IDX Forward Merger Sub, with IDX Forward Merger Sub being the
surviving company in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned subsidiary of L&F Holdings.
|
L&F will hold the Shareholder Meeting to, among other things, obtain the approvals
required for the Business Combination and the other transactions contemplated by the Business Combination Agreement and you are receiving this proxy statement/prospectus in connection with such meeting. See the section entitled “Proposal No. 2 — The Business Combination Proposal” of this proxy statement/prospectus for additional information. A copy of the Business Combination Agreement is attached to this proxy statement/prospectus
as Annex A. We urge you to carefully read this proxy statement/prospectus and the Business Combination Agreement in their entirety.
L&F is sending this proxy statement/prospectus to its shareholders to help them
decide how to vote their L&F Ordinary Shares with respect to the matters to be considered at the Shareholder Meeting. The Business Combination cannot be completed unless L&F’s shareholders approve the Articles Amendment Proposal and the
Condition Precedent Proposals set forth in this proxy statement/prospectus. Information about the Shareholder Meeting, the Business Combination and the other business to be considered by shareholders at the Shareholder Meeting is contained in
this proxy statement/prospectus.
This document constitutes a proxy statement and a prospectus of L&F. It is a proxy
statement because the L&F Board is soliciting proxies from its shareholders using this proxy statement/prospectus. It is a prospectus because L&F, in connection with the Business Combination, is offering shares of New ZeroFox Common
Stock in exchange for the L&F Ordinary Shares and certain of the shares of ZeroFox Common Stock and IDX Common Stock outstanding as of the relevant times as described in this proxy statement/prospectus. See the section entitled “Proposal No. 2 — The Business Combination Proposal — The Business Combination Agreement — Consideration to be Received in the Business Combination” of this proxy statement/prospectus for additional
information.
YOUR VOTE IS IMPORTANT. SHAREHOLDERS ARE URGED TO SUBMIT THEIR
PROXIES AS SOON AS POSSIBLE AFTER CAREFULLY REVIEWING THIS PROXY STATEMENT/PROSPECTUS.
|
Q:
|
Why is L&F proposing the Business Combination?
|
|
A:
|
L&F is a blank check company incorporated as a Cayman Islands exempted company on August 20, 2020. L&F was incorporated
for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or other similar business combination with one or more businesses or entities.
|
31
The L&F IPO was completed on November 23, 2020. A total of $175,087,500 was
placed in the Trust Account. Following the Extension Amendment Redemptions, a total of approximately $34,806,051 remains in the Trust Account as of May 27, 2022. Since the L&F IPO, L&F’s activity has been limited to the evaluation of
business combination candidates.
ZeroFox is an enterprise cybersecurity software-as-a-service provider of digital
attack detection and protection services. ZeroFox's patented technology collects and processes content, rich media, electronic posts, messages, global intelligence and threat actor activity across the digital landscape, including social media
sites, public, deep and dark web forums, mobile app stores and other digital platforms and discrete content sources. Using artificial intelligence-based analysis and threat intelligence capabilities, the ZeroFox platform identifies and
remediates targeted phishing attacks, credential and account compromise, data exfiltration and brand hijacking threats. ZeroFox offers its services on a subscription basis.
IDX is a data security company that provides data breach response services and
identity and privacy protection services to its customers.
Based on its due diligence investigations of the Target Companies and the industry in
which they operate, including the financial and other information provided by the Target Companies in the course of their negotiations in connection with the Business Combination Agreement, L&F believes that the Target Companies align well
with the objectives laid out in its investment thesis.
See “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination” and “Proposal No. 2 - The Business
Combination Proposal — The L&F Board’s Reasons for the Approval of the Business Combination.”
|
Q:
|
What will the Target Companies’ equity holders receive in return for the acquisition of the Target Companies
by L&F?
|
|
A:
|
Pursuant to the Business Combination Agreement, the aggregate consideration payable or issuable by L&F in exchange for the
outstanding equity interests of ZeroFox and IDX is comprised of: (a) with regard to the holders of ZeroFox Common Stock, the right to receive, in the aggregate, a number of shares of New ZeroFox Common Stock that is approximately equal
to the quotient obtained by dividing (x) $866,250,000 by (y) $10.00, and (b) with regard to the holders of IDX Common Stock and Preferred Stock, the right to receive, in the aggregate, (i) a number of shares of New ZeroFox Common Stock
that is approximately equal to the quotient obtained by dividing (x) $288,750,000 by (y) $10.00, and (ii) $50,000,000 in cash consideration (subject to certain adjustments for cash, working capital, debt and transaction expenses, as
provided in the Business Combination Agreement). Outstanding options and warrants of ZeroFox and IDX will convert to options and warrants of New ZeroFox. For further details, see the section titled “Proposal
No. 2 – The Business Combination Proposal – The Business Combination Agreement – Consideration to be Received in the Business Combination.”
|
|
Q:
|
Did the L&F Board obtain a third-party valuation or fairness opinion in determining whether or not to
proceed with the Business Combination?
|
|
A:
|
The L&F Board did not obtain a third-party valuation or fairness opinion in connection with its determination to approve the
Business Combination. L&F is not required to obtain an opinion from an independent investment banking firm that is a member of FINRA or from another independent firm that the price it is paying is fair to L&F from a financial
point of view. In analyzing the Business Combination, the L&F Board and L&F’s management conducted due diligence on the Target Companies and researched the industry in which the Target Companies operate and concluded that the
Business Combination was in the best interest of its shareholders. Accordingly, L&F’s shareholders will be relying solely on the judgment of the L&F Board in determining the value of the Business Combination, and the L&F
Board may not have properly valued such business. The lack of third-party valuation or fairness opinion may also lead an increased number of shareholders to vote against the Business Combination or demand redemption of their shares,
which could potentially impact our ability to consummate the Business Combination. For more information about our decision-making process, see the section entitled “The Business Combination Proposal –
The L&F Board’s Reasons for the Approval of the Business Combination.”
|
|
Q:
|
Will L&F obtain new financing in connection with the Business Combination?
|
|
A:
|
Yes. In connection with the execution of the Business Combination Agreement, L&F and certain investors including, among
others, L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital
|
32
Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F),
GCP-OI I, LLC (an entity affiliated with Adam Gerchen, L&F’s chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board) entered into the Common
Equity Subscription Agreements pursuant to which such investors have agreed to purchase an aggregate of 2,000,000 shares of New ZeroFox Common Stock, for a purchase price of $10.00 per share, for an aggregate purchase price of $20,000,000. The
obligations of each party to consummate the Common Equity PIPE Financing are conditioned upon, among other things, customary closing conditions and the consummation of the transactions contemplated by the Business Combination Agreement. New
ZeroFox Common Stock issued pursuant to the Common Equity PIPE Financing will be identical to the Public Shares (which will be converted into shares of New ZeroFox Common Stock as part of the Domestication) except that the shares issued in the
Common Equity PIPE Financing will have registration rights granted pursuant to the Common Equity Subscription Agreements and the Public Shares were issued as part of the of the L&F Public Units in the L&F IPO at a price per L&F
Public Unit of $10.00.
Additionally, in connection with the execution of the Business Combination Agreement,
L&F and certain investors including, among others, L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) entered into the Convertible Notes
Subscription Agreements, pursuant to which the Convertible Notes Investors have collectively committed to subscribe for an aggregate principal amount of $150,000,000 unsecured convertible notes due 2025 bearing interest at a rate of 7.00% per
annum, payable quarterly in cash (provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum) with an initial conversion price of $11.50 per share of New ZeroFox Common Stock, and will mature on the date that is
three years following the closing of the Convertible Notes Financing. New ZeroFox may, at its election, force conversion of the Notes on the Conversion Trigger Date, subject to a holder’s prior right to convert, if the volume-weighted average
trading price of the New ZeroFox Common Stock (x) for the first year after the Conversion Trigger Date, is greater than or equal to 150% of the Conversion Price for at least 20 trading days during a period of 30 consecutive trading days and
(y) for the second year after the Conversion Trigger Date, is greater than or equal to 130% of the Conversion Price for at least 20 trading days during a period of 30 consecutive trading days. Upon conversion of any Note, New ZeroFox shall have
the option to settle the conversion in cash, shares of New ZeroFox Common Stock or a combination of both. Each holder of a Note will have the right to cause New ZeroFox to repurchase for cash all or a portion of the Notes held by such holder at
any time upon the occurrence of a “fundamental change”, as such term is defined in the Indenture, at a price equal to par plus accrued and unpaid interest. In the event of a conversion in connection with a “make-whole fundamental change,” as
defined in the Indenture, the Conversion Price will be adjusted in accordance with in the Indenture. L&F has agreed to grant the Convertible Notes Investors certain registration rights in connection with the Convertible Notes Financing.
Once issued, New ZeroFox Common Stock issued pursuant to the Convertible Notes Subscription Agreements will be identical to the New ZeroFox Common Stock except the shares issuable upon conversion of the Notes will have registration rights
granted pursuant to a registration rights agreement.
The existence of financial and personal interests of one or more of L&F’s
directors may result in a conflict of interest on the part of such director(s) between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for himself or themselves in
determining to recommend that shareholders vote for the proposals. See the sections titled “Proposal No. 2 — The Business Combination Proposal — Interests of Certain Persons in the Business Combination’’,
“Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Risk Factors” for a further
discussion of these considerations.
|
Q:
|
What equity stake will current L&F shareholders, ZeroFox shareholders and IDX shareholders hold in New
ZeroFox immediately after the consummation of the Business Combination?
|
|
A:
|
As of the date of this proxy statement/prospectus (and after giving effect to the Extension Amendment Redemptions), there are
(i) 3,425,689 Class A Ordinary Shares issued and outstanding and (ii) 4,312,500 Class B Ordinary Shares issued and outstanding. In addition, as of the date of this proxy statement/prospectus, there are outstanding 5,450,000 L&F
Private Placement Warrants held by the Sponsor, 2,138,430 L&F Private Placement Warrants held by Jefferies and 8,625,000 L&F Public Warrants. Each whole warrant entitles the holder thereof to purchase one Class A Ordinary Share
and, following the Domestication, will entitle the holder thereof to purchase one share of New ZeroFox Common Stock. Therefore, as of the date of this proxy statement/prospectus (without giving effect to the Business Combination and
assuming that none of the Class A Ordinary Shares are redeemed
|
33
in connection with the Business Combination), L&F’s fully-diluted share capital
(after giving effect to the exercise of all of the L&F Private Placement Warrants and all of the L&F Public Warrants) would be 23,951,619 L&F Ordinary Shares.
The following table illustrates varying ownership levels in New ZeroFox Common Stock
immediately following the consummation of the Business Combination based on the varying levels of redemptions by the Public Shareholders and the following additional assumptions: (i) 83,222,734 shares of New ZeroFox Common Stock are issued to
the ZeroFox shareholders at Closing in both a no redemption scenario and a maximum redemption scenario; (ii) 27,905,045 shares of New ZeroFox Common Stock are issued to the IDX shareholders at Closing in both a no redemption scenario and a
maximum redemption scenario; (iii) all outstanding ZeroFox warrants and IDX warrants will be exercised on a cash basis immediately prior to the Closing; (iv) 2,000,000 shares of New ZeroFox Common Stock are issued in the Common Equity PIPE
Financing; (v) no New ZeroFox Public Warrants and New ZeroFox Private Placement Warrants issued in connection with the Business Combination to purchase New ZeroFox Common Stock that will be outstanding immediately following Closing have been
exercised; (vi) no Notes issued in the Convertible Notes Financing have been converted; and (vii) all outstanding vested and unvested ZeroFox options and IDX options are converted into New ZeroFox Options exercisable for shares of New ZeroFox
Common Stock.
Based on these assumptions, and assuming that no outstanding Class A Ordinary Shares
are redeemed in connection with the Business Combination, there would be approximately 120,865,968 shares of New ZeroFox Common Stock outstanding immediately following the consummation of the Business Combination. If the actual facts are
different than these assumptions, the ownership percentages in New ZeroFox will be different.
For example, there are currently outstanding an aggregate of 16,213,430 L&F
Warrants to acquire our Class A Ordinary Shares, which are comprised of 7,588,430 L&F Private Placement Warrants and 8,625,000 L&F Public Warrants sold as part of the L&F Public Units sold in the L&F IPO. Each outstanding
L&F Warrant would be exercisable as a New ZeroFox Warrant commencing 30 days following the Closing for one share of New ZeroFox Common Stock. If we assume that each outstanding warrant is exercised and one share of New ZeroFox Common Stock
is issued as a result of such exercise, with payment to New ZeroFox of the exercise price of $11.50 per warrant for one share, our fully-diluted share capital would increase by a total of 16,213,430 shares, with $186,454,445 paid to New ZeroFox
to exercise the warrants. In addition, an aggregate principal amount of $150,000,000 of Notes will be issued in the Convertible Notes Financing. The Notes may be converted at a conversion price of $11.50 per share of New ZeroFox Common Stock.
If we assume that the Notes (excluding any paid-in-kind interest) are converted in full and settled fully in shares, our fully-diluted share capital would increase by a total of 13,043,475 shares.
|
|
| |
Share Ownership in New ZeroFox
|
|||
|
|
| |
No Redemptions(1)
|
| |
Maximum
Redemptions(2)
|
|
|
| |
Percentage of
Outstanding Shares
|
| |
Percentage of
Outstanding Shares
|
|
L&F Public Shareholders(3)
|
| |
2.8%
|
| |
—
|
|
L&F Initial Shareholders(4)
|
| |
3.6%
|
| |
3.7%
|
|
Common Equity PIPE Investors(5)
|
| |
1.7%
|
| |
1.7%
|
|
ZeroFox Shareholders(6)
|
| |
68.9%
|
| |
70.9%
|
|
IDX Shareholders(7)
|
| |
23.1%
|
| |
23.8%
|
(1)
Amounts do not sum due to rounding.
|
(2)
|
Assumes that all 3,425,689 Class A Ordinary Shares outstanding are redeemed for an aggregate payment of approximately $34,786,000
(based on the estimated per share redemption price of approximately $10.15 per share) from the Trust Account. As the proceeds (without taking into account offering expenses) from the Common Equity PIPE Financing and the Convertible
Notes Financing are expected to satisfy the Available Closing Acquiror Cash Condition, the maximum redemption scenario reflects the redemption of 100% of the Class A Ordinary Shares held by the Public Shareholders; amounts do not sum
due to rounding.
|
|
(3)
|
Represents shares of New ZeroFox Common Stock to be issued upon conversion of 3,425,689 Class A Ordinary Shares issued in
connection with the L&F IPO.
|
|
(4)
|
Represents shares of New ZeroFox Common Stock to be issued upon conversion of 4,312,500 Class B Ordinary Shares acquired by the
L&F Initial Shareholders prior to or in connection with the L&F IPO (including 20,000 shares held by Albert Goldstein, 50,000 shares held by Joseph Lieberman and 39,733 shares currently held by Kurt Summers). Includes 1,293,750
shares of New ZeroFox Common Stock held by the L&F Initial Shareholders under both scenarios that are subject to forfeiture if certain earnout conditions are not satisfied, as the shares are issued and outstanding as of the closing
date of the Business Combination.
|
34
|
(5)
|
Consists of 2,000,000 shares of New ZeroFox Common Stock to be issued in the Common Equity PIPE Financing.
|
|
(6)
|
Includes 1,694,533 shares of New ZeroFox Common Stock to be issued in exchange for shares of ZeroFox Common Stock assumed to be
issued upon the cash exercise of ZeroFox warrants prior to the Closing.
|
|
(7)
|
Includes 185,305 shares of New ZeroFox Common Stock to be issued in exchange for shares of IDX Capital Stock assumed to be issued
upon the cash exercise of IDX warrants prior to the Closing.
|
The numbers of shares and percentage interests set forth above have been presented for
illustrative purposes only and do not necessarily reflect what New ZeroFox’s share ownership will be after the Closing. For more information about the consideration to be received in the Business Combination, these scenarios and the underlying
assumptions, see “Unaudited Pro Forma Condensed Combined Financial Information” and “Proposal No.2—The Business Combination Proposal—The Business Combination
Agreement—Consideration to be Received in the Business Combination.”
|
Q.
|
What happens if a substantial number of the Public Shareholders vote in favor of the Business Combination
Proposal and exercise their redemption rights?
|
|
A.
|
Our Public Shareholders are not required to vote “FOR” the Business Combination in order to exercise their redemption rights.
Accordingly, the Business Combination may be consummated even though the funds available from the Trust Account and the number of Public Shareholders are reduced as a result of redemptions by Public Shareholders.
|
If a Public Shareholder exercises its redemption rights, such exercise will not
result in the loss of any warrants that it may hold. Assuming that all 3,425,689 Class A Ordinary Shares held by Public Shareholders were redeemed, the public warrant holders will retain the 8,625,000 L&F Public Warrants (including the
L&F Public Warrants retained by Public Shareholders who exercised their redemption rights in connection with the Extension Articles Amendment). The outstanding L&F Public Warrants (which will become New ZeroFox Public Warrants
following the Closing) would have a value of approximately $0.35 per warrant based on the closing price of the L&F Public Warrants on the NYSE American on June 28, 2022. If a substantial number of, but not all, Public Shareholders
exercise their redemption rights, and the holders of the 8,625,000 New ZeroFox Public Warrants choose to exercise their warrants, any non-redeeming shareholders would experience dilution to the extent such warrants are exercised.
Additionally, as a result of redemptions, the trading market for the New ZeroFox
Common Stock may be less liquid than the market for the Class A Ordinary Shares was prior to consummation of the Business Combination and we may not be able to meet the listing standards for the NYSE, Nasdaq or another national securities
exchange. In addition, with less funds available from the Trust Account, the working capital infusion from the Trust Account into New ZeroFox’s business will be reduced.
The below sensitivity table shows the potential impact of redemptions on the pro
forma book value per share of the shares owned by non-redeeming shareholders in a no redemption scenario, a 50% redemption scenario, and a maximum redemption scenario. The sensitivity table below also sets forth (x) the potential additional
dilutive impact of each of the below additional dilution sources in each redemption scenario, and (y) the effective deferred underwriting fee percentage incurred in connection with the L&F IPO in each redemption scenario.
|
|
| |
Assuming No Redemption(1)
|
| |
Assuming 50% Redemption(2)
|
| |
Assuming Maximum
Redemption(3)
|
|||||||||
|
Shareholders
|
| |
Ownership in
shares
|
| |
Equity %
|
| |
Ownership in
shares
|
| |
Equity %
|
| |
Ownership in
shares
|
| |
Equity %
|
|
ZeroFox Shareholders(4)
|
| |
83,222,734
|
| |
68.9%
|
| |
83,222,734
|
| |
69.8%
|
| |
83,222,734
|
| |
70.9%
|
|
IDX Shareholders(5)
|
| |
27,905,045
|
| |
23.1%
|
| |
27,905,045
|
| |
23.4%
|
| |
27,905,045
|
| |
23.8%
|
|
L&F Public Shareholders
|
| |
3,425,689
|
| |
2.8%
|
| |
1,712,845
|
| |
1.4%
|
| |
—
|
| |
0.0%
|
|
L&F Initial Shareholders(6)
|
| |
4,312,500
|
| |
3.6%
|
| |
4,312,500
|
| |
3.6%
|
| |
4,312,500
|
| |
3.7%
|
|
Common Equity PIPE Investors
|
| |
2,000,000
|
| |
1.7%
|
| |
2,000,000
|
| |
1.7%
|
| |
2,000,000
|
| |
1.7%
|
|
Total Shares Outstanding
Excluding “Additional Dilution Sources”
|
| |
120,865,968
|
| |
100%
|
| |
119,153,124
|
| |
100%
|
| |
117,440,279
|
| |
100%
|
|
Total Pro Forma Equity Value Post-Redemptions(7)
|
| |
$1,208,659,680
|
| |
|
| |
$1,191,531,235
|
| |
|
| |
$1,174,402,790
|
| |
|
|
Total Pro Forma Book Value Post-Redemptions(8)
|
| |
$271,378,000
|
| |
|
| |
$
1,159,627,000
|
| |
|
| |
$
1,142,234,000
|
| |
|
|
Pro Forma Book Value Per Share
|
| |
$2.25
|
| |
|
| |
$9.73
|
| |
|
| |
$9.73
|
| |
|
35
|
|
| |
Assuming No Redemption(1)
|
| |
Assuming 50% Redemption(2)
|
| |
Assuming Maximum
Redemption(3)
|
|||||||||
|
Additional Dilution Sources(9)
|
| |
Ownership in
shares
|
| |
Equity %(10)
|
| |
Ownership in
shares
|
| |
Equity %(10)
|
| |
Ownership in
shares
|
| |
Equity %(10)
|
|
New ZeroFox Warrants
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
New ZeroFox Public Warrants
|
| |
8,625,000
|
| |
6.3%
|
| |
8,625,000
|
| |
6.4%
|
| |
8,625,000
|
| |
6.5%
|
|
New ZeroFox Private Placement Warrants(11)
|
| |
7,588,430
|
| |
5.5%
|
| |
7,588,430
|
| |
5.6%
|
| |
7,588,430
|
| |
5.7%
|
|
Total Additional Dilution Sources
|
| |
16,213,430
|
| |
11.8%
|
| |
16,213,430
|
| |
12.0%
|
| |
16,213,430
|
| |
12.1%
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
Assuming No Redemption(1)
|
| |
Assuming 50% Redemption(2)
|
| |
Assuming Maximum
Redemption(3)
|
|||||||||
|
Deferred Discount
|
| |
Amount ($)
|
| |
% of Gross
IPO
Proceeds
remaining
in Trust
Account(12)
|
| |
Amount ($)
|
| |
% of Gross
IPO
Proceeds
remaining
in Trust
Account(12)
|
| |
Amount ($)
|
| |
% of Gross
IPO
Proceeds
remaining
in Trust
Account(12)
|
|
Effective Deferred Discount
|
| |
$6,037,500
|
| |
17.6%
|
| |
$6,037,500
|
| |
35.2%
|
| |
$6,037,500
|
| |
N/A
|
|
(1)
|
This scenario assumes that ZeroFox is the accounting acquiror with respect to the Business Combination and that no Class A
Ordinary Shares are redeemed by the Public Shareholders; amounts may not sum due to rounding.
|
|
(2)
|
This scenario assumes that L&F is the accounting acquiror with respect to the Business Combination and that 1,712,845 Class A
Ordinary Shares are redeemed by the Public Shareholders; amounts may not sum due to rounding.
|
|
(3)
|
This scenario assumes that L&F is the accounting acquiror with respect to the Business Combination and that 3,425,689 Class A
Ordinary Shares are redeemed by the Public Shareholders; amounts may not sum due to rounding.
|
|
(4)
|
Excludes shares acquired by the ZeroFox Investors in the Common Equity PIPE Financing. Includes 1,694,533 shares of New ZeroFox
Common Stock to be issued in exchange for shares of ZeroFox Common Stock upon the assumed cash exercise of ZeroFox warrants prior to the Closing.
|
|
(5)
|
Excludes shares acquired by the IDX Investors in the Common Equity PIPE Financing. Includes 185,305 shares of New ZeroFox Common
Stock to be issued in exchange for shares of IDX Capital Stock assumed to be issued upon the cash exercise of IDX warrants prior to the Closing.
|
|
(6)
|
Includes 4,312,500 shares held by the L&F Initial Shareholders originally acquired prior to or in connection with the L&F
IPO (including 20,000 shares held by Albert Goldstein, 50,000 shares held by Joseph Lieberman and 39,733 shares currently held by Kurt Summers). Includes 1,293,750 shares of New ZeroFox Common Stock held by the L&F Initial
Shareholders that are subject to forfeiture if certain earnout conditions are not satisfied, as the shares are issued and outstanding as of the closing date of the Business Combination.
|
|
(7)
|
Pro forma equity value shown at $10.00 per share in the no redemption scenario, the 50% redemption scenario and the maximum
redemption scenario.
|
|
(8)
|
See “Unaudited Pro Forma Condensed Combined Financial Information” for pro forma book
value in the no redemption scenario and the maximum redemption scenario. The pro forma book value for the no redemption scenario assumes ZeroFox is the accounting acquirer under Scenario 1. The pro forma book value for the 50%
redemption scenario and the maximum redemption scenario assumes L&F is the accounting acquirer under Scenario 2.
|
|
(9)
|
Additional Dilution Sources does not reflect the potential conversion of the Notes. An aggregate principal amount of $150,000,000
of Notes will be issued in the Convertible Notes Financing. The Notes may be converted at a conversion price of $11.50 per share of New ZeroFox Common Stock. If we assume that the Notes (excluding any paid-in-kind interest) are
converted in full and settled fully in shares, our fully-diluted share capital would increase by a total of 13,043,475 shares.
|
|
(10)
|
The Equity % with respect to each Additional Dilution Source set forth below, including the Total Additional Dilution Sources,
includes the full amount of shares issued with respect to the applicable Additional Dilution Source in the numerator and the full amount of shares issued with respect to the Total Additional Dilution Sources in the denominator. For
example, in the 50% Redemption Scenario, the Equity % with respect to the New ZeroFox Public Warrants would be calculated as follows: (a) 8,625,000 shares issued pursuant to the New ZeroFox Public Warrants; divided by (b) (i)
119,153,124 shares (the number of shares outstanding excluding the Additional Dilution Sources) plus (ii) 16,213,430 shares included in the Additional Dilution Sources.
|
|
(11)
|
Includes 5,450,000 warrants held by the Sponsor and the 2,138,430 warrants held by Jefferies that were issued in a private
placement at the time of the L&F IPO.
|
|
(12)
|
Reflects balance of the Trust Account following the payment of the Extension Amendment Redemptions.
|
|
Q:
|
Why is L&F proposing the Domestication?
|
The L&F Board believes that it would be in the best interest of L&F to effect
a change of our domicile to Delaware. The L&F Board believes that Delaware provides a recognized body of corporate law that will facilitate corporate governance by the officers and directors. Delaware maintains a favorable legal and
regulatory environment in which to operate. For many years, Delaware has followed a policy of encouraging companies to incorporate there and, in furtherance of that policy, has adopted comprehensive, modern and
36
flexible corporate laws that are regularly updated and revised to meet changing
business needs. As a result, many major corporations have initially chosen Delaware as their domicile or have subsequently reincorporated in Delaware in a manner similar to the procedures L&F is proposing. Due to Delaware’s longstanding
policy of encouraging incorporation in that state and consequently its popularity as the state of incorporation, the Delaware courts have developed a considerable expertise in dealing with corporate issues and a substantial body of case law has
developed construing the DGCL and establishing public policies with respect to Delaware corporations. It is anticipated that the DGCL will continue to be interpreted and explained in a number of significant court decisions that may provide
greater predictability with respect to corporate legal affairs. For more information, see “Proposal No. 3 - The Domestication Proposal — Reasons for the Domestication.”
To effect the Domestication, we will file an application for deregistration with the
Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and file a certificate of corporate domestication and a certificate of incorporation with the Secretary of State of the State of Delaware, under which we
will be domesticated and continue as a Delaware corporation.
The approval of the Domestication Proposal requires a special resolution under Cayman
Islands law, being the affirmative vote of the holders of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon
at the Shareholder Meeting. Abstentions will be considered present for the purpose of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on
the approval of the Domestication Proposal as a matter of Cayman Islands law.
|
Q:
|
How will the Domestication affect my ordinary shares, warrants and units?
|
|
A:
|
In connection with the Domestication, on the Closing Date and prior to the ZF Effective Time and IDX Effective Time, (i) all of
the then issued and outstanding L&F Ordinary Shares will be converted into shares of New ZeroFox Common Stock on a one-for-one basis, (ii) each issued and outstanding whole warrant exercisable for one Class A Ordinary Share will be
converted into a warrant exercisable for one share of New ZeroFox Common Stock at an exercise price of $11.50 per share on the terms and conditions set forth in the Warrant Agreement, and (iii) each issued and outstanding L&F Public
Unit that has not been previously separated into the underlying Class A Ordinary Share and underlying one-half of one L&F Public Warrant upon the request of the holder thereof will be cancelled and will entitle the holder thereof to
one share of New ZeroFox Common Stock and one-half of one New ZeroFox Public Warrant. See “Proposal No. 3 - Domestication Proposal.”
|
|
Q:
|
What interests do the L&F Initial Shareholders, our current officers, directors and advisors, and the
Target Companies’ current owners have in the Business Combination?
|
|
A:
|
In considering the recommendation of our board to vote in favor of the Business Combination, shareholders should be aware that,
aside from their interests as shareholders, our Sponsor and our directors and officers, our advisers, and the Target Companies’ current owners have interests in the Business Combination that are different from, or in addition to, those
of our other shareholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the Business Combination, and in recommending to our shareholders that they approve the Business
Combination. Shareholders should take these interests into account in deciding whether to approve the Business Combination.
|
These interests include, among other things:
|
•
|
the fact that the Sponsor and L&F’s directors and officers have agreed not to redeem any Class A Ordinary Shares held by
them in connection with a shareholder vote to approve the Business Combination and the Sponsor Holders are obligated to vote in favor of the Business Combination;
|
|
•
|
the fact that the Sponsor has irrevocably waived the anti-dilution adjustments set forth in L&F’s organizational documents,
or any other anti-dilution or similar adjustment rights to which the Sponsor may otherwise be entitled related to or arising from the Business Combination;
|
37
|
•
|
the fact that the Sponsor Holders paid an aggregate amount of $25,000 for the Founder Shares, which will convert into
4,312,500 shares of New ZeroFox Common Stock in accordance with the terms of L&F’s organizational documents and such securities will have a significantly higher value at the time of the Business Combination;
|
|
•
|
the fact that the Sponsor paid $5,450,000 for 5,450,000 L&F Private Placement Warrants, each of which is exercisable
commencing on the later of 12 months from the closing of the L&F IPO and 30 days following the Closing for one Class A Ordinary Share at $11.50 per share; if we do not consummate an initial business combination by August 24, 2022,
then the proceeds from the sale of the L&F Private Placement Warrants will be part of the liquidating distribution to the Public Shareholders and the warrants held by our Sponsor will be worthless;
|
|
•
|
the fact that the L&F Initial Shareholders, including the Sponsor (and certain of L&F’s officers and directors who
are members of the Sponsor), have invested in L&F an aggregate of $5,475,000, comprised of the $25,000 purchase price for 4,312,500 Founder Shares and the $5,450,000 purchase price for 5,450,000 L&F Private Placement Warrants.
Subsequent to the initial purchase of the Founder Shares by the Sponsor, the Sponsor transferred 20,000 Founder Shares to Mr. Albert Goldstein and 50,000 Founder Shares to Senator Joseph Lieberman at a nominal purchase price of $0.004
per Founder Share prior to the closing of the L&F IPO and 39,733 Founder Shares to Mr. Kurt Summers shortly after his being appointed to the L&F Board in December 2021 for no cash consideration. Assuming a trading price of
$10.09 per Class A Ordinary Share and approximately $0.35 per L&F Public Warrant (based upon the respective closing prices of the Class A Ordinary Shares and the L&F Public Warrants on the NYSE American on June 28, 2022), the
4,312,500 Founder Shares and 5,450,000 Private Placement Warrants would have an implied aggregate market value of $45,420,625. Even if the trading price of the shares of New ZeroFox Common Stock were as low as $1.27 per share, the
aggregate market value of the Founder Shares alone (without taking into account the value of the L&F Private Placement Warrants) would be approximately equal to the initial investment in L&F by the L&F Initial
Shareholders. As a result, the L&F Initial Shareholders are likely to be able to make a substantial profit on their investment in L&F at a time when shares of New ZeroFox Common Stock have lost significant value. On the other
hand, if L&F liquidates without completing a business combination before August 24, 2022, the L&F Initial Shareholders will lose their entire investment in L&F;
|
|
•
|
the fact that the Sponsor and L&F’s officers and directors will benefit from the completion of a business combination and
may be incentivized to complete an acquisition of a less favorable target company or on terms less favorable to shareholders rather than liquidate;
|
|
•
|
the fact that the L&F Initial Shareholders including the Sponsor (and the L&F’s officers and directors who are members
of the Sponsor) can earn a positive rate of return on their investment, even if other L&F shareholders experience a negative rate of return in New ZeroFox;
|
|
•
|
the fact that the L&F Initial Shareholders and L&F’s other current officers and directors have agreed to waive their
rights to liquidating distributions from the Trust Account with respect to any L&F Ordinary Shares (other than Public Shares) held by them if L&F fails to complete an initial business combination by August 24, 2022;
|
|
•
|
the fact that, at the option of the Sponsor, any amounts outstanding under any loan made by the Sponsor or any of its affiliates
to L&F in an aggregate amount of up to $1,500,000 may be converted into L&F Private Placement Warrants in connection with the consummation of the Business Combination;
|
|
•
|
the fact that the Sponsor and L&F’s officers and directors will lose their entire investment in L&F and will not be
reimbursed for any loans extended, fees due or out-of-pocket expenses if an initial business combination is not consummated by August 24, 2022. As of the date of this proxy statement/prospectus there are no loans extended, fees due or
outstanding out-of-pocket expenses for which the Sponsor and L&F’s officers and directors are awaiting reimbursement;
|
|
•
|
the fact that if the Trust Account is liquidated, including in the event L&F is unable to complete an initial business
combination within the required time period, the Sponsor has agreed to indemnify L&F
|
38
to ensure that the proceeds in the Trust Account are not reduced below $10.15 per
L&F Public Share, or such lesser per Public Share amount as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which L&F has entered into an acquisition agreement or claims of any third
party for services rendered or products sold to L&F, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;
|
•
|
the fact that L&F may be entitled to distribute or pay over funds held by L&F outside the Trust Account to the Sponsor
or any of its affiliates prior to the Closing;
|
|
•
|
the fact that L&F has agreed to pay Jefferies, L&F’s co-PIPE placement agent and financial advisor, and sole underwriter
in the L&F IPO: (i) a cash fee for their services in connection with the L&F IPO in an aggregate amount equal to 5.5% of the gross proceeds of the L&F IPO, with 2.0% of the gross proceeds being paid to the underwriters at
the time the L&F IPO was completed and 3.5% of the gross proceeds (i.e., the deferred underwriting fee) being payable, and conditioned, upon consummating an initial business combination; the aggregate underwriting fee is fixed at
5.5% of the gross proceeds from the L&F IPO and will not be adjusted based on the number of shares that are redeemed in connection with the Business Combination; the deferred underwriting fee of $6,037,500 represents approximately
17.6% and 35.2% of the aggregate proceeds from the L&F IPO, net of redemptions, in the no redemption and 50% redemption scenarios (after giving effect to the Extension Amendment Redemptions), respectively; (ii) a placement agency
fee as a percentage of the aggregate gross proceeds received or to be received from one or more commitments for financing the Business Combination from sources other than any affiliates of ZeroFox, IDX or L&F, and split with Stifel
(defined below); and (iii) financial advisory fees as a fixed amount related to capital markets financial advice and assistance in connection with the Business Combination, as applicable, upon completion of the Business Combination;
|
|
•
|
the fact that, Stifel, co-PIPE placement agent for the Common Equity PIPE Financing and a creditor of ZeroFox, will be entitled
to receive a placement agency fee as a percentage of the aggregate gross proceeds received or to be received from one or more commitments for financing the Business Combination from sources other than any affiliates of ZeroFox, IDX or
L&F, and split with Jefferies, upon completion of the Business Combination;
|
|
•
|
the fact that (i) James C. Foster, Peter Barris, Corey Mulloy, Samskriti King, and Todd Headley, current directors of ZeroFox,
(ii) Thomas F. Kelly and Sean Cunningham, current directors of IDX and (iii) Adam Gerchen, current chief executive officer of the Sponsor, are each expected to be directors, and James C. Foster is expected to be chief executive officer,
of New ZeroFox after the consummation of the Business Combination. As such, in the future each of the aforementioned will receive any cash fees, stock options, stock awards or other remuneration that New ZeroFox’s board of directors
determines to pay them and any applicable compensation as described under the section titled “Executive and Director Compensation;” and
|
|
•
|
the fact that the Sponsor Group will have paid an aggregate of approximately $7,975,000 for its investment in New ZeroFox,
including the investments of L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam
Gerchen, our chief executive officer and a director of L&F) and JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board) in the Common Equity PIPE Financing, as summarized in the table
below, and, following the consummation of the Business Combination, the aggregate value of the Sponsor Group’s investment will be approximately $47,943,125, based upon the respective closing prices of the Class A Ordinary Shares and
the L&F Public Warrants on the NYSE American on June 28, 2022.
|
The L&F Board concluded that the potentially disparate interests would be mitigated
because (i) these interests were disclosed in the prospectus for L&F’s IPO and are disclosed in this proxy statement/prospectus, (ii) most of these disparate interests would exist with respect to a business combination by New ZeroFox with
any other target business or businesses, and (iii) the Sponsor Group will hold equity interests in New ZeroFox with value that, after the Closing, will be based on the future performance of New ZeroFox Common Stock. In addition,
39
L&F’s independent directors reviewed and considered these interests during their
evaluation of the Business Combination and in unanimously approving, as members of the L&F Board, the Business Combination Agreement and the related agreements and the transactions contemplated thereby, including the Business Combination.
Based on its review of the forgoing considerations, the L&F Board concluded that
the potentially negative factors associated with the Business Combination were outweighed by the potential benefits that it expects the L&F shareholders will receive as a result of the Business Combination. The L&F Board realized that
there can be no assurance about future results, including results considered or expected as disclosed in the foregoing reasons.
For more information about the factors the L&F Board considered in evaluating and
recommending the Business Combination to the L&F shareholders, see sections entitled “Proposal No. 2 - The Business Combination Proposal — The L&F Board's Reasons for the Approval of the Business
Combination”, “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination” and “Proposal No. 2 - The Business
Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine.”
Sponsor Group Beneficial Ownership of L&F Prior
to Closing
|
|
| |
Securities held by
Sponsor Group
|
| |
Sponsor Cost at L&F’s
Initial Public Offering
|
|
Class A Ordinary Shares
|
| |
—
|
| |
—
|
|
Founder Shares
|
| |
4,312,500
|
| |
$25,000
|
|
L&F Private Placement Warrants
|
| |
5,450,000
|
| |
$5,450,000
|
|
Total
|
| |
|
| |
$5,475,000
|
Sponsor Group Beneficial Ownership of New
ZeroFox Following the Closing(1)
|
|
| |
Securities held
by Sponsor
Group at Closing
|
| |
Value per
Security as of
June 28, 2022
|
| |
Sponsor Group
Cost at Closing
|
| |
Total
Value
|
|
New ZeroFox Common Stock Issued Pursuant to the Common
Equity PIPE Financing
|
| |
250,000
|
| |
$10.09
|
| |
$2,500,000
|
| |
$2,522,500
|
|
New ZeroFox Common Stock Issued to Holders of Founder
Shares
|
| |
4,312,500(2)
|
| |
$10.09
|
| |
—
|
| |
$43,513,125
|
|
New ZeroFox Private Placement Warrants
|
| |
5,450,000
|
| |
$0.35(3)
|
| |
—
|
| |
$1,907,500
|
|
Total
|
| |
|
| |
|
| |
$2,500,000
|
| |
$47,943,125
|
|
(1)
|
Does not include New ZeroFox Common Stock issuable upon conversion of the Notes that are convertible at an initial conversion
price of $11.50 per share.
|
|
(2)
|
Includes 1,293,750 shares of New ZeroFox Common Stock which will be subject to an earnout, whereby such shares will be forfeited
unless certain volume-weighted average share price thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the Closing. See “Proposal No. 2 -- Business Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” for more information related to the Sponsor Support Letter Agreement.
|
|
(3)
|
Approximately $0.35 based on the closing price of the L&F Public Warrants on June 28, 2022, which was $0.3498.
|
In addition, the Sponsor, L&F’s executive officers and directors, and any of their
respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on L&F’s behalf such as identifying potential target businesses and performing due diligence on suitable business combinations.
L&F’s audit committee reviews on a quarterly basis all payments that were made to the Sponsor, L&F’s executive officers or directors, or L&F’s or their affiliates. Any such payments prior to an initial business combination are made
using funds held outside the Trust Account. Other than quarterly audit committee review of such reimbursements, L&F does not have any additional controls in place governing L&F’s reimbursement payments to L&F’s directors and
executive officers for their out-of-pocket expenses incurred in connection with L&F’s activities on L&F’s behalf in connection with identifying and consummating an initial business combination. Other than these payments and
reimbursements, no compensation of any kind, including finder’s and consulting fees, is paid by L&F to the Sponsor, L&F’s executive officers and directors, or any of their respective affiliates, prior to completion of its initial
business combination. As of the date of this proxy statement/prospectus, no out-of-pocket expenses have been incurred and remain outstanding by L&F’s executive officers and directors.
40
See “Proposal No. 2 - The Business Combination—Interests of Certain Persons in the Business Combination” “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of
Corporate Opportunity Doctrine” and “Risk Factors” for a more detailed discussion of how the L&F Initial Shareholders and L&F’s other current officers and directors have interests in the
Business Combination that are different from, or in addition to, the interests of the Public Shareholders generally.
Such interests may influence the L&F Board in making its recommendation that you
vote in favor of the approval of the Business Combination.
|
Q:
|
What happens to the funds deposited in the Trust Account after consummation of the Business Combination?
|
|
A:
|
As of May 27, 2022 (after giving effect to the Extension Amendment Redemptions), there were investments and cash held in the
Trust Account of approximately $34,806,051. These funds will not be released until the earlier of the completion of our initial business combination and the redemption of our Class A Ordinary Shares if we are unable to complete an
initial business combination by August 24, 2022, although we may withdraw the interest earned on the funds held in the Trust Account to pay taxes.
|
|
Q:
|
What conditions must be satisfied to complete the Business Combination?
|
|
A:
|
Unless waived by the parties to the Business Combination Agreement, and subject to applicable law, the consummation of the
Business Combination is subject to a number of conditions set forth in the Business Combination Agreement including, among other things, (i) expiration or termination of the waiting period under the HSR Act (which expired on January 31,
2022), (ii) the absence of any law or governmental order by a governmental authority of competent jurisdiction and having jurisdiction over the parties with respect to the Business Combination enjoining, prohibiting, or making illegal
the consummation of the Business Combination, (iii) approval of the Business Combination and related agreements and transactions by the shareholders of L&F, (iv) that the Common Equity PIPE Financing (and the funding of the proceeds
of the Common Equity PIPE Financing) shall have been consummated or will be consummated substantially concurrently with the Closing in accordance with the terms of the applicable Common Equity PIPE Subscription Agreements, (v) that the
Convertible Notes Financing (and the funding of the proceeds of the Convertible Notes Financing) shall have been consummated or will be consummated substantially concurrently with the Closing in accordance with the terms of the
applicable Convertible Notes Subscription Agreements, (vi) effectiveness of the registration statement of which this proxy statement/prospectus is a part, (vii) receipt of approval for listing on the NYSE or Nasdaq of the shares of New
ZeroFox Common Stock to be issued or reserved for issuance in connection with the Business Combination, and (viii) that after giving effect to the Business Combination, the Available Closing Acquiror Cash shall not be less than
$170,000,000.
|
|
Q:
|
What happens if the Business Combination is not consummated?
|
|
A:
|
L&F will not complete the Business Combination unless all other conditions to the consummation of the Business Combination
have been satisfied or waived by the parties in accordance with the terms of the Business Combination Agreement. If we are not able to complete the Business Combination or another initial business combination by August 24, 2022, we will
cease all operations except for the purpose of winding up and redeeming our Class A Ordinary Shares and liquidating the Trust Account, in which case our Public Shareholders may only receive approximately $10.15 per share and the L&F
Warrants will expire worthless. In addition, the underwriter of the L&F IPO, Jefferies, agreed to waive its rights to its deferred underwriting commission held in the Trust Account in the event we do not complete our initial
business combination within the required time period.
|
|
Q:
|
When do you expect the Business Combination to be completed?
|
|
A:
|
It is currently anticipated that the Business Combination will be consummated as soon as practicable following the Shareholder
Meeting, which is set for , 2022; however, (i) such meeting could be adjourned if the Adjournment Proposal is adopted by our shareholders at the Shareholder Meeting and we elect to adjourn the Shareholder Meeting to a later date or
dates to permit further solicitation and votes of proxies if, based upon the tabulated vote at the time of the Shareholder Meeting, there are insufficient L&F
|
41
Ordinary Shares represented (either in person or by proxy) to constitute a quorum
necessary to conduct business at the Shareholder Meeting or to approve any of the Proposals, and (ii) the Closing will not occur until all conditions set forth in the Business Combination Agreement are satisfied or waived. For a description of
the conditions for the completion of the Business Combination, see “Proposal No. 2 - The Business Combination Proposal — The Business Combination Agreement — Conditions
to the Closing of the Business Combination.”
|
Q:
|
What proposals are shareholders being asked to vote upon?
|
|
A:
|
At the Shareholder Meeting, L&F shareholders will be asked to consider and vote upon the following proposals:
|
|
1.
|
the Articles Amendment Proposal;
|
|
2.
|
the Business Combination Proposal;
|
|
3.
|
the Domestication Proposal;
|
|
4.
|
the Governing Documents Proposal;
|
|
5.
|
the Advisory Governing Documents Proposals;
|
|
6.
|
the Listing Proposal;
|
|
7.
|
the Incentive Equity Plan Proposal;
|
|
8.
|
the Employee Stock Purchase Plan Proposal;
|
|
9.
|
the Director Election Proposal; and
|
|
10.
|
the Adjournment Proposal.
|
L&F will hold the Shareholder Meeting to consider and vote upon these proposals.
This proxy statement/prospectus contains important information about the Business Combination and the other matters to be acted upon at the Shareholder Meeting. Shareholders should read it carefully.
If our shareholders do not approve each of the Condition Precedent Proposals, then
unless certain conditions in the Business Combination Agreement are waived by the applicable parties to the Business Combination Agreement, the Business Combination Agreement could terminate and the Business Combination will not be consummated.
The Condition Precedent Proposals will be presented to the shareholders for a vote only if the Articles Amendment Proposal is approved.
For more information, please see “Proposal No. 1 —
The Articles Amendment Proposal,” “Proposal No. 2 - The Business Combination Proposal,” “Proposal No. 3 - The Domestication Proposal,” “Proposal No. 4 - The Governing Documents Proposal,” “Proposal No. 5 - The Advisory Governing Documents Proposals,” “Proposal No. 6 - The Listing Proposal,” “Proposal No. 7 - The Incentive Equity Plan Proposal,” “Proposal No. 8 - The Employee Stock Purchase Plan Proposal,” “Proposal No. 9 - The
Director Election Proposal” and “Proposal No. 10 - The Adjournment Proposal.”
After careful consideration, the L&F Board has unanimously
approved the Business Combination Agreement and the transactions contemplated thereby and determined that the Articles Amendment Proposal, the Business Combination Proposal, the Domestication Proposal, the Governing Documents Proposal, each of
the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal, the Director Election Proposal and the Adjournment Proposal are in the best interests of L&F
and its shareholders and unanimously recommends that you vote “FOR” or give instruction to vote “FOR” each of these proposals.
The existence of financial and personal interests of our directors and officers may
result in conflicts of interest, including a conflict between what may be in the best interests of L&F and its shareholders and what may be best for a director’s personal interests when determining to recommend that shareholders vote for
the proposals. See the sections titled “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination,” “Proposal No. 2 - The Business Combination Proposal —
42
Conflicts of Interest and Waiver of Corporate Opportunity
Doctrine,” “Risk Factors,” “Certain Relationships and Related Person Transactions,” “Executive and Director Compensation
- Director Compensation” and “Beneficial Ownership of Securities” for a further discussion of these considerations.
THE VOTE OF SHAREHOLDERS IS IMPORTANT. SHAREHOLDERS ARE URGED TO
SUBMIT THEIR PROXIES AS SOON AS POSSIBLE AFTER CAREFULLY REVIEWING THIS PROXY STATEMENT/PROSPECTUS.
|
Q:
|
Why is L&F proposing the Articles Amendment Proposal?
|
|
A:
|
In the judgment of the L&F Board, the adoption of the proposed amendments to the Existing Governing Documents, prior to the
Domestication is necessary to facilitate the Business Combination. For more information, see “Proposal No. 1 — The Articles Amendment Proposal — Reasons for the Amendments.”
|
|
Q:
|
Are the proposals conditioned on one another?
|
|
A:
|
The Closing is conditioned upon the approval of the Condition Precedent Proposals. The Condition Precedent Proposals will be
presented to the shareholders for a vote only if the Articles Amendment Proposal is approved. Each of the Condition Precedent Proposals is conditioned on the approval and adoption of each of the other Condition Precedent Proposals. The
Advisory Governing Documents Proposals will be presented to the shareholders for a vote only if the Business Combination Proposal is approved. The Articles Amendment Proposal and the Adjournment Proposal are not conditioned upon the
approval of any other proposal, though the special resolution contemplated by the Articles Amendment Proposal may be adopted only if the Business Combination Proposal is approved.
|
It is important for you to note that in the event that any of the Articles Amendment
Proposal or the Condition Precedent Proposals do not receive the requisite vote for approval, then L&F will not consummate the Business Combination.
If L&F does not consummate the Business Combination and fails to complete an
initial business combination by August 24, 2022, L&F will be required to dissolve and liquidate the Trust Account by returning the then-remaining funds in such Trust Account to its Public Shareholders.
|
Q:
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Do I have redemption rights?
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A:
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If you are a holder of Class A Ordinary Shares, you have the right to request that L&F redeem all or a portion of your
Class A Ordinary Shares for cash provided that you follow the procedures and deadlines described elsewhere in this proxy statement/prospectus. Public Shareholders may elect to redeem all or a portion of such Public Shareholder’s Class A
Ordinary Shares even if they vote for the Business Combination Proposal. We sometimes refer to these rights to elect to redeem all or a portion of the Class A Ordinary Shares into a pro rata portion of the cash held in the Trust Account
as “redemption rights.” If you wish to exercise your redemption rights, please see the answer to the next question, “How do I exercise my redemption rights?”
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Notwithstanding the foregoing, a holder of Class A Ordinary Shares, together with any
affiliate of such Public Shareholder or any other person with whom such Public Shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from redeeming its Class A Ordinary Shares
with respect to more than an aggregate of 15% of the outstanding Class A Ordinary Shares, without our prior consent. Accordingly, if a Public Shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the
outstanding Class A Ordinary Shares, then any such shares in excess of that 15% limit would not be redeemed for cash, without our prior consent.
The L&F Initial Shareholders entered into the Sponsor Support Letter Agreement,
pursuant to which they have agreed, for no consideration, to waive their redemption rights with respect to their Founder Shares and Class A Ordinary Shares in connection with the completion of a business combination.
The consummation of the Business Combination is conditioned upon, among other things,
approval by L&F’s shareholders of the Condition Precedent Proposals. Unless waived, if any of these conditions are not satisfied, the Business Combination may not be consummated.
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Q:
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How do I exercise my redemption rights?
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A:
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If you are a holder of Class A Ordinary Shares and wish to exercise your right to redeem your Class A Ordinary Shares, you must:
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(i)
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(a) hold Class A Ordinary Shares or (b) hold Class A Ordinary Shares through L&F Public Units and elect to separate your
units into the underlying Class A Ordinary Shares and L&F Public Warrants prior to exercising your redemption rights with respect to the Class A Ordinary Shares; and
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(ii)
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prior to 5:00 p.m., Eastern Time, on , 2022 (two business days prior to the vote at the Shareholder Meeting) (a) submit a
written request to the Transfer Agent that L&F redeem your Class A Ordinary Shares for cash and (b) deliver your Class A Ordinary Shares to the Transfer Agent, physically or electronically through DTC.
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The address of the Transfer Agent is listed under the question “Who can help answer my questions?” below.
Holders of L&F Public Units must elect to separate the underlying Class A Ordinary
Shares and L&F Public Warrants prior to exercising redemption rights with respect to the Class A Ordinary Shares. If holders hold their L&F Public Units in an account at a brokerage firm or bank, holders must notify their broker or bank
that they elect to separate the L&F Public Units into the underlying Class A Ordinary Shares and L&F Public Warrants, or if a holder holds L&F Public Units registered in its own name, the holder must contact the Transfer Agent
directly and instruct it to do so.
Any holder of Class A Ordinary Shares will be entitled to request that their Class A
Ordinary Shares be redeemed for a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the Business Combination, including interest
earned on the funds held in the Trust Account (net of taxes payable), divided by the number of then-outstanding Class A Ordinary Shares. As of May 27, 2022, the record date for the Shareholder Meeting, this would have amounted to approximately
$10.16 per public share. However, the proceeds deposited in the Trust Account could become subject to the claims of our creditors, if any, which could have priority over the claims of our Public Shareholders, regardless of whether such Public
Shareholders vote for or against the Business Combination Proposal. Therefore, the per share distribution from the Trust Account in such a situation may be less than originally anticipated due to such claims. Your vote on any proposal other
than the Business Combination Proposal will have no impact on the amount you will receive upon exercise of your redemption rights. We anticipate that the funds to be distributed to Public Shareholders electing to redeem their Class A Ordinary
Shares will be distributed promptly after the consummation of the Business Combination.
Any request for redemption, once made by a holder of Class A Ordinary Shares, may be
withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the Closing. If you deliver your shares for redemption to the Transfer Agent and later decide prior to Closing not to elect
redemption, you may request that L&F instruct the Transfer Agent to return the shares (physically or electronically). You may make such request by contacting the Transfer Agent at the phone number or address listed at the end of this
section. We will be required to honor such request only if made prior to the deadline for exercising redemption requests.
Any corrected or changed written exercise of redemption rights must be received by the
Transfer Agent prior to the deadline for exercising redemption requests and, thereafter, with our consent, prior to Closing. No request for redemption will be honored unless the holder’s stock has been delivered (either physically or
electronically) to the Transfer Agent by 5:00 p.m., Eastern Time, on , 2022 (two business days prior to the date of the Shareholder Meeting).
If a holder of Class A Ordinary Shares properly makes a request for redemption and the
Class A Ordinary Shares are delivered as described above, then, if the Business Combination is consummated, New ZeroFox will redeem Class A Ordinary Shares for a pro rata portion of funds deposited in the Trust Account, calculated as of two
business days prior to the consummation of the Business Combination. If you are a holder of Class A Ordinary Shares and you exercise your redemption rights, it will not result in the loss of any L&F Public Warrants that you may hold.
44
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Q:
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Will how I vote on the Business Combination proposal affect my ability to exercise redemption rights?
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A:
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No. You may exercise your redemption rights irrespective of whether you vote your Class A Ordinary Shares for or against the
Business Combination Proposal or any other proposal described in this proxy statement/prospectus. As a result, the Business Combination Agreement can be approved by shareholders who will redeem their Class A Ordinary Shares and no
longer remain shareholders, leaving shareholders who choose not to redeem their shares holding shares in a company with a less liquid trading market, fewer shareholders, less cash and the potential inability to meet the listing
standards of the NYSE or Nasdaq.
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Q:
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If I am a holder of units, can I exercise redemption rights with respect to my units?
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A:
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No. Holders of outstanding L&F Public Units must elect to separate the units into the underlying Class A Ordinary Shares and
L&F Public Warrants prior to exercising redemption rights with respect to the Class A Ordinary Shares. If you hold your L&F Public Units in an account at a brokerage firm or bank, you must notify your broker or bank that you
elect to separate the units into the underlying Class A Ordinary Shares and L&F Public Warrants, or if you hold L&F Public Units registered in your own name, you must contact the Transfer Agent directly and instruct them to do
so. If you fail to cause your Class A Ordinary Shares to be separated and delivered to the Transfer Agent by 5:00 p.m., Eastern Time, on (two business days prior to the date of the Shareholder Meeting), you will not be able to
exercise your redemption rights with respect to your Class A Ordinary Shares.
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Q:
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What are the U.S. federal income tax consequences of the Domestication?
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A:
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As discussed more fully under “Certain Material United States Federal
Income Tax Considerations,” the Domestication generally should qualify as an F Reorganization. However, L&F has not requested, and does not intend to request, a ruling from the IRS as to the U.S. federal income tax
consequences of the Domestication. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a contrary position. Accordingly, each U.S. Holder of our securities is urged to consult its
tax advisor with respect to the particular tax consequences of the Domestication to such U.S. Holder. If the Domestication qualifies as a reorganization within the meaning of Section 368(a)(1)(F) of the Code, U.S. Holders (as defined
in “Certain Material United States Federal Income Tax Considerations — U.S. Holders” below) will be subject to Section 367(b) of the Code and, as a result
of the Domestication, as well as the “passive foreign investment company,” or PFIC, rules of the Code (discussed in the section entitled “Certain Material United States Federal Income Tax
Considerations — U.S. Holders — PFIC Considerations” below):
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•
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a U.S. Holder that holds Public Shares that have a fair market value of less than $50,000 on the date of the Domestication and
that is not a U.S. Shareholder (as defined herein) on the date of the Domestication generally will not recognize any gain or loss and will not be required to include any part of L&F’s earnings in income;
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•
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a U.S. Holder that holds Public Shares that have a fair market value of $50,000 or more on the date of the Domestication, and
that is not a U.S. Shareholder (as defined herein) on the date of the Domestication generally will recognize gain (but not loss) on the exchange of L&F Public Shares for ZeroFox Holdings, Inc.’s Common Stock pursuant to the
Domestication. As an alternative to recognizing gain, such U.S. Holder may file an election to include in income as a deemed dividend the “all earnings and profits amount,” as defined in the U.S. Department of the Treasury Regulations
under Section 367(b) of the Code, attributable to its Public Shares provided certain other requirements are satisfied; and
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•
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a U.S. Holder that, on the date of the Domestication, owns (directly or constructively) 10% or more of the total combined
voting power of all classes of our stock entitled to vote or 10% or more of the total value of all classes of our stock (a “U.S. Shareholder”) generally will be required to include in income as a deemed dividend the “all earnings and
profits amount” attributable to its Public Shares provided certain other requirements are satisfied.
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L&F does not expect to have significant cumulative earnings and profits through
the date of the Domestication.
Furthermore, even if the Domestication qualifies as an F Reorganization, a U.S. Holder
of L&F Public Shares or L&F Public Warrants may, in certain circumstances, still recognize gain (but not loss) upon the
45
exchange of its L&F Public Shares or L&F Public Warrants for the common
stock or warrants of ZeroFox Holdings, Inc. pursuant to the Domestication under the PFIC rules of the Code. Proposed Treasury Regulations with a retroactive effective date have been promulgated under Section 1291(f) of the Code which
generally require that a U.S. person who disposes of stock of a PFIC (including for this purpose exchanging public warrants for newly issued warrants in the Domestication) must recognize gain equal to the excess, if any, of the fair market
value of the common stock or warrants of ZeroFox Holdings, Inc. received in the Domestication and the U.S. Holder’s adjusted tax basis in the corresponding L&F Public Shares or L&F Public Warrants surrendered in exchange therefor,
notwithstanding any other provision of the Code. Because L&F is a blank check company with no current active business, L&F takes the position that it is classified as a PFIC for U.S. federal income tax purposes. As a result, these
proposed Treasury Regulations, if finalized in their current form, would generally require a U.S. Holder of L&F Public Shares or L&F Public Warrants to recognize gain on the exchange of such shares or warrants for common stock or
warrants of ZeroFox Holdings, Inc. pursuant to the Domestication, unless, in the case of only common stock, such U.S. Holder has made certain tax elections with respect to such U.S. Holder’s Public Shares. A U.S. Holder cannot currently make
the aforementioned elections with respect to such U.S. Holder’s public warrants. The tax on any such gain so recognized would be imposed at the rate applicable to ordinary income and an interest charge would apply based on complex rules
designed to offset the tax deferral to such U.S. Holder on the undistributed earnings, if any, of L&F. It is not possible to determine at this time whether, in what form, and with what effective date, final Treasury Regulations under
Section 1291(f) of the Code will be adopted. For a more complete discussion of the potential application of the PFIC rules to U.S. Holders as a result of the Domestication, see the discussion in the section entitled “Certain Material United States Federal Income Tax Considerations — U.S. Holders — PFIC Considerations.”
Additionally, the Domestication may cause non-U.S. Holders (as defined in “Certain Material United States Federal Income Tax Considerations — Non-U.S. Holders”) to become subject to U.S. federal income withholding taxes on any dividends paid in respect of such non-U.S. Holder’s
ZeroFox Holdings, Inc.’s public shares after the Domestication.
The tax consequences of the Domestication are complex and will depend on a holder’s
particular circumstances. All holders are urged to consult their tax advisor on the tax consequences to them of the Domestication, including the applicability and effect of U.S. federal, state, local and foreign income and other tax laws. For a
more complete discussion of the U.S. federal income tax considerations of the Domestication, see “Certain Material United States Federal Income Tax Considerations.”
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Q:
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What are the U.S. federal income tax consequences of exercising my redemption rights?
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A:
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We expect that a U.S. Holder that exercises its redemption rights to receive cash from the Trust Account in exchange for its
Public Shares will generally be treated as selling such Public Shares, which, subject to the application of the “passive foreign investment company,” or PFIC, rules of the Code (discussed in the section entitled “Certain Material United States Federal Income Tax Considerations — U.S. Holders — PFIC
Considerations”), would result in the recognition of capital gain or loss, which will generally be long-term capital gain or loss if the U.S. Holder’s holding period for such redeemed Public Shares exceeds one year at
the time of the redemption. There may be certain circumstances in which the redemption may be treated as a distribution for U.S. federal income tax purposes depending on the amount of Public Shares that such U.S. Holder owns or is
deemed to own (including through the ownership of L&F Public Warrants) prior to and following the redemption.
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Q:
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Do I have appraisal rights in connection with the proposed Business Combination?
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A:
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No. Neither our shareholders nor our warrant holders have appraisal rights in connection with the Domestication under the Cayman
Islands Companies Act or in connection with the Business Combination under the DGCL.
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Q:
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What do I need to do now?
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A:
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L&F urges you to read carefully and consider the information contained in this proxy statement/prospectus, including the
annexes, and to consider how the Business Combination will affect you as a shareholder and/or warrant holder of L&F. Shareholders should then vote as soon as possible in accordance with the instructions provided in this proxy
statement/prospectus and on the enclosed proxy card.
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46
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Q:
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How do I vote?
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A:
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If you were a holder of record of L&F Ordinary Shares on May 27, 2022, the record date for the Shareholder Meeting, you may
vote with respect to the proposals in person or virtually at the Shareholder Meeting, or by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.
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Voting by Mail. By signing the
proxy card and returning it in the enclosed prepaid and addressed envelope, you are authorizing the individuals named on the proxy card to vote your shares at the Shareholder Meeting in the manner you indicate. You are encouraged to sign and
return the proxy card even if you plan to attend the Shareholder Meeting so that your shares will be voted if you are unable to attend the Shareholder Meeting. If you receive more than one proxy card, it is an indication that your shares are
held in multiple accounts. Please sign and return all proxy cards to ensure that all of your shares are voted. Votes submitted by mail must be received by 5:00 p.m., Eastern Time, on , 2022.
Voting in Person at the Meeting.
If you attend the Shareholder Meeting and plan to vote in person, you will be provided with a ballot at the Shareholder Meeting. If your shares are registered directly in your name, you are considered the shareholder of record and you have
the right to vote in person at the Shareholder Meeting. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, you should follow the instructions provided by your broker, bank
or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your shares or, if you wish to attend the
Shareholder Meeting and vote in person, you will need to bring to the Shareholder Meeting a legal proxy from your broker, bank or nominee authorizing you to vote these shares. For additional information, please see the section titled “Shareholder Meeting.”
Voting Electronically.
You may attend, vote and examine the list of shareholders entitled to vote at the Shareholder Meeting by visiting https://www.cstproxy.com/lfacquisitioncorp/am2022 and entering the control number found on your
proxy card, voting instruction form or notice included in the proxy materials.
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Q:
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If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?
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A:
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If your shares are held in “street name” in a stock brokerage account or by a broker, bank or other nominee, you must provide
the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote shares held in “street name” by
returning a proxy card directly to L&F or by voting online at the Shareholder Meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee.
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Under the rules of the NYSE, brokers who hold shares in “street name” for a beneficial
owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not permitted to exercise their voting discretion with
respect to the approval of matters that the NYSE determines to be “non-routine” without specific instructions from the beneficial owner. It is expected that all proposals to be voted on at the Shareholder Meeting are “non-routine” matters and
therefore, L&F does not expect there to be any broker non-votes at the Shareholder Meeting.
If you are an L&F shareholder holding your shares in “street name” and you do not
instruct your broker, bank or other nominee on how to vote your shares, your broker, bank or other nominee will not vote your shares on the Articles Amendment Proposal, the Business Combination Proposal, the Domestication Proposal, the
Governing Documents Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal, the Director Election Proposal or the Adjournment Proposal.
Accordingly, your bank, broker, or other nominee can vote your shares at the Shareholder Meeting only if you provide instructions on how to vote. You should instruct your broker to vote your shares as soon as possible in accordance with
directions you provide.
Abstentions will be considered present for the purposes of establishing a quorum but,
as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on the approval of each of the proposals as a matter of Cayman Islands law.
47
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Q:
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When and where will the Shareholder Meeting be held?
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A:
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The Shareholder Meeting will be held on , 2022 at a.m., Eastern Time, at the offices of Kirkland & Ellis LLP
located at 601 Lexington Avenue, New York, New York 10022, and via a virtual meeting, or at such other time, on such other date and at such other place to which the meeting may be postponed or adjourned.
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Shareholders may attend the Shareholder Meeting in person. However, in view of the
ongoing COVID-19 pandemic, we are taking precautionary measures and therefore encourage you to attend the Shareholder Meeting virtually. If you wish to attend the Shareholder Meeting in person, you must reserve your attendance at least two
business days in advance of the Shareholder Meeting by contacting L&F’s investor relations department at info@lfacquisitioncorp.com by 9:00 a.m., Eastern Time, on , 2022 (two business days prior to the meeting date).
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Q:
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How do I attend the virtual Shareholder Meeting?
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A:
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If you are a registered shareholder, you will receive a proxy card from the Transfer Agent. The form contains instructions on
how to attend the virtual Shareholder Meeting including the URL address, along with your control number. You will need your control number for access. If you do not have your control number, contact the Transfer Agent at 917-262-2373,
or email proxy@continentalstock.com.
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You can pre-register to attend the virtual Shareholder Meeting starting , 2022
at a.m., Eastern Time (three business days prior to the meeting date). Enter the URL address into your browser https://www.cstproxy.com/lfacquisitioncorp/am2022, enter your control number, name and email address. Once you pre-register
you can vote or enter questions in the chat box. At the start of the Shareholder Meeting you will need to log in again using your control number and will also be prompted to enter your control number if you vote during the Shareholder
Meeting.
Shareholders who hold their investments through a bank or broker, will need to contact
the Transfer Agent to receive a control number. If you plan to vote at the Shareholder Meeting you will need to have a legal proxy from your bank or broker or if you would like to join and not vote, the Transfer Agent will issue you a guest
control number with proof of ownership. In either case you must contact the Transfer Agent for specific instructions on how to receive the control number. The Transfer Agent can be contacted at the number or email address above. Please allow up
to 72 hours prior to the meeting for processing your control number.
If you do not have access to Internet, you can listen only to the meeting by
dialing 1 800-450-7155 (or +1 857-999-9155 if you are located outside the United States and Canada (standard rates apply)) and when prompted enter the pin number 8345951#. Please note that you will not be able to vote or ask questions at the
Shareholder Meeting if you choose to participate telephonically.
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Q:
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Who is entitled to vote at the Shareholder Meeting?
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A:
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L&F has fixed May 27, 2022 as the record date for the Shareholder Meeting. If you were a shareholder of L&F at the
close of business on the Record Date, you are entitled to vote on matters that come before the Shareholder Meeting. However, a shareholder may only vote his or her shares if he or she is present in person (which would include presence
at the virtual Shareholder Meeting) or is represented by proxy at the Shareholder Meeting.
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Q:
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How many votes do I have?
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A:
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Our shareholders are entitled to one vote at the Shareholder Meeting for each L&F Ordinary Share held of record as of the
Record Date. As of the close of business on the Record Date, there were outstanding 7,738,189 L&F Ordinary Shares, of which 3,425,689 were Class A Ordinary Shares. Under the terms of the Existing Governing Documents, only the
holders of Class B Ordinary Shares are entitled to vote on the election of directors to the L&F Board.
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Q:
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What constitutes a quorum?
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A:
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A quorum of our shareholders is necessary to hold a valid meeting. The presence (which would include presence at the virtual
Shareholder Meeting), in person or by proxy, of shareholders holding a majority of the L&F
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48
Ordinary Shares entitled to vote at the Shareholder Meeting constitutes a quorum at
the Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum. The L&F Initial Shareholders, who own approximately 55.7% of the issued and outstanding L&F Ordinary Shares as of the Record
Date, own a sufficient number of shares to constitute a quorum. As a result, as of the Record Date, in addition to the shares of the L&F Initial Shareholders, no additional L&F Ordinary Shares, held by Public Shareholders would be
required to be present at the Shareholder Meeting to achieve a quorum. Because all of the proposals to be voted on at the Shareholder Meeting are “non-routine” matters, banks, brokers and other nominees will not have authority to vote on any
proposals unless instructed, so L&F does not expect there to be any broker non-votes at the Shareholder Meeting. In the absence of a quorum, the chairman of the Shareholder Meeting has power to adjourn the Shareholder Meeting.
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Q:
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What vote is required to approve each proposal at the Shareholder Meeting?
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A:
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The following votes are required for each proposal at the Shareholder Meeting:
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•
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Articles Amendment Proposal: The approval of the Articles Amendment Proposal requires a
special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and
entitled to vote thereon at the Shareholder Meeting.
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•
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Business Combination Proposal: The approval of the Business Combination Proposal
requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and
entitled to vote thereon at the Shareholder Meeting.
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•
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Domestication Proposal: The approval of the Domestication Proposal requires a special
resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and
entitled to vote thereon at the Shareholder Meeting.
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•
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Governing Documents Proposal: The approval of the Governing Documents Proposal requires
a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy
and entitled to vote thereon at the Shareholder Meeting.
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•
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Advisory Governing Documents Proposals: The approval of each of the Advisory Governing
Documents Proposals requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or
represented by proxy and entitled to vote thereon at the Shareholder Meeting. Each of the Advisory Governing Documents Proposals will be voted upon on a non-binding advisory basis only.
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•
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Listing Proposal: The approval of the Listing Proposal requires an ordinary resolution
under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the
Shareholder Meeting.
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•
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Incentive Equity Plan Proposal: The approval of the Incentive Equity Plan Proposal
requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and
entitled to vote thereon at the Shareholder Meeting.
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•
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The Employee Stock Purchase Plan Proposal: The approval of the Employee Stock Purchase
Plan Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by
proxy and entitled to vote thereon at the Shareholder Meeting.
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•
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Director Election Proposal: The approval of the Director Election Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued Class B Ordinary Shares who are present in person or represented by
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49
proxy and entitled to vote thereon at the Shareholder Meeting. Pursuant to the Sponsor
Support Letter Agreement, the L&F Initial Shareholders have agreed to vote their Class B Ordinary Shares in favor of the Director Election Proposal and the election of the director nominees is therefore assured.
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Adjournment Proposal: The approval of the Adjournment Proposal requires an ordinary
resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon
at the Shareholder Meeting.
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The approval of each of the proposals other than the Articles Amendment Proposal, the
Domestication Proposal and the Governing Documents Proposal will not require the affirmative vote of the Public Shareholders based on the ownership of the Sponsor Holders. In addition to the votes of the Sponsor Holders, the approval of the
Articles Amendment Proposal, the Domestication Proposal and the Governing Documents Proposal will require the affirmative vote of at least 846,293 L&F Ordinary Shares held by Public Shareholders (or approximately 24.7% of the issued and
outstanding Class A Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes, and the affirmative vote of no additional L&F Ordinary Shares held by Public Shareholders if only such shares as
are required to establish a quorum are represented at the Shareholder Meeting and cast votes.
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Q:
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What are the recommendations of the Board?
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A:
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The Board believes that the Business Combination Proposal and the other proposals to be presented at the Shareholder Meeting are
in the best interests of L&F’s shareholders and unanimously recommends that our shareholders vote “FOR” the Articles Amendment Proposal, “FOR” the Business Combination Proposal, “FOR” the Domestication Proposal, “FOR” the Governing
Documents Proposal, “FOR” each of the Advisory Governing Documents Proposals, “FOR” the Listing Proposal, “FOR” the Incentive Equity Plan Proposal, “FOR” the Employee Stock Purchase Plan Proposal, “FOR” each of the director nominees set
forth in the Director Election Proposal, and “FOR” the Adjournment Proposal, in each case, if presented to the Shareholder Meeting.
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The existence of financial and personal interests of L&F’s directors and officers
may result in conflicts of interest, including a conflict between what may be in the best interests of L&F and its shareholders and what may be best for a director’s personal interests when determining to recommend that shareholders vote
for the proposals. These conflicts of interest include, among other things, that if we do not consummate an initial business combination by August 24, 2022, we may be forced to liquidate, and the 4,312,500 Founder Shares owned by the Sponsor
Holders and 5,450,000 Private Placement Warrants owned by our Sponsor, of which our directors and officers are members, would be worthless. See the sections titled “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination,” “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest
and Waiver of Corporate Opportunity Doctrine,” “Risk Factors,” “Certain Relationships and Related Person Transactions,” “Executive and Director Compensation - Director Compensation” and “Beneficial Ownership of Securities” for more information.
|
Q:
|
How do the L&F Initial Shareholders intend to vote their shares?
|
|
A:
|
Pursuant to the terms of the Sponsor Support Letter Agreement, the L&F Initial Shareholders have agreed to vote their
Founder Shares and any Class A Ordinary Shares purchased by them, in favor of the Business Combination Proposal and all of the other proposals. As of the date of this proxy statement/prospectus, the L&F Initial Shareholders own an
aggregate of 4,312,500 L&F Ordinary Shares, which in the aggregate represents approximately 55.7% of our total outstanding shares on the date of this proxy statement/prospectus.
|
|
Q:
|
May our Sponsor and the other L&F Initial Shareholders purchase Class A Ordinary Shares or L&F Public
Warrants prior to the Shareholder Meeting?
|
|
A:
|
At any time prior to the Shareholder Meeting, during a period when they are not then aware of any material nonpublic information
regarding L&F or our securities, L&F’s Initial Shareholders, the Target Companies and/or their respective affiliates may purchase shares and/or warrants from investors, or they may enter into transactions with such investors and
others to provide them with incentives to acquire shares of L&F Ordinary Shares. In such transactions, the purchase price for the Class A Ordinary Shares will not exceed the redemption price. In addition,
|
50
the persons described above will waive redemption rights, if any, with respect to
the Class A Ordinary Shares they acquire in such transactions. However, any Class A Ordinary Shares acquired by the persons described above would not be voted in connection with the Business Combination Proposal.
The purpose of such share purchases and other transactions would be to increase the
likelihood that the conditions to the consummation of the Business Combination are satisfied or to provide additional equity financing. This may result in the completion of our Business Combination that may not otherwise have been possible.
While the exact nature of any such incentives has not been determined as of the date of this proxy statement/prospectus, they might include, without limitation, arrangements to protect such investors or holders against potential loss in value
of their shares, including the granting of put options.
Entering into any such incentive arrangements may have a depressive effect on the
Class A Ordinary Shares. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares he owns, either
prior to or immediately after the Shareholder Meeting.
As of the date of this proxy statement/prospectus, there have been no such discussions
and no agreements to such effect have been entered into with any such investor or holder. L&F will file a Current Report on Form 8-K prior to the Shareholder Meeting to disclose any arrangements entered into or significant purchases made by
any of the aforementioned persons. Any such report will include (i) the amount of Class A Ordinary Shares purchased and the purchase price; (ii) the purpose of such purchases; (iii) the impact of such purchases on the likelihood that the
Business Combination transaction will be approved; (iv) the identities or characteristics of security holders who sold shares if not purchased in the open market or the nature of the sellers; and (v) the number of Class A Ordinary Shares for
which L&F has received redemption requests.
|
Q:
|
What happens if I sell my Class A Ordinary Shares before the Shareholder Meeting?
|
|
A:
|
The record date for the Shareholder Meeting is earlier than the date of the Shareholder Meeting and earlier than the date that
the Business Combination is expected to be completed. If you transfer your Class A Ordinary Shares after the Record Date, but before the Shareholder Meeting, unless you grant a proxy to the transferee, you will retain your right to vote
at the Shareholder Meeting with respect to such shares, but the transferee, and not you, will have the ability to redeem such shares (if time permits).
|
|
Q:
|
How has the announcement of the Business Combination affected the trading price of L&F’s Class A Ordinary
Shares, L&F Public Units and L&F Public Warrants?
|
|
A:
|
On December 17, 2021, the last trading date before the public announcement of the Business Combination, the Class A Ordinary
Shares, L&F Public Warrants and L&F Public Units closed at $10.08, $0.6601 and $10.3778, respectively. On , the trading date immediately prior to the date of this proxy statement/prospectus, the Class A Ordinary Shares,
L&F Public Warrants and L&F Public Units closed at $ , $ and $ , respectively.
|
|
Q:
|
May I change my vote after I have mailed my signed proxy card?
|
|
A:
|
Yes. Shareholders may send a later-dated, signed proxy card to L&F at 150 North Riverside Plaza, Suite 5200 Chicago, IL
60606 so that it is received by L&F prior to the vote at the Shareholder Meeting (which is scheduled to take place on ) or attend the Shareholder Meeting in person (which would include presence at the virtual Shareholder Meeting)
and vote. Shareholders also may revoke their proxy by sending a notice of revocation to L&F’s Secretary, which must be received by L&F’s Secretary prior to the vote at the Shareholder Meeting. However, if your shares are held in
“street name” by your broker, bank or another nominee, you must contact your broker, bank or other nominee to change your vote.
|
|
Q:
|
What happens if I fail to take any action with respect to the Shareholder Meeting?
|
|
A:
|
If you fail to take any action with respect to the Shareholder Meeting and the Business Combination is approved by shareholders
and consummated, you will become a shareholder and/or warrant holder of New ZeroFox. If you fail to take any action with respect to the Shareholder Meeting and the Business Combination is not approved, you will remain a shareholder
and/or warrant holder of L&F. However, if you
|
51
fail to take any action with respect to the Shareholder Meeting, you will
nonetheless be able to elect to redeem your Class A Ordinary Shares in connection with the Business Combination, provided you follow the instructions in this proxy statement for redeeming your shares.
|
Q:
|
What should I do with my stock certificates, warrant certificates and/or unit certificates?
|
|
A:
|
Shareholders who exercise their redemption rights must deliver their stock certificates to the Transfer Agent (either physically
or electronically) prior to 5:00 p.m., Eastern Time, on , 2022 (two business days prior to the date of the Shareholder Meeting).
|
L&F warrant holders should not submit the certificates relating to their L&F
Warrants. Public Shareholders who do not elect to have their Class A Ordinary Shares redeemed for the pro rata share of the Trust Account should not submit the certificates relating to their Class A Ordinary Shares.
Upon effectiveness of the Business Combination, holders of L&F Ordinary Shares and
L&F Public Warrants will receive New ZeroFox Common Stock and New ZeroFox Public Warrants without needing to take any action and accordingly such holders do not need to submit the certificates relating to their L&F Ordinary Shares and
warrants. In addition, before the Closing, each outstanding L&F Public Unit will be separated into its component Class A Ordinary Share and one-half of one L&F Public Warrant.
|
Q:
|
What should I do if I receive more than one set of voting materials?
|
|
A:
|
Shareholders may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple
proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a
holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast a
vote with respect to all of your L&F Ordinary Shares.
|
|
Q:
|
Who can help answer my questions?
|
|
A:
|
If you have questions about the Business Combination or if you need additional copies of the proxy statement/prospectus or the
enclosed proxy card you should contact:
|
Morrow Sodali LLC
333 Ludlow Street, 5th Floor, South Tower
Stamford, CT 06902
Individuals call toll-free (800) 662-5200
Banks and brokers call (203) 658-9400
Email: LNFA.info@investor.morrowsodali.com
You also may obtain additional information about L&F from documents filed with the
SEC by following the instructions in the section titled “Where You Can Find More Information.” If you are a holder of Class A Ordinary Shares and you intend to seek redemption of your shares, you will
need to deliver your Class A Ordinary Shares (either physically or electronically) to the Transfer Agent at the address below prior to 5:00 p.m., Eastern Time, on (two business days prior to the date of the Shareholder Meeting). If you have
questions regarding the certification of your position or delivery of your stock, please contact:
Mark Zimkind
Continental Stock Transfer & Trust Company
One State Street Plaza, 30th Floor
New York, New York 10004
E-mail: mzimkind@continentalstock.com
52
The following tables contain summary historical financial data for
L&F. Such data as of December 31, 2021, and for the year ended December 31, 2021 has been derived from the audited consolidated financial statements of L&F included elsewhere in this proxy statement/prospectus. The summary historical
interim financial data of L&F as of March 31, 2022 and for the three months ended March 31, 2022 are derived from L&F's unaudited interim consolidated financial statements included elsewhere in this proxy statement/prospectus.
The information below is only a summary and should be read in
conjunction with L&F’s consolidated financial statements, and the notes and schedules related thereto, which are included elsewhere in this proxy statement/prospectus and the section titled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations of L&F.” L&F’s historical results are not necessarily indicative of future results, and the results for any interim period are not necessarily indicative
of the results that may be expected for a full fiscal year.
|
|
| |
Three Months ended
March 31, 2022
|
| |
Year Ended
December 31, 2021
|
|
Statement of Operations Data
|
| |
|
| |
|
|
General and administrative expenses
|
| |
$1,763,359
|
| |
$3,847,916
|
|
Loss from operations
|
| |
(1,763,359)
|
| |
(3,847,916)
|
|
Other income (expense)
|
| |
|
| ||
|
Change in fair value of warrant liabilities
|
| |
8,724,725
|
| |
9,425,504
|
|
Interest earned on marketable investments held in Trust Account
|
| |
16,649
|
| |
20,498
|
|
Net income (loss)
|
| |
$6,978,015
|
| |
$5,598,086
|
|
Weighted average shares outstanding of Class A Ordinary Shares
|
| |
17,250,000
|
| |
17,250,000
|
|
Basic and diluted net income (loss) per
ordinary share, Class A Ordinary Shares
|
| |
$0.32
|
| |
$0.26
|
|
Weighted average shares outstanding of Class B ordinary shares
|
| |
4,312,500
|
| |
4,312,500
|
|
Basic and diluted net income (loss) per
ordinary share, Class B Ordinary Shares
|
| |
$0.32
|
| |
$0.26
|
|
|
| |
March 31, 2022
|
| |
December 31, 2021
|
|
Condensed Balance Sheet Data (At Period End)
|
| |
|
| |
|
|
Total assets
|
| |
$ 175,396,592
|
| |
$175,694,935
|
|
Total liabilities
|
| |
$20,533,742
|
| |
$27,810,100
|
|
Class A Ordinary Shares subject to possible redemption,
17,250,000 shares at $10.15 per share at March 31, 2022 and December 31, 2021
|
| |
$175,087,500
|
| |
$175,087,500
|
|
Class A Ordinary Shares, $0.0001 par value; 500,000,000
shares authorized; no shares issued and outstanding at March 31, 2022 and December 31, 2021 (not including 17,250,000 shares subject to redemption)
|
| |
—
|
| |
|
|
Class B Ordinary Shares, $0.0001 par value; 50,000,000
shares authorized; 4,312,500 shares issued and outstanding at March 31, 2022 and December 31, 2021
|
| |
431
|
| |
431
|
|
Total shareholders’ deficit
|
| |
$(20,224,650)
|
| |
$(27,202,665)
|
53
The following table shows summary historical information of ZeroFox
for the periods and as of the dates indicated.
The summary historical financial information of ZeroFox for the years
ended January 31, 2022, 2021 and 2020 and the condensed balance sheet data as of January 31, 2022 and 2021 are derived from ZeroFox’s audited financial statements included elsewhere in this proxy statement/prospectus. The summary historical
condensed statements of operations data of ZeroFox for the three months ended April 30, 2022 and 2021 and the condensed balance sheet data as of April 30, 2022 are derived from ZeroFox’s unaudited interim condensed financial statements included
elsewhere in this proxy statement/prospectus.
The following summary historical financial information should be read
together with the consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox” appearing elsewhere in
this proxy statement/prospectus. The summary historical financial information in this section is not intended to replace ZeroFox’s consolidated financial statements and the related notes. ZeroFox’s historical results are not necessarily
indicative of ZeroFox’s future results.
As explained elsewhere in this proxy statement/prospectus, the
financial information contained in this section relates to ZeroFox, prior to and without giving pro forma effect to the impact of the Business Combination and, as a result, the results reflected in this section may not be indicative of the
results of New ZeroFox going forward. See the section “Unaudited Pro Forma Condensed Combined Financial Information” included elsewhere in this proxy statement/prospectus.
|
|
| |
Year Ended January 31,
|
| |
Three Months Ended
April 30,
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
|
| |
(in thousands, except
for share data)
|
||||||||||||
|
Revenue
|
| |
$47,433
|
| |
$28,538
|
| |
$16,390
|
| |
$13,591
|
| |
$10,987
|
|
Cost of revenue(1)
|
| |
16,357
|
| |
9,646
|
| |
5,765
|
| |
4,249
|
| |
3,615
|
|
Gross profit
|
| |
31,076
|
| |
18,892
|
| |
10,625
|
| |
9,342
|
| |
7,372
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development(1)
|
| |
12,810
|
| |
5,942
|
| |
5,582
|
| |
3,961
|
| |
2,389
|
|
Sales and marketing(1)
|
| |
29,873
|
| |
21,466
|
| |
18,852
|
| |
8,534
|
| |
6,449
|
|
General and administrative(1)
|
| |
16,408
|
| |
9,681
|
| |
5,629
|
| |
4,946
|
| |
2,031
|
|
Total operating expenses
|
| |
59,091
|
| |
37,089
|
| |
30,063
|
| |
17,441
|
| |
10,869
|
|
Loss from operations
|
| |
(28,015)
|
| |
(18,197)
|
| |
(19,438)
|
| |
(8,099)
|
| |
(3,497)
|
|
Interest expense, net
|
| |
(3,585)
|
| |
(2,233)
|
| |
(1,854)
|
| |
(1,386)
|
| |
(698)
|
|
Loss on extinguishment of debt
|
| |
—
|
| |
(1,418)
|
| |
(1,274)
|
| |
—
|
| |
—
|
|
Change in fair value of warrant
liability
|
| |
(7,375)
|
| |
(806)
|
| |
(75)
|
| |
(663)
|
| |
(31)
|
|
Total other expense
|
| |
(10,960)
|
| |
(4,457)
|
| |
(3,203)
|
| |
(2,049)
|
| |
(729)
|
|
Loss before provision for income taxes
|
| |
(38,975)
|
| |
(22,654)
|
| |
(22,641)
|
| |
(10,148)
|
| |
(4,226)
|
|
(Benefit from) provision for income taxes
|
| |
(536)
|
| |
86
|
| |
98
|
| |
55
|
| |
15
|
|
Net Loss
|
| |
$(38,439)
|
| |
$(22,740)
|
| |
$(22,739)
|
| |
$(10,203)
|
| |
$(4,241)
|
|
Net loss per share attributable to common stockholders,
basic and diluted
|
| |
$(0.91)
|
| |
$(0.55)
|
| |
$(0.55)
|
| |
$(0.24)
|
| |
$(0.10)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares used in computation of net loss
per share attributable to common stockholders, basic and diluted:
|
| |
42,073,351
|
| |
41,635,679
|
| |
41,346,979
|
| |
42,962,226
|
| |
41,914,026
|
54
|
(1)
|
Includes stock-based compensation as follows:
|
|
|
| |
Year Ended January 31,
|
| |
Three Months Ended
April 30,
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
|
| |
(in thousands)
|
||||||||||||
|
Cost of revenue
|
| |
$50
|
| |
$3
|
| |
$9
|
| |
$10
|
| |
$5
|
|
Research and development
|
| |
97
|
| |
72
|
| |
85
|
| |
55
|
| |
23
|
|
Sales and marketing
|
| |
222
|
| |
130
|
| |
87
|
| |
85
|
| |
40
|
|
General and administrative
|
| |
327
|
| |
245
|
| |
87
|
| |
224
|
| |
65
|
|
Total stock-based compensation expense
|
| |
$696
|
| |
$450
|
| |
$268
|
| |
$374
|
| |
$133
|
|
|
| |
As of January 31,
|
| |
As of April 30,
|
|||
|
|
| |
2022
|
| |
2021
|
| |
2022
|
|
|
| |
(in
thousands)
|
||||||
|
Cash and cash equivalents
|
| |
$10,274
|
| |
$13,764
|
| |
$10,110
|
|
Working capital(2)
|
| |
(14,028)
|
| |
(7,940)
|
| |
(16,802)
|
|
Total assets
|
| |
91,390
|
| |
82,932
|
| |
86,828
|
|
Total deferred revenue
|
| |
38,831
|
| |
28,501
|
| |
39,661
|
|
Total long-term debt
|
| |
51,473
|
| |
28,575
|
| |
58,390
|
|
Redeemable convertible preferred stock
|
| |
132,229
|
| |
124,390
|
| |
132,229
|
|
Additional paid-in capital
|
| |
3,873
|
| |
2,975
|
| |
4,327
|
|
Accumulated deficit
|
| |
(156,820)
|
| |
(118,381)
|
| |
(167,023)
|
|
Total shareholders' deficit
|
| |
(153,148)
|
| |
(115,529)
|
| |
(162,843)
|
|
(2)
|
We define working capital as current assets less current liabilities.
|
55
The following table shows summary historical information of IDX for
the periods and as of the dates indicated.
The summary historical financial information of IDX for the years
ended December 31, 2021, 2020, and 2019 and the condensed balance sheet data as of December 31, 2021 and 2020 are derived from IDX’s audited financial statements included elsewhere in this proxy statement/prospectus. The summary historical
condensed statements of operations data of IDX for the three months ended March 31, 2022 and 2021 and the condensed balance sheet data as of March 31, 2022 are derived from IDX’s unaudited interim condensed financial statements included
elsewhere in this proxy statement/prospectus.
The following summary historical financial information should be read
together with the consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of IDX” appearing elsewhere in this
proxy statement/prospectus. The summary historical financial information in this section is not intended to replace IDX’s consolidated financial statements and the related notes. IDX’s historical results are not necessarily indicative of IDX’s
future results.
As explained elsewhere in this proxy statement/prospectus, the
financial information contained in this section relates to IDX, prior to and without giving pro forma effect to the impact of the Business Combination and, as a result, the results reflected in this section may not be indicative of the results
of New ZeroFox going forward. See the section “Unaudited Pro Forma Condensed Combined Financial Information” included elsewhere in this proxy statement/prospectus.
|
|
| |
Year Ended
December 31,
|
| |
Three Months Ended
March 31,
|
|||||||||
|
|
| |
2021
|
| |
2020
|
| |
2019
|
| |
2022
|
| |
2021
|
|
|
| |
(in thousands, except share and per share data)
|
||||||||||||
|
Revenue
|
| |
$106,072
|
| |
$103,536
|
| |
$103,104
|
| |
$27,474
|
| |
$26,956
|
|
Cost of services
|
| |
82,745
|
| |
77,900
|
| |
83,388
|
| |
21,265
|
| |
20,702
|
|
Gross profit
|
| |
23,327
|
| |
25,636
|
| |
19,716
|
| |
6,209
|
| |
6,254
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
4,941
|
| |
4,113
|
| |
3,839
|
| |
1,450
|
| |
1,127
|
|
Sales and marketing
|
| |
7,181
|
| |
6,988
|
| |
6,897
|
| |
1,896
|
| |
1,971
|
|
General and administrative(1)
|
| |
6,873
|
| |
4,341
|
| |
4,452
|
| |
2,823
|
| |
1,102
|
|
Total operating expenses
|
| |
18,995
|
| |
15,442
|
| |
15,188
|
| |
6,169
|
| |
4,200
|
|
Income from operations
|
| |
4,332
|
| |
10,194
|
| |
4,528
|
| |
40
|
| |
2,054
|
|
Interest and other expense:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense
|
| |
483
|
| |
986
|
| |
1,263
|
| |
120
|
| |
121
|
|
Change in fair value of warrant liabilities
|
| |
1,943
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Other expense
|
| |
716
|
| |
471
|
| |
536
|
| |
272
|
| |
45
|
|
Total interest and other expense
|
| |
3,143
|
| |
1,457
|
| |
1,799
|
| |
392
|
| |
166
|
|
(Loss) income before provision for income taxes
|
| |
1,189
|
| |
8,737
|
| |
2,729
|
| |
(352)
|
| |
1,888
|
|
Income tax expense (benefit)
|
| |
1,716
|
| |
2,083
|
| |
(424)
|
| |
(94)
|
| |
545
|
|
Net (loss) income
|
| |
$(527)
|
| |
$6,654
|
| |
$3,153
|
| |
$(258)
|
| |
$1,343
|
|
Net (loss) income attributable to common stockholders
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Basic:
|
| |
(32,978)
|
| |
1,651
|
| |
652
|
| |
(258)
|
| |
336
|
|
Diluted:
|
| |
(32,978)
|
| |
6,654
|
| |
3,153
|
| |
(258)
|
| |
1,343
|
|
Net (loss) income per share attributable to common
stockholders
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Basic:
|
| |
(2.80)
|
| |
0.16
|
| |
0.08
|
| |
(0.02)
|
| |
0.03
|
|
Diluted:
|
| |
(2.80)
|
| |
0.15
|
| |
0.07
|
| |
(0.02)
|
| |
0.03
|
|
Weighted average shares used in computing net (loss)
income per share attributable to common stockholders
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Basic:
|
| |
11,778
|
| |
10,587
|
| |
8,363
|
| |
12,656
|
| |
10,726
|
|
Diluted:
|
| |
11,778
|
| |
44,078
|
| |
42,845
|
| |
12,656
|
| |
44,386
|
|
(1)
|
Includes stock-based compensation as follows:
|
56
|
|
| |
Year Ended
December 31,
|
| |
Three Months Ended
March 31,
|
|||||||||
|
|
| |
2021
|
| |
2020
|
| |
2019
|
| |
2022
|
| |
2021
|
|
|
| |
(in thousands)
|
||||||||||||
|
Cost of services
|
| |
$—
|
| |
$—
|
| |
$—
|
| |
$—
|
| |
$—
|
|
Research and development
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Sales and marketing
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
General and administrative
|
| |
28
|
| |
38
|
| |
64
|
| |
6
|
| |
6
|
|
Total stock-based compensation expense
|
| |
$28
|
| |
$38
|
| |
$64
|
| |
$6
|
| |
$6
|
|
|
| |
As of
December 31,
|
| |
As of
March 31,
|
|||
|
|
| |
2021
|
| |
2020
|
| |
2022
|
|
|
| |
(in thousands)
|
||||||
|
Cash and cash equivalents
|
| |
$17,986
|
| |
$14,743
|
| |
$15,697
|
|
Working capital(2)
|
| |
5,434
|
| |
7,277
|
| |
3,802
|
|
Total assets
|
| |
31,417
|
| |
27,058
|
| |
30,737
|
|
Total deferred revenue
|
| |
9,676
|
| |
9,249
|
| |
9,584
|
|
Total long-term debt
|
| |
8,319
|
| |
11,717
|
| |
9,987
|
|
Redeemable convertible preferred stock
|
| |
64,902
|
| |
32,451
|
| |
65,166
|
|
Additional paid-in capital
|
| |
—
|
| |
586
|
| |
8
|
|
Accumulated deficit
|
| |
(70,235)
|
| |
(37,895)
|
| |
(70,493)
|
|
Total stockholders’ deficit
|
| |
$(70,234)
|
| |
$(37,309)
|
| |
$(70,484)
|
|
(2)
|
We define working capital as current assets less current liabilities.
|
57
Defined terms included below shall have the same meaning as terms
defined and included elsewhere in this proxy statement/prospectus.
The following summary unaudited pro forma condensed combined
financial information (the “summary pro forma information”) gives effect to the Business Combination described in the section entitled “Unaudited Pro Forma Condensed
Combined Financial Information.” The presentation of pro forma financial statements is dependent upon which entity in the Business Combination is considered the accounting acquirer. A combining entity can be considered an accounting
acquirer in one scenario and an accounting acquiree in another.
The summary unaudited pro forma condensed combined balance sheet data
as of April 30, 2022 and the summary unaudited pro forma condensed combined statement of operations data for the fiscal year ended January 31, 2022 and the three months ended April 30, 2022 give pro forma effects to the Business Combination as
if it had occurred on February 1, 2021.
The summary pro forma information has been derived from, and should
be read in conjunction with, the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” and the historical financial statements of L&F, ZeroFox and IDX and related notes
included elsewhere in this proxy statement/prospectus. The summary pro forma information has been presented for informational purposes only and is not necessarily indicative of what the combined company’s financial position or result of
operations actually would have been had the Business Combination been completed as of the dates indicated. In addition, the summary pro forma information does not purport to project the future financial position or operating results of the
combined company.
The summary unaudited pro forma condensed combined financial
information presents two redemption scenarios as follows:
|
•
|
Assuming No Redemptions (Scenario 1): This presentation assumes that no Public
Shareholders exercise their right to redeem their Class A Ordinary Shares for their pro rata share of the Trust Account and thus the full amount held in the Trust Account as of immediately prior to the Closing is available for the
post-Business Combination company; and
|
|
•
|
Assuming Maximum Redemptions (Scenario 2): This presentation assumes that all Public
Shareholders exercise their rights to redeem their Class A Ordinary Shares for their pro rata share of the Trust Account and thus none of the amount held in the Trust Account as of immediately prior to the Closing is available for the
Business Combination. Scenario 2 assumes all 3,425,689 issued and outstanding Class A Ordinary Shares are redeemed by the Public Shareholders.
|
58
If the facts are different than these assumptions, then the amounts
and shares outstanding in the summary unaudited pro forma combined financial information will be different, and differences could be material.
59
PER SHARE FINANCIAL INFORMATION
The following tables sets forth the historical per share information
of L&F, ZeroFox and IDX, on a standalone basis, and the unaudited pro forma condensed combined per share information after giving effect to the Business Combination, assuming no redemptions and maximum redemptions, for the three months
ended March 31, 2022 and April 30, 2022 and for the years ended December 31, 2021 and January 31, 2022. The pro forma net income (loss) per common share data for the three months ended March 31, 2022 and April 30, 2022 and for the years ended
December 31, 2021 and January 31, 2022 is presented as if the Closing occurred on February 1, 2021. The pro forma book value per share information is presented as if the Closing occurred on April 30, 2022. The information provided in the table
below is unaudited.
The historical per share data of L&F was derived from the
unaudited financial statements as of and for the three months ended March 31, 2022 and from the audited financial statements as of and for the year ended December 31, 2021, included elsewhere in this proxy statement/prospectus. The historical
financial information of ZeroFox was derived from the unaudited consolidated financial statements as of and for the three months ended April 30, 2022 and from the audited consolidated financial statements as of and for the year ended
January 31, 2022, included elsewhere in this proxy statement/prospectus. The historical financial information of IDX was derived from the unaudited consolidated financial statements as of and for the three months ended March 31, 2022 and from
the audited consolidated financial statements as of and for the year ended December 31, 2021, included elsewhere in this proxy statement/prospectus. This information should be read together with the audited financial statements and related
notes, the unaudited interim financial statements and related notes, the section titled “Unaudited Pro Forma Condensed Combined Financial Information” of this proxy statement/prospectus and other financial information included elsewhere in this
proxy statement/prospectus.
The pro forma data is presented for illustrative purposes only and is
not necessarily indicative of the results of operations or the financial condition that would have occurred if the Closing took place as of the dates described above.
|
|
| |
Historical
|
| |
Pro Forma Combined(2)
|
|||||||||
|
|
| |
L&F
|
| |
ZeroFox
|
| |
IDX
|
| |
No
Redemptions
|
| |
Maximum
Redemptions
|
|
As of and for the Three Months Ended
March 31, 2022 and April 30, 2022
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income per Class A common share, basic and diluted
|
| |
$0.32
|
| |
$N/A
|
| |
$N/A
|
| |
$N/A
|
| |
$N/A
|
|
Weighted average shares of Class A outstanding, basic
and diluted
|
| |
17,250,000
|
| |
N/A
|
| |
N/A
|
| |
N/A
|
| |
N/A
|
|
Net income per Class B common share, basic and diluted
|
| |
$0.32
|
| |
$N/A
|
| |
$N/A
|
| |
$N/A
|
| |
$N/A
|
|
Weighted average shares of Class B outstanding, basic
and diluted
|
| |
4,312,500
|
| |
N/A
|
| |
N/A
|
| |
N/A
|
| |
N/A
|
|
Net income per common share, basic and diluted
|
| |
N/A
|
| |
$(0.24)
|
| |
$(0.02)
|
| |
$(0.07)
|
| |
$(0.09)
|
|
Weighted average shares of common shares outstanding,
basic and diluted
|
| |
N/A
|
| |
42,962,226
|
| |
12,656,363
|
| |
119,878,430
|
| |
116,452,741
|
|
Book value per share(1)
|
| |
$(0.94)
|
| |
$(3.79)
|
| |
$(5.57)
|
| |
$2.26
|
| |
$9.81
|
|
For the Year Ended December 31, 2021
and January 31, 2022
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income per Class A common share, basic and diluted
|
| |
$0.26
|
| |
$N/A
|
| |
$N/A
|
| |
$N/A
|
| |
$N/A
|
|
Weighted average shares of Class A outstanding, basic
and diluted
|
| |
17,250,000
|
| |
N/A
|
| |
N/A
|
| |
N/A
|
| |
N/A
|
|
Net income per Class B common share, basic and diluted
|
| |
$0.26
|
| |
$N/A
|
| |
$N/A
|
| |
$N/A
|
| |
$N/A
|
|
Weighted average shares of Class B outstanding, basic
and diluted
|
| |
4,312,500
|
| |
N/A
|
| |
N/A
|
| |
N/A
|
| |
N/A
|
|
Net income per common share, basic and diluted
|
| |
N/A
|
| |
$(0.91)
|
| |
$(2.80)
|
| |
$(0.45)
|
| |
$(0.69)
|
|
Weighted average shares of common shares outstanding,
basic and diluted
|
| |
N/A
|
| |
42,073,351
|
| |
11,777,989
|
| |
119,878,430
|
| |
116,452,741
|
|
(1)
|
Book value per share is computed as shareholders’ equity divided by common shares outstanding.
|
|
(2)
|
Net loss per common share — basic and diluted and book value per share in these columns are computed on a pro forma combined
basis assuming no redemptions or maximum redemptions. See section titled “Unaudited Pro Forma Condensed Combined Financial Information” of this proxy statement/prospectus for calculation of pro
forma net loss per common share — basic and diluted, pro forma common shares outstanding, and pro forma shareholders’ equity.
|
60
L&F
Units, Common Stock and Warrants
The Class A Ordinary Shares and L&F Public Warrants are currently
listed on the NYSE American under the symbols “LNFA” and “LNFA WS,” respectively. Certain of the Class A Ordinary Shares and L&F Public Warrants currently trade as L&F Public Units consisting of one underlying Class A Ordinary Share and
one-half of one underlying redeemable warrant and are listed on the NYSE American under the symbol “LNFA.U.” The units will automatically separate into their component securities upon consummation of the Domestication and, as a result, will no
longer trade as an independent security. Upon the Closing, we intend to change our name from “L&F Acquisition Corp.” to “ZeroFox Holdings, Inc.” We intend to apply for listing, to be effective at the time of the Business Combination, of the
New ZeroFox Common Stock and the New ZeroFox Public Warrants on Nasdaq under the proposed symbols “ZFOX” and “ZFOXW.”
Holders
As of May 27, 2022, the record date for the Shareholder Meeting,
there was one holder of record of L&F Public Units, one holder of record of Class A Ordinary Shares, four holders of record of Class B Ordinary Shares, one holder of record of L&F Public Warrants and two holders of record of L&F
Private Placement Warrants. The number of holders of record does not include a substantially greater number of “street name” holders or beneficial holders whose L&F Public Units, Class A Ordinary Shares and L&F Warrants are held of
record by banks, brokers and other financial institutions.
Dividend Policy
L&F has not paid any cash dividends on the L&F Ordinary
Shares to date and does not intend to pay any cash dividends prior to the completion of the Business Combination. The payment of cash dividends in the future will be dependent upon New ZeroFox’s revenues and earnings, if any, capital
requirements and general financial condition subsequent to completion of the Business Combination. The payment of any cash dividends subsequent to the Business Combination will be within the discretion of the New ZeroFox Board at such time.
ZeroFox
There is no public market for ZeroFox’s equity securities.
IDX
There is no public market for IDX’s equity securities.
61
You should carefully consider all of the
following risk factors, together with all of the other information in this proxy statement/prospectus, including the financial information, before deciding how to vote or instruct your vote to be cast to approve the proposals described in this
proxy statement/prospectus.
The value of your investment following the
completion of the Business Combination will be subject to significant risks affecting, among other things, the Company’s business, financial condition and results of operations. If any of the events described below occur, the Company’s
post-Business Combination business and financial results could be adversely affected in material respects. This could result in a decline, which may be significant, in the trading price of the Company’s securities and you therefore may lose all
or part of your investment. The risk factors described below are not necessarily exhaustive and you are encouraged to perform your own investigation with respect to the businesses of L&F and the Target Companies.
Throughout this section, references to the
“Company” refer to the Company and its consolidated subsidiaries subsequent to the Business Combination as the context so requires.
For the purposes of this section, “we,” “us” and
“our” refers, as applicable, to ZeroFox and/or IDX prior to the Business Combination and to the Company subsequent to the Business Combination.
Risks Related to Our Technology, Products and Solutions
Defects, errors, or vulnerabilities in our
platform, the failure of our platform to block malware or prevent a security breach, misuse of our platform, or risks of product liability claims would harm our reputation and adversely impact our business, operating results, and financial
condition.
Our platform is multi-faceted and may be deployed with material
defects, software “bugs” or errors that are not detected until after commercial release and deployment to our customers. Our platform provides our customers with the ability to customize a multitude of settings and it is possible that a
customer could misconfigure our platform or otherwise fail to configure our products in an optimal manner. Such defects and misconfigurations of our platform could cause our platform to operate at suboptimal efficacy and increase the risk of
cyberattacks on our customers. In addition, because the techniques used by computer hackers to access or sabotage target computing environments change frequently and generally are not recognized until launched against a target, there is a risk
that an advanced attack could emerge that we do not anticipate and that our platform is unable to detect or prevent.
As a well-known provider of external cybersecurity products and
solutions, we may in the future be specifically targeted by bad actors for attacks intended to circumvent our security capabilities or to exploit our platform as an entry point into customers' endpoints, networks, or systems. The risk of
cybersecurity attacks related to political and economic conditions, war, and terrorism may increase, including from retaliatory cybersecurity attacks as a result of Russia's invasion of Ukraine and related political, economic and
counter-responses. In addition, defects or errors in our platform could result in a failure to effectively alert customers of potential threats. Our data centers and platform may experience technical failures and downtime, may fail to
distribute appropriate updates, or may fail to meet the increased requirements of a growing customer base, any of which could temporarily or permanently reduce the efficacy of our solutions and expose our customers to cyber threats. Any of
these situations could result in negative publicity to us, damage our reputation, and increase expenses and customer relations issues, which would adversely impact our business, financial condition, and operating results.
Advances in computer capabilities, discoveries of new weaknesses and
other developments with software generally used by the internet community may increase the risk we will suffer a security breach. Furthermore, our platform may fail to detect malware, ransomware, viruses, worms or similar threats for any number
of reasons, including our failure to enhance and expand our platform to reflect industry trends, new technologies and new operating environments, the complexity of the environment of our customers and the sophistication of malware, viruses and
other threats. We or our service providers may also suffer security breaches or unauthorized access to personal information, financial account information, and other confidential information due to employee error, rogue employee activity, or
unauthorized access by third parties either by mistake or acting with malicious intent. If we experience any breaches of security measures or sabotage or otherwise suffer unauthorized use or disclosure of, or access to, personal information,
financial account information or other confidential information, we might be required
62
to expend significant capital and resources to address these problems. We may not be
able to remedy any problems caused by hackers or other similar actors in a timely manner, or at all. Any real or perceived defects, errors or vulnerabilities in our platform, or any other failure of our platform to detect an advanced threat,
could result in:
|
•
|
a loss of existing or potential customers;
|
|
•
|
delayed or lost revenue and adverse impacts to our business, financial condition and operating results;
|
|
•
|
a delay in attaining, or the failure to attain, market acceptance;
|
|
•
|
the expenditure of significant financial and research and development resources in efforts to analyze, correct, eliminate, or
work around errors or defects, and address and eliminate vulnerabilities;
|
|
•
|
an increase in resources devoted to customer service and support, which could adversely affect our gross margin;
|
|
•
|
harm to our reputation or brand; and
|
|
•
|
claims and litigation, regulatory inquiries, investigations, enforcement actions, and other claims and liabilities, all of which
may be costly and burdensome and further harm our reputation.
|
If a high-profile cybersecurity incident occurs with respect to
another SaaS provider, customers may lose trust in the security of the SaaS business model generally, which could adversely impact our ability to retain existing customers or attract new ones. In the last few years there have been many
successful advanced external cybersecurity incidents that have damaged several prominent companies in spite of strong information security measures. We expect that the risks associated with cybersecurity incidents and the costs of preventing
such external cybersecurity attacks will continue to increase in the future.
We cannot assure you that any limitation of liability provisions in
our customer agreements, contracts with third-party vendors and service providers, or other contracts would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating
to a breach of contract, security breach or other security-related matter as a result of federal, state, or local laws or ordinances, or unfavorable judicial decisions in the U.S. or other countries.
While we maintain insurance policies that may cover certain
liabilities in connection with a cybersecurity incident, we cannot be certain that our insurance coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on commercially reasonable terms,
or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies,
including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, results of operations and reputation. Even claims that
ultimately are unsuccessful could result in our expenditure of significant funds in litigation, divert management's time and other resources, and harm our reputation.
If our enterprise platform offerings do not
interoperate with our customers’ network and security infrastructure, or with third-party products, websites or services, our results of operations may be harmed.
Our enterprise product offerings must interoperate with our
customers’ existing network and security infrastructure. These complex systems are developed, delivered and maintained by the customer, their employees and a myriad of vendors and service providers. As a result, the components of our customers’
infrastructure have different specifications, rapidly evolve, utilize multiple protocol standards, include multiple versions and generations of products and may be highly customized. Our platform must be able to interoperate with highly complex
and customized networks, which requires careful planning and execution between our customers, our customer support teams and our channel partners. Further, when our customers add new or update elements of their infrastructure, when new usage
trends emerge (such as remote work during the COVID-19 pandemic), or new industry standards or protocols are introduced, we may have to update or enhance our platform and our other solutions to allow us to continue to provide service to
customers. Our competitors or other vendors may refuse to work with us to allow their products to interoperate with our solutions, which could make it difficult for our platform to function properly in customer networks that include these
third-party products.
We may not deliver or maintain interoperability quickly,
cost-effectively, or at all. These efforts require capital investment and engineering resources. If we fail to maintain compatibility of our platform and solutions
63
with our customers’ network and security infrastructures, our customers may not be
able to fully utilize our products and solutions, and we may, among other consequences, lose or fail to increase our market share and experience reduced demand for our services, which would materially harm our business, operating results, and
financial condition.
We may not timely and cost-effectively scale
and adapt our existing technology to meet our customers’ performance and other requirements.
Our future growth is dependent upon our ability to continue to meet
the needs of new customers and the expanding needs of our existing customers as their use of our products and solutions grow. As our customers gain more experience with our products and solutions, the amount of data transferred, processed and
stored by us, the number of locations where our platform and services are being accessed, have in the past, and may in the future, expand rapidly. In order to meet the performance and other requirements of our customers, we intend to continue
to make material investments to increase capacity and to develop and implement new technologies in our service and cloud infrastructure operations. These technologies, which include databases, applications and server optimizations, network and
hosting strategies, and automation, are often advanced, complex, new and untested. We may not be successful in developing or implementing these technologies. In addition, it takes a significant amount of time to plan, develop and test
improvements to our technologies and infrastructure, and we may not be able to accurately forecast demand or predict the results we will realize from such improvements. To the extent that we do not effectively scale our operations to meet the
needs of our growing customer base and to maintain performance as our customers expand their use of our products and solutions, we may not be able to grow as quickly as we anticipate, our customers may reduce or cancel use of our solutions and
we may be unable to compete as effectively, and our business and results of operations may be harmed.
Because of the importance of cloud services to our business and our
cloud providers’ positions in the cloud-based server industry, any renegotiation or renewal of our agreements may be on terms that are significantly less favorable to us than our current agreements. If our cloud-based server costs were to
increase, our business, results of operations and financial condition may be adversely affected. Although we expect that we could receive similar services from other cloud providers, if any of our arrangements with our cloud providers are
terminated, we could experience interruptions on our platform and in our ability to make our products and solutions available to customers, as well as delays and additional expenses in arranging alternative cloud infrastructure services.
Ongoing improvements to cloud infrastructure may be more expensive than we anticipate and may not yield the expected savings in operating costs or the expected performance benefits. In addition, we may be required to re-invest any cost savings
achieved from prior cloud infrastructure improvements in future infrastructure projects to maintain the levels of service required by our customers. We may not be able to maintain or achieve cost savings from our investments, which could harm
our financial results.
Our success depends, in part, on the integrity
and scalability of our systems and infrastructure. System interruption and the lack of integration, redundancy and scalability in these systems and infrastructure may adversely affect our business, financial condition, and results of
operations.
Our success depends, in part, on our ability to maintain the
integrity of our systems and infrastructure, including websites, information systems and related systems. System interruption and a lack of integration and redundancy in our information systems and infrastructure may adversely affect our
ability to operate websites, process and fulfill transactions, respond to customer inquiries, and generally maintain cost-efficient operations. We may experience occasional system interruptions that make some or all systems or data unavailable
or prevent us from efficiently providing access to our platform.
Our ability to introduce new products and
solutions and features is dependent on adequate research and development resources and our ability to successfully complete acquisitions. If we do not adequately fund our research and development efforts or complete acquisitions successfully,
we may not be able to compete effectively and our business, financial condition, and results of operations may be harmed.
To remain competitive, we must continue to offer new products and
solutions and enhancements to our existing platform. This is particularly true as we further expand and diversify our capabilities. Maintaining adequate research and development resources, such as the appropriate personnel and development
technology, to meet the demands of the market is essential. We may also choose to expand into a certain market or strategy via an acquisition for which we could potentially pay too much or fail to successfully integrate into our operations.
64
Further, many of our competitors expend a considerably greater amount of funds on
their respective research and development programs, and those that do not may be acquired by larger companies that would allocate greater resources to our competitors’ research and development programs. Our failure to maintain adequate research
and development resources or to compete effectively with the research and development programs of our competitors would give an advantage to such competitors and our business, financial condition, and results of operations could be adversely
affected. Moreover, there is no assurance that our research and development or acquisition efforts will successfully anticipate market needs and result in significant new marketable solutions or enhancements to our existing platform and
solutions, design improvements, cost savings, revenues, or other expected benefits. If we are unable to generate an adequate return on such investments, we may not be able to compete effectively and our business, financial condition, and
results of operations may be materially and adversely affected.
We rely on third-party cloud providers, such as
Microsoft Azure, Amazon Web Services, and Cloudflare, to host and operate our platform, and any disruption of or interference with our use of these facilities may negatively affect our ability to maintain the performance and reliability of our
platform which could cause our business to suffer.
Our customers depend on the continuous availability of our platform.
We currently host our platform and serve our customers using a mix of third-party cloud providers, including, but not limited to, Microsoft Azure, Cloudflare, and Amazon Web Services. Consequently, we may be subject to service disruptions as
well as failures to provide adequate support for reasons that are outside of our direct control. We have experienced and expect that in the future we may experience interruptions, delays and outages in service and availability from time to time
due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints.
The following factors, many of which are beyond our control, can
affect the delivery, platform availability, and the performance of our products:
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the development and maintenance of the infrastructure of the internet;
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the performance and availability of third-party providers of cloud infrastructure services, such as AWS, with the necessary
speed, data capacity and security for providing reliable internet access and services;
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decisions by the owners and operators of service providers where our cloud infrastructure is deployed to terminate our
contracts, discontinue services to us, shut down operations or facilities, increase prices, change service levels, limit bandwidth, declare bankruptcy or prioritize the traffic of other parties;
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physical or electronic break-ins, acts of war or terrorism, human error or interference (including by disgruntled employees,
former employees or contractors) and other catastrophic events;
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external cyberattacks, including denial of service attacks, targeted at us or the infrastructure of the internet;
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failure by us to maintain and update our cloud infrastructure to meet our data capacity requirements;
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errors, defects or performance problems in our software, including third-party software incorporated in our software;
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improper deployment or configuration of our solutions;
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the failure of our redundancy systems, in the event of a service disruption at one of our data centers, to provide failover to
other data centers in our data center network;
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the failure of our disaster recovery and business continuity arrangements; and
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availability to acquire and source data.
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The adverse effects of any service interruptions on our reputation,
results of operations, and financial condition may be disproportionately heightened due to the nature of our business and the fact that our customers have a low tolerance for interruptions of any duration. Interruptions or failures in our
service delivery could result in a cyberattack or other security threat to our customers during such periods of interruption or failure. Additionally, interruptions or failures in our service could cause customers to terminate their
subscriptions with us, adversely affect our renewal rates, and harm our ability to attract new customers. Our business would also be
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harmed if our customers believe that a cloud-based SaaS-delivered security solution
is unreliable. We have experienced, and may in the future experience, service interruptions and other performance problems due to a variety of factors. The occurrence of any of these factors, or if we are unable to rapidly and cost-effectively
fix such errors or other problems that may be identified, could damage our reputation, negatively affect our relationship with our customers or otherwise harm our business, results of operations and financial condition.
We rely on software and services from other
parties. Defects in or the loss of access to software or services from third parties could increase our costs and adversely affect the quality of our solutions.
We rely on third-party computer systems, broadband and other
communications systems and service and data providers to provide customers with access to our platform. Any interruptions, outages or delays in our systems, infrastructure or business, or the systems, infrastructure, or business of such third
parties, or deterioration in the performance of these systems and infrastructure, could impair our ability to provide access to our platform. Our business would be disrupted if any of the third-party software or services we utilize,
particularly with respect to third-party software or services embedded in our solutions, or functional equivalents thereof, were unavailable due to extended outages or interruptions or because they are no longer available on commercially
reasonable terms or prices or at all.
In each case, we would be required to either seek licenses to
software or services from other parties and redesign our solutions to function with such other parties’ software or services or develop these components ourselves, which would result in increased costs and could result in delays in our solution
and solution package launches and the release of new solution and solution package offerings until equivalent technology can be identified, licensed or developed, and integrated into our solutions. Furthermore, we might be forced to limit the
features available in our current or future solutions. If these delays and feature limitations occur, our business, results of operations and financial condition could be adversely affected.
Risk Factors Related to our Business and Industry
ZeroFox has a history of losses, and the Company
may not be able to achieve or sustain profitability in the future.
ZeroFox has incurred net losses in all periods since its inception.
ZeroFox experienced net losses of $38.4 million, $22.7 million and $22.7 million for fiscal 2022, 2021 and 2020, respectively, and $10.2 million and $4.2 million for the three months ended April 30, 2022 and 2021, respectively. As of April 30,
2022, ZeroFox had an accumulated deficit of $167.0 million, and we cannot predict when or whether the Company will reach or maintain profitability. We also expect the Company’s operating expenses to increase over our historical expenses in the
future as the Company continues to invest for future growth, including expanding our research and development activities to enhance our platform, expanding our sales and marketing activities and reaching customers in new geographic locations,
which will negatively affect our operating results if our total revenue does not increase. We cannot assure you that these investments will result in substantial increases in our revenue or improvements in our operating results. In addition to
the anticipated costs to grow our business, we also expect to incur significant additional legal, accounting, and other expenses as a newly public operating company. Any failure to increase the Company’s revenue as it invests in its business or
to manage its costs could prevent us from achieving or maintaining profitability.
If we are not able to maintain and enhance our
brand and our reputation as a provider of external cybersecurity products and solutions, our business and results of operations may be adversely affected.
We believe that maintaining and enhancing our brand and our
reputation as a provider of external cybersecurity products and solutions is critical to our relationship with existing customers, channel partners, and technology alliance partners and our ability to attract new customers and partners. The
successful promotion of our brand will depend on a number of factors, including our marketing efforts, our ability to continue to develop additional features for our platform and our ability to successfully differentiate our platform from
competitive cloud-based or legacy security solutions. Although we believe it is important for our growth, our brand promotion activities may not be successful or yield increased revenue.
In addition, independent industry or financial analysts and research
firms often test our products and solutions and provide reviews of our platform, as well as the products of our competitors, and the perception of our platform in the marketplace may be significantly influenced by these reviews. If these
reviews are negative,
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or less positive as compared to those of our competitors’ products, our brand may be
adversely affected. Our products and solutions may fail to detect or prevent threats in any particular test for a number of reasons that may or may not be related to the efficacy of our products and solutions in real world environments. To the
extent potential customers, industry analysts or testing firms believe that the occurrence of a failure to detect or prevent any particular threat is a flaw or indicates that our products and solutions or services do not provide significant
value, we may lose customers, and our reputation, financial condition and business would be harmed. Additionally, the performance of our channel partners and technology alliance partners may affect our brand and reputation if customers do not
have a positive experience with these partners. In addition, we have in the past worked, and continue to work, with high profile customers as well as assist in analyzing and remediating high profile cyberattacks. Our work with such customers
has exposed us to publicity and media coverage. Negative publicity about us, including about our management, the efficacy and reliability of our platform, our product offerings, our professional services, and the customers we work with, even if
inaccurate, could adversely affect our reputation and brand.
If organizations do not adopt cloud, and/or
SaaS-delivered external cybersecurity solutions that may be based on new and untested security concepts, our ability to grow our business and results of operations may be adversely affected.
Our future success depends on the growth in the market for cloud
and/or SaaS-delivered external cybersecurity products and solutions. The use of SaaS products and solutions to manage and automate security and IT operations is rapidly evolving. As such, it is difficult to predict our potential growth,
customer adoption and retention rates, customer demand for our products and solutions, or the success of existing or future competitive products. Any expansion in our market depends on several factors, including the cost, performance and
perceived value associated with our products and solutions and those of our competitors. If our solutions do not achieve widespread adoption or there is a reduction in demand for our products and solutions due to a lack of customer acceptance,
technological challenges, competing products, privacy or other liability concerns, decreases in corporate spending, weakening economic conditions, or otherwise, it could adversely affect our business, results of operations and financial
results, resulting in early terminations, reduced customer retention rates, or decreased sales. We do not know whether the trend in adoption of cloud-enabled and/or SaaS-delivered cybersecurity solutions that we have experienced in the past
will continue in the future. Furthermore, if we or other SaaS security providers experience security incidents, loss or disclosure of customer data, disruptions in delivery, or other problems, the market for SaaS solutions as a whole, including
our security solutions, could be negatively affected.
Historically, information sharing related to cybersecurity has been a
very well accepted concept from a theoretical perspective but very difficult to implement in practice. Companies are generally reluctant to share their sensitive cyber information with other entities, despite knowing the advantages of doing so.
Misperceptions may exist, however, about what information gets shared, with whom that information is shared, and the jurisdictions (including foreign countries) of the companies with which the information gets shared. Further, concerns of
existing or potential customers may exist related to the ability to completely remove any indicia of the source company, general market rejection of information sharing, or specific market skepticism of our approach, which may further add to a
lack of customer acceptance.
In addition to the potential concerns related to sharing sensitive
information in a system consisting of commercial or potentially competitive entities, additional concerns can arise when governments become involved as participants in the collective defense ecosystem. From a commercial perspective, companies
frequently view information sharing on platforms with governments that are also customers as risky, based on perceptions that the governments might use such shared information to take action against the companies or to otherwise utilize it in a
way that will expose such companies to liability. Such perceptions could lead commercial entities to stop sharing, not procure our services in the first place, or terminate their relationship with us altogether. Similarly, governments (as
customers) may be unable to properly process such data or utilize it in a meaningful way, or share useful information back into our solutions. Any of these concerns could lead to reduced sales or contribute to a lack of customer acceptance. In
addition, the mere involvement of one or more government entities as customers may harm our reputation with certain companies.
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We have experienced rapid growth in recent
periods, and if we do not manage our future growth, our business and results of operations will be adversely affected.
ZeroFox has experienced rapid revenue growth in recent periods, and
we expect to continue to invest broadly across our organization to support our growth. For example, ZeroFox’s actual employee headcount grew from 158 employees as of January 31, 2019 to 531 employees as of April 30, 2022. IDX's actual employee
headcount grew from 58 employees as of January 31, 2019 to 73 employees as of April 30, 2022. Although ZeroFox has experienced rapid growth historically, we may not sustain our current growth rates, nor can we assure you that our investments to
support our growth will be successful. The growth and expansion of our business will require us to invest significant financial and operational resources and the continuous dedication of our management team. We have encountered and will
continue to encounter risks and difficulties frequently experienced by rapidly growing companies in evolving industries, including market acceptance of our platform, adding new customers, intense competition, and our ability to manage our costs
and operating expenses. Our future success will depend in part on our ability to manage our growth effectively, which will require us to, among other things:
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effectively attract, integrate, and retain a large number of new employees, particularly members of our sales and marketing and
research and development teams;
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further improve our platform and cloud infrastructure to support our business needs;
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enhance our information and communication systems to ensure that our employees and offices around the world are well-coordinated
and can effectively communicate with each other and our growing base of channel partners and customers; and
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improve our financial, management, and compliance systems and controls.
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If we fail to achieve these objectives effectively, our ability to
manage our expected growth, ensure uninterrupted operation of our platform and key business systems, and comply with the rules and regulations applicable to our business could be impaired. Additionally, the quality of our platform and services
could suffer and we may not be able to adequately address competitive challenges. Any of the foregoing could adversely affect our business, results of operations, and financial condition.
We face intense competition and could lose
market share to our competitors, which could adversely affect our business, financial condition, and results of operations.
The market for security solutions is intensely competitive,
fragmented, and characterized by rapid changes in technology, customer requirements and industry standards, increasingly sophisticated attackers, and by frequent introductions of new or improved products to combat security threats. We expect to
continue to face intense competition from current competitors, as well as from new entrants into the market given the relatively low barriers to entry in the industry. If we are unable to anticipate or react to these challenges, our competitive
position could weaken, and we could experience a decline in revenue or reduced revenue growth, and loss of market share that would adversely affect our business, financial condition, and results of operations. Our ability to compete effectively
depends upon numerous factors, many of which are beyond our control, including, but not limited to:
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product capabilities, including the performance and reliability of our platform — including our services and features, compared
to those of our competitors;
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our ability, and the ability of our competitors, to improve existing products, services, and features, or to develop new ones to
address evolving customer needs;
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our ability to attract, retain, and motivate talented employees;
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our ability to establish and maintain relationships with channel partners;
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the strength of our sales and marketing efforts; and
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acquisitions or consolidation within our industry, which may result in more formidable competitors.
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Our competitors include the following, by general category:
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digital risk protection, such as Proofpoint, Rapid7 and Help Systems;
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threat intelligence providers, such as Mandiant and Recorded Future; and
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breach response providers, such as Experian, Transunion, and Kroll.
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Many of these competitors have greater financial, technical,
marketing, sales, and other resources, greater name recognition, longer operating histories, and a larger base of customers than we do. They may be able to devote greater resources to the development, promotion, and sale of services than we
can, and they may offer lower pricing than we do. Further, they may have greater resources for research and development of new technologies, the provision of customer support, and the pursuit of acquisitions, or they may have other financial,
technical, or other resource advantages. Our larger competitors have substantially broader and more diverse product and service offerings as well as routes to market, which allows them to leverage their relationships based on other products and
to incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our platform. Conditions in our market could change rapidly and significantly because of technological advancements,
partnering or acquisitions by our competitors or continuing market consolidation. Some of our competitors have recently made acquisitions of businesses or have established cooperative relationships that may allow them to offer more directly
competitive and comprehensive solutions than were previously offered and adapt more quickly to new technologies and customer needs. As a result of such acquisitions or arrangements, our current or potential competitors may be able to devote
greater resources to bring these solutions and services to market, initiate or withstand substantial price competition or develop and expand their product and service offerings more quickly than we do. These competitive pressures in our market
or our failure to compete effectively may result in price reductions, fewer orders, reduced revenue and gross margins, increased net losses and loss of market share. Further, many competitors that specialize in providing protection from a
single type of security threat may be able to deliver these targeted security products to the market quicker than we can or convince organizations that these limited products meet their needs. Even if there is significant demand for cloud-based
security solutions like ours, if our competitors include functionality that is, or is perceived to be, equivalent to or better than ours in legacy products that are already generally accepted as necessary components of an organization’s
security architecture, we may have difficulty increasing the market penetration of our platform. Furthermore, even if the functionality offered by other security providers is different and more limited than the functionality of our platform,
organizations may elect to accept such limited functionality in lieu of adding products from additional vendors like us.
For all of these reasons, competition may negatively impact our
ability to maintain and grow consumption of our platform and solutions or put downward pressure on our prices and gross margins, any of which could materially harm our reputation, business, financial condition, and results of operations.
Competitive pricing pressure may reduce
revenue, gross profits, and adversely affect our financial results.
If we are unable to maintain our pricing due to competitive pressures
or other factors, our revenue and margins may be reduced and our revenue and gross profits, business, results of operations and financial condition may be adversely affected. The prices for our platform, products and solutions, and professional
services may decline for a variety of reasons, including competitive pricing pressures, discounts, anticipation of the introduction of new solutions by competitors, or promotional programs offered by us or our competitors. Competition continues
to increase in the market segments in which we operate, and we expect competition to further increase in the future. Larger competitors with more diverse product and service offerings may reduce the price of products or subscriptions that
compete with ours or may bundle them with other products and subscriptions in an effort to leverage their existing market share to make it harder for newer companies, like us, to effectively compete.
Adverse general and industry-specific economic
and market conditions and reductions in customer spending, in either the private or public sector, including as a result of geopolitical uncertainty such as the ongoing conflict between Russia and Ukraine, may reduce demand for ZeroFox’s
platform or products and solutions, which could harm the combined company’s business, financial condition and results of operations.
Our business, financial condition, and results of operations depend
on the overall demand for our platform and products and solutions. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from the COVID-19 pandemic, changes in gross domestic product
growth, financial and credit market fluctuations, energy costs, international trade relations, geopolitical issues, such as the conflict between Russia and Ukraine, or the availability and cost of credit could lead to increased market
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volatility, decreased consumer confidence, and diminished growth expectations in the
U.S. economy and abroad, which in turn could result in reductions in information technology, software, and security spending by our existing and prospective customers. Negative economic conditions in both the public and private sectors,
including macroeconomic, political and market conditions, government shutdowns or reduction in government spending, the availability of short-term and long-term funding and capital, the level and volatility of interest rates, currency exchange
rates, and inflation, may cause customers to reduce their spending. Prolonged economic slowdowns may result in customers delaying or canceling projects, choosing to focus on in-house development efforts or seeking to lower their costs by
requesting us to renegotiate existing contracts on less advantageous terms or defaulting on payments due on existing contracts or not renewing at the end of the contract term.
The estimates of market opportunity and
forecasts of market growth included in this proxy statement/prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, if at all.
Market opportunity estimates and growth forecasts included in this
proxy statement/prospectus, 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. Such information concerning the market and the
industry in which ZeroFox and IDX compete, including their market positions, general expectations of market opportunities and market sizes, are based on information from various third-party sources, internal data and estimates, and assumptions
made by ZeroFox and IDX based on such sources and ZeroFox’s and IDX’s knowledge of the external cybersecurity market and data breach response market. Internal data and estimates are based upon information obtained from trade and business
organizations and other contacts in the markets in which ZeroFox and IDX operate and ZeroFox’s and IDX’s respective management’s understanding of industry conditions. This information and any estimates provided herein involve numerous
assumptions and limitations. Third-party sources generally state that their information has been obtained from sources believed to be reliable. There can be no assurance as to the accuracy or completeness of such information. Industry and
market data could be wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary
nature of the data gathering process and other limitations and uncertainties. We have not independently verified any third-party information, and each publication speaks as of its original publication date (and not as of the date of this proxy
statement/prospectus). We do not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited in this proxy statement/prospectus.
The COVID-19 pandemic could adversely affect
our business, operating results, and financial condition.
We face various risks related to public health issues, including
epidemics, pandemics, and other outbreaks, including the ongoing COVID-19 pandemic. The effects and potential effects of COVID-19 include, but are not limited to, its impact on general economic conditions, trade and financing markets and
changes in customer behavior, and significant uncertainty in the overall continuity in business operations. In light of the uncertain and rapidly evolving situation relating to the spread of COVID-19, we have taken precautionary measures
intended to minimize the risk of the virus to our employees, our customers, and the communities in which we operate, which may negatively impact our business. The full extent to which the COVID-19 pandemic will directly or indirectly impact our
business, operating results, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted.
ZeroFox has experienced, and we may continue to experience, an
adverse impact on certain parts of our business following the implementation of shelter-in-place orders to mitigate the outbreak of the COVID-19 pandemic, including a lengthening of the sales cycle for some prospective customers and delays in
the delivery of professional services and trainings to our customers.
We do not yet know the full extent of potential impacts on our
business, operations or on the global economy, particularly if the COVID-19 pandemic continues and persists for an extended period. The impacts and potential impacts of the COVID-19 pandemic on our business operations include:
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our customer prospects and our existing customers may experience slowdowns in their businesses, which in turn may result in
reduced demand for our platform, change in budget priorities, lengthening of sales cycles, loss of customers, and difficulties in collections;
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while certain of our offices have reopened on a limited basis in accordance with local ordinances, a substantial number of our
employees continue to work from home and a substantial number may continue to do so for the foreseeable future, which may result in decreased employee productivity and morale with increased unwanted employee attrition;
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we continue to incur fixed costs, particularly for real estate, and are deriving reduced or no benefit from those costs;
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we may continue to experience disruptions to our growth planning, such as for facilities and international expansion;
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we anticipate incurring costs in returning to work from our facilities, including changes to the workplace, such as space
planning, food service, and amenities;
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we may be subject to legal liability for safe workplace claims;
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our critical vendors could go out of business;
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a number of our in-person marketing events, including conferences, have experienced limited participation based on previous
year's attendance levels and we may continue to experience delays in our ability to schedule or conduct in-person events and other related activities that help us generate new business; and
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we may experience unwanted attrition, retention challenges or greater competition for recruiting.
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Any of the foregoing could adversely affect our business, financial
condition, and operating results.
The extent to which the COVID-19 pandemic may continue to affect our
business will depend on continued developments, which are uncertain and cannot be predicted. Even after the COVID-19 pandemic has subsided, we may continue to suffer an adverse effect to our business due to its global economic effect, including
any economic recessions. In addition, a recurrence of COVID-19 cases or an emergence of additional variants or strains could cause other widespread or more severe impacts depending on where infection rates are highest.
We employ multiple and evolving pricing models,
which subject us to various pricing challenges that could make it difficult for us to derive value from our customers and may adversely affect our business, financial condition, and results of operations.
We employ multiple and evolving pricing models for our offerings. Our
pricing models may ultimately result in a higher total cost to our customers generally as data volumes increase over time, or may cause our customers to limit or decrease usage in order to stay within the limits of their existing licenses or
lower their costs, making it more difficult for us to compete in our markets or negatively impacting our business, financial condition, and results of operations. As the amount of data within our customers’ organizations grows, we face downward
pressure from our customers regarding our pricing, which could adversely affect our revenues and operating margins. In addition, our pricing models may allow competitors with different pricing models to attract customers unfamiliar or
uncomfortable with our pricing models, which would cause us to lose business or modify our pricing models, both of which could adversely affect our revenues and operating margins. We have introduced and expect to continue to introduce
variations to our pricing models, including but not limited to usage-based, tiered pricing based on number of users, flat upfront fee, fixed price, level of effort, cost plus fee, utility-based pricing and other pricing programs. We also must
determine the appropriate price to enable us to compete effectively internationally. Although we believe that these pricing models and variations to these models will drive net new customers, and increase customer adoption, it is possible that
they will not and may potentially cause customers to decline to purchase or renew contracts with us or confuse customers and reduce their lifetime value, which could negatively impact our business, financial condition, and results of
operations.
If we fail to adapt to rapid technological
change, evolving industry standards and changing customer needs, requirements or preferences, our ability to remain competitive could be impaired.
The market for our platform and solutions is characterized by rapid
technological change, evolving industry standards and changing regulations, as well as changing customer needs, requirements, and preferences. The success of our business will depend, in part, on our ability to anticipate, adapt and respond
effectively to these changes on a timely and cost-effective basis. In addition, as our customers’ data infrastructure needs grow more
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complex, we expect them to face new and increasing challenges. Our customers require
that our platform and products and solutions effectively identify and respond to these challenges without disrupting the performance of our customers’ information technology and data systems or interrupting their operations. As a result, we
must continually modify and improve our offerings in response to changes in our customers’ data infrastructures and operational needs or end-user preferences. The success of any enhancement to our existing offerings or the deployment of new
offerings depends on several factors, including the timely completion and market acceptance of our enhancements or new offerings. Any enhancement to our existing offerings or new offerings that we develop and introduce involves significant
commitment of time and resources and is subject to a number of risks and challenges, including, but not limited to:
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ensuring the timely release of new solutions (including products and professional services) and enhancements to our existing
solutions;
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adapting to emerging and evolving industry standards, technological developments by our competitors and customers and changing
regulatory requirements;
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interoperating effectively with existing or newly-introduced technologies, systems or applications of our existing and
prospective customers;
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resolving defects, errors or failures in our platform or solutions;
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extending our solutions to new and evolving operating systems and hardware products; and
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managing new solutions, product suites and service strategies for the markets in which we operate.
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If we are not successful in managing these risks and challenges, or
if our platform or products and solutions (including any upgrades thereto) are not technologically competitive or do not achieve market acceptance, our business, financial condition, and results of operations could be adversely affected.
If we are unable to maintain successful
relationships with our channel partners, or if our channel partners fail to perform, our ability to market, sell and distribute our platform will be limited, and our business, financial position and results of operations will be harmed.
In addition to our direct sales force, we rely on our channel
partners to sell our platform. A substantial amount of sales of our platform flows through our channel partners and we expect this to continue for the foreseeable future. We derived approximately 40% of our revenue for the fiscal year ended
January 31, 2022 from subscriptions through channel partners. The loss of a substantial number of our channel partners or the failure to recruit additional channel partners, could adversely affect our operating results. Our ability to increase
revenue will depend in part on our success in maintaining successful relationships with our channel partners and in training our channel partners to independently sell and deploy our platform. If we fail to effectively manage our existing sales
channels, or if our channel partners are unsuccessful in fulfilling the orders for our solutions, or if we are unable to enter into arrangements with, and retain a sufficient number of, high quality channel partners in each of the regions in
which we sell products and solutions and keep them motivated to sell our products and solutions, our ability to sell our products and solutions and results of operations will be harmed.
We target enterprise customers and government
organizations, and sales to these customers involve risks that may not be present or that are present to a lesser extent with sales to smaller entities.
We have a robust sales team that targets enterprise customers and
government organizations. These sales involve risks that may not be present or that are present to a lesser extent with sales to smaller entities, such as longer sales cycles, more complex customer requirements, substantial upfront sales costs,
and less predictability in completing sales. For example, enterprise customers may require considerable time to evaluate and test our products and solutions and those of our competitors prior to making a purchase decision and placing an order.
A number of factors influence the length and variability of our sales cycle, including the need to educate potential customers about the uses and benefits of our products and solutions, the discretionary nature of purchasing and budget cycles,
and the competitive nature of evaluation and purchasing approval and/or competitive bidding processes. As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly from customer to
customer, with sales to enterprise customers and government organizations typically taking longer to complete. Moreover, enterprise customers often begin to deploy our products and solutions on a limited basis, but nevertheless demand
configuration, integration services and pricing negotiations,
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which increase our upfront investment in the sales effort with no guarantee that
these customers will deploy our products and solutions widely enough across their organization to justify our substantial upfront investment. Further, a significant percentage of our enterprise sales are to customers in the financial services
sector. An economic slowdown in that sector could adversely impact our sales.
Our success and ability to grow our business
depend on retaining and expanding our customer base. If we fail to add new customers or retain existing customers, our business, financial condition, and results of operations could be harmed.
We may enter into subscription agreements for our platform and
solutions where customers have discretion to renew or terminate services at the end of the term, or stand-alone agreements for the provision of specified software or services. For us to improve our operating results, it is important that we add
new customers and that our existing customers renew their subscriptions and upgrade and expand their subscribed services. Our customers have no obligation to renew their subscriptions, to upgrade or expand their subscribed services, or to
continue their relationship with us once a stand-alone engagement ends. Our customers’ renewal, upgrade and expansion rates may decline or fluctuate as a result of a number of factors, including their satisfaction or dissatisfaction with our
offerings, our pricing, the effects of general economic conditions, competitive offerings, or alterations or reductions in our customers’ spending levels. If we are unable to add new customers or if our existing customers do not renew their
subscriptions when the term expires or do not upgrade and expand the subscribed services or if customers renew on terms less favorable to us, or do not otherwise continue to use our platform and solutions for subsequent engagements, our
revenues may decline and our business, financial condition, and results of operations could be harmed.
Our customers may merge with other entities who purchase solutions
and services from our competitors, and, during weak economic times, there is an increased risk that one or more of our customers will file for bankruptcy protection, either of which may harm our business, financial condition, and results of
operations. We also face risks from international customers that file for bankruptcy protection in foreign jurisdictions, particularly given that the application of foreign bankruptcy laws may be more difficult to predict. In addition, we may
determine that the cost of pursuing any claim may outweigh the recovery potential of such claim. As a result, broadening or protracted extension of an economic downturn could harm our business, financial condition, and results of operations.
We provide service level commitments under some
of our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service and our business could suffer.
Certain of our customer agreements contain service level commitments,
which contain specifications regarding the availability and performance of our platform. Any failure of or disruption to our infrastructure could impact the performance of our platform and the availability of products and services to customers.
If we are unable to meet our stated service level commitments or if we suffer extended periods of poor performance or unavailability of our platform, we may be contractually obligated to provide affected customers with service credits for
future subscriptions, refunds, and in certain cases, the right to cancel their subscription. Our revenue, other results of operations and financial condition could be harmed if we suffer performance issues or downtime that exceeds the service
level commitments under our agreements with our customers.
Our business will be subject to the risks of
natural catastrophic events and to interruption by man-made problems such as power disruptions or terrorism.
A significant natural disaster, such as an earthquake, a fire, a
flood, or significant power outage could have a material adverse impact on our business, results of operations and financial condition. Natural disasters could affect our personnel, supply chain, or logistics providers’ ability to provide
materials and perform services. In addition, climate change could result in an increase in the frequency or severity of natural disasters. In the event that our infrastructure, or the information technology systems, supply chain or logistics of
our service providers, is hindered by any of the events discussed above, the results could be missed financial targets, such as revenue, for a particular quarter. Likewise, we could be subject to other man-made problems, including but not
limited to power disruptions and terrorist acts.
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We rely heavily on the services of our senior
management team, and if we are not successful in attracting or retaining senior management personnel, we may not be able to successfully implement our business strategy.
Our future success will be substantially dependent on the Company’s
ability to attract, retain, and motivate our key employees and the members of the Company’s management team. In particular, we will be highly dependent on the services of James C. Foster, our chief executive officer, who will be critical to our
future vision and strategic direction. We will also rely on our leadership team in the areas of operations, security, analytics, engineering, product management, research and development, marketing, sales, partnerships, mergers and
acquisitions, support, and general and administrative functions. Although we expect to enter into employment agreements with our key personnel following the consummation of the Business Combination, our senior management will be employed on an
“at-will” basis, which means they may terminate their employment with us at any time. If one or more of our key employees resigns or otherwise ceases to provide us with their service, our business could be harmed.
We rely on the performance of highly skilled
personnel, including senior engineering, professional services, sales and technology professionals, and our ability to increase our customer base will depend to a significant extent on our ability to expand our sales and marketing operations.
We believe our success has depended, and continues to depend, on the
efforts and talents of our highly skilled team members, including our sales personnel, professional services personnel, and software engineers. We do not maintain key person insurance on any of our employees. Our key employees are employed on
an “at-will” basis, which means that they could terminate their employment with us at any time. The loss of any of our key employees could adversely affect our ability to execute our business plan, and we may not be able to find adequate
replacements. We cannot ensure that we will be able to retain the services of our key employees.
If we do not effectively expand and train our
sales force, we may be unable to add new customers or increase sales to our existing customers, and our business will be adversely affected.
We depend on our sales force to obtain new customers and increase
sales with existing customers. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel, and our third-party channel partner network
of resellers, both domestically and internationally. We have expanded our sales organization in recent periods and expect to continue to add additional sales capabilities in the near term. Significant competition exists for sales personnel with
the skills and technical knowledge that we require. New hires require significant training and may take significant time before they achieve full productivity, and this delay may be accentuated by our long sales cycles. Our recent hires and
planned hires may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. In addition, a significant
percentage of our sales force is new to our company and selling our solutions, and therefore this team may be less effective than our more seasoned sales personnel. Furthermore, hiring sales personnel in new countries, or expanding our existing
presence, requires upfront and ongoing expenditures that we may not recover if the sales personnel fail to achieve full productivity. We cannot predict whether, or to what extent, our sales will increase as we expand our sales force or how long
it will take for sales personnel to become productive. If we are unable to hire and train a sufficient number of effective sales personnel, or the sales personnel we hire are not successful in obtaining new customers or increasing sales to our
existing customer base, our business and results of operations will be adversely affected. All of these efforts will require us to invest significant financial and other resources and our business will be harmed if our efforts do not generate a
correspondingly significant increase in revenue.
Our ability to maintain customer satisfaction
depends in part on the quality of our customer support.
Once our platform and solutions are purchased, our customers depend
on our maintenance and support teams to resolve technical and operational issues relating to our platform and solutions. Our ability to provide effective customer maintenance and support is largely dependent on our ability to attract, train,
and retain qualified personnel with experience in supporting customers with our platform and products and solutions such as ours and maintaining the same. The number of our customers has grown significantly and that has and will continue to put
additional pressure on our support teams. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for technical support. We may be subject to disruptions in customer support as well as failures to
provide adequate support for reasons that are outside of our direct control.
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We also may be unable to modify the future, scope, and delivery of our maintenance
services and technical support to compete with changes in the technical services provided by our competitors. Increased customer demand for maintenance and support services, without corresponding revenue, could increase costs and negatively
affect our operating results. In addition, if we experience increased customer demand for support and maintenance, we may face increased costs that may harm our business, financial condition, or results of operations. Further, as we continue to
grow our operations and support our global customer base, we need to be able to continue to provide efficient support and effective maintenance that meet our customers’ needs globally at scale. Customers receive additional maintenance and
support features, and the number of our customers has grown significantly, which will put additional pressure on our organization. If we are unable to provide efficient customer maintenance and support globally at scale or if we need to hire
additional maintenance and support personnel, our business may be harmed. Our ability to attract new customers is highly dependent on our business reputation and on positive recommendations from our existing customers. Any failure to maintain
high-quality maintenance and support services or a market perception that we do not maintain high-quality maintenance and support services for our customers would harm our business.
If we cannot maintain our company culture as we
grow, we could lose the innovation, teamwork, passion, and focus on execution that we believe contribute to our success and our business may be harmed.
We believe that our corporate culture has been a contributor to our
success, which we believe promotes innovation, teamwork, passion and focus on building and marketing our products and solutions. Any integration challenges or any failure to preserve our culture could harm our future success, including our
ability to retain and recruit personnel, innovate and operate effectively and execute on our business strategy. As we grow, we may find it difficult to maintain our corporate culture. Additionally, our productivity and the quality of our
products and solutions may be adversely affected if we do not integrate and train our new employees quickly and effectively. If we experience any of these effects in connection with future growth, it could impair our ability to attract new
customers, retain existing customers and expand their use of our products and solutions, all of which would adversely affect our business, financial condition and results of operations.
Our operating results may fluctuate
significantly which could make our future results difficult to predict and could cause our operating results to fall below expectations.
Our operating results may vary significantly in the future,
particularly considering the number of enterprise customer contracts and the cyclical nature of our government sales generation, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any
one quarter should not be relied upon as an indication of future performance. Our quarterly operating results may fluctuate as a result of a variety of factors, many of which are outside of our control, and as a result, may not fully reflect
the underlying performance of our business. Fluctuations in quarterly results may negatively impact the value of our securities. Factors that may cause fluctuations in our quarterly operating results include, without limitation, those disclosed
elsewhere in this proxy statement/prospectus and:
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our ability to generate significant revenue from new offerings and cross-selling current offerings;
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our ability to expand our number of customers and sales;
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our ability to hire and retain employees, in particular those responsible for our sales and marketing;
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changes in the way we organize and compensate our sales teams;
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the timing of expenses and recognition of revenue;
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the timing and length of our sales cycles;
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increased sales to large organizations;
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the amount and timing of operating expenses related to the maintenance and expansion of our business and operations, as well as
international expansion;
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the timing and effectiveness of new sales and marketing initiatives;
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changes in our pricing policies or those of our competitors;
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the timing and success of new platforms, applications, features, and functionality by us or our competitors;
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changes in the competitive dynamics of our industry, including consolidation among competitors;
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changes in laws and regulations that impact our business;
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the timing of expenses related to any future acquisitions, including our ability to successfully integrate, and fully realize
the expected benefits of, completed acquisitions;
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health epidemics or pandemics, such as the COVID-19 pandemic;
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civil unrest and geopolitical instability, including as a result of the ongoing conflict between Russia and Ukraine; and
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general political, economic, and market conditions.
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Our long-term success depends, in part, on
our ability to expand the sale of our platform to customers located outside of the U.S., and our current, and any further, expansion of our international operations exposes us to risks that could have a material adverse effect on our business,
operating results, and financial condition.
We are generating a portion of our revenue outside of the U.S., and
conduct our business activities in various foreign countries, including some emerging markets, where the challenges of conducting our business can be significantly different from those we have faced in more developed markets and where business
practices may create internal control risks. There are certain risks inherent in conducting international business, including:
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fluctuations in foreign currency exchange rates, which could add volatility to our operating results;
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new, or changes in, regulatory requirements;
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uncertainty regarding regulation, currency, tax, and operations resulting from the United Kingdom’s, or the U.K. exit from the
European Union, or the E.U., and possible disruptions in trade, the sale of our services and commerce, and movement of our people between the U.K., E.U., and other locations;
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tariffs, export and import restrictions, restrictions on foreign investments, sanctions, and other trade barriers or protection
measures;
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costs and liabilities related to compliance with foreign privacy, data protection and information security laws and regulations,
including the GDPR, and the risks and costs of noncompliance;
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costs of localizing products and services;
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the lack of acceptance of localized products and services;
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the need to make significant investments in people, solutions and infrastructure, typically well in advance of revenue
generation;
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challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need
to implement appropriate systems, policies, benefits and compliance programs;
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difficulties in maintaining our corporate culture with a dispersed and distant workforce;
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treatment of revenue from international sources, evolving domestic and international tax environments, and other potential tax
issues, including with respect to our corporate operating structure and intercompany arrangements;
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different standards for or weaker protection of our intellectual property, including increased risk of theft of our proprietary
technology and other intellectual property;
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economic weakness or currency-related crises;
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compliance with multiple, conflicting, ambiguous or evolving governmental laws and regulations, including employment, tax,
privacy, anti-corruption, import/export, antitrust, data transfer, storage and protection, and industry-specific laws and regulations, including rules related to compliance by our third-party resellers and our ability to identify and
respond timely to compliance issues when they occur, and regulations applicable to us and our third-party data providers from whom we purchase and resell data;
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vetting and monitoring our third-party resellers in new and evolving markets to confirm they maintain standards consistent with
our brand and reputation;
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generally longer payment cycles and greater difficulty in collecting accounts receivable;
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our ability to adapt to sales practices and customer requirements in different cultures;
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the lack of reference customers and other marketing assets in regional markets that are new or developing for us, as well as
other adaptations in our market generation efforts that we may be slow to identify and implement;
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dependence on certain third parties, including resellers with whom we do not have extensive experience;
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natural disasters, acts of war, terrorism, or pandemics, including the ongoing COVID-19 pandemic;
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corporate espionage; and
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political instability and security risks in the countries where we are doing business and changes in the public perception of
governments in the countries where we operate or plan to operate.
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We might undertake corporate operating restructurings that involve
our group of foreign country subsidiaries through which we do business abroad. We consider various factors in evaluating these restructurings, including the alignment of our corporate legal entity structure with our organizational structure and
its objectives, the operational and tax efficiency of our group structure, and the long-term cash flows and cash needs of our business. Such restructurings could increase our operating costs, and if ineffectual, could increase our income tax
liabilities and our global effective tax rate.
We recognize revenue from subscriptions to our
platform over the term of the subscription. Consequently, increases or decreases in new sales may not be immediately reflected in our results of operations.
We generally recognize revenue from customers ratably over the terms
of their subscription, which is generally one to three years. As a result, a substantial portion of the revenue we report in each period is attributable to the recognition of deferred revenue relating to agreements that we entered into during
previous periods. Consequently, any increase or decline in new sales or renewals in any one period will not be immediately reflected in our revenue for that period. Any such change, however, would affect our revenue in future periods.
Accordingly, the effect of downturns or upturns in new sales and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods. We may also be unable to timely reduce our cost structure
in line with a significant deterioration in sales or renewals that would adversely affect our results of operations and financial condition.
Risks Related to Government Contracting
Historically, one U.S. government customer has
accounted for a substantial portion of IDX’s revenues and is expected to account for a substantial portion of the Company’s revenues following the Business Combination. If IDX’s largest customer does not renew its contract with IDX (or renews
at reduced spending levels), or if IDX’s relationship with its largest customer is impaired or terminated, our revenues would decline, and our business, financial condition, and results of operations would be adversely affected.
IDX derives a substantial portion of its revenues from one U.S.
government customer, the Office of Personnel Management. The OPM Contract is structured as a Base Period from July 1, 2019 to June 30, 2020, followed by a series of options as follows: Option Period I from July 1, 2020 to June 30, 2021,
Option Period II from July 1, 2021 to June 30, 2022, Option Period III from July 1, 2022 to June 30, 2023, and Option Period IV from July 1, 2023 to December 31, 2023. OPM has an option to extend the OPM Contract from January 1, 2024 to June
30, 2024, as well as an option to add a transition-out period. To date, OPM has exercised Option Period I, Option Period II, and Option Period III. IDX plans to pursue the rebid of the OPM Contract in 2024 for an extension through 2027. A
copy of the OPM Contract is filed as as an exhibit to the registration statement of which this proxy statement/prospectus forms a part. OPM accounted for approximately 54% of the combined Target Companies' total pro forma revenue and
approximately 64% of the combined Target Companies' total pro forma revenue for the fiscal years ended January 31, 2022 and 2021, respectively.
As a result, our revenue could fluctuate materially, and could be
materially and disproportionately affected by purchasing decisions by this customer or any other significant future customer. This customer may decide to
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purchase less than it has in the past, may alter its purchasing patterns at any time
with limited notice, or may decide not to continue to license IDX’s products at all, any of which could cause our revenues to decline and adversely affect our financial condition and results of operations. If we do not further diversify our
customer base, we will continue to be susceptible to risks associated with customer concentration.
Our business depends, in part, on sales to
government organizations, and significant changes in the contracting or fiscal policies of such government organizations could have an adverse effect on our business and results of operations.
Our future growth depends, in part, on increasing sales to government
organizations. Demand from government organizations is often unpredictable, subject to budgetary uncertainty and typically involves long sales cycles. We have made significant investment to address the government sector, but we cannot assure
you that these investments will be successful, or that we will be able to maintain or grow our revenue from the government sector. U.S. federal, state and local government sales are subject to a number of challenges and risks that may adversely
impact our business. Sales to such government entities include the following risks:
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selling to governmental agencies can be highly competitive, expensive and time consuming, often requiring significant upfront
time and expense without any assurance that such efforts will generate a sale;
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government certification requirements applicable to our products may change and, in doing so, restrict our ability to sell into
the U.S. federal government sector until we have attained the revised certification. For example, although we are currently certified under the Federal Risk and Authorization Management Program, or FedRAMP, such certification is costly
to maintain and if we lose our certification in the future it would restrict our ability to sell to government customers;
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government demand and payment for our platform may be impacted by public sector budgetary cycles and funding priorities and
authorizations, with funding reductions or delays adversely affecting public sector demand for our platform;
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governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could
result in the government refusing to continue buying our platform, which would adversely impact our revenue and results of operations, or institute fines or civil or criminal liability if the audit were to uncover improper or illegal
activities; and
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governments may add new or change existing contractual and/or data security infrastructure requirements that could restrict our
ability to sell to government customers.
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The occurrence of any of the foregoing could cause governments and
governmental agencies to delay or refrain from purchasing our solutions in the future or otherwise have an adverse effect on our business and results of operations.
A decline in the U.S. government budget,
changes in spending or budgetary priorities or delays in contract awards may adversely affect our business, financial condition, and results of operations and limit our growth prospects.
Following the completion of our proposed Business Combination, we
expect that revenue under contracts with U.S. government agencies will represent a substantial amount of our total revenue. Levels of U.S. government spending are difficult to predict and subject to significant risk. Laws and plans adopted by
the U.S. government relating to, along with pressures on and uncertainty surrounding the U.S. federal budget, potential changes in budgetary priorities, sequestration, the appropriations process, and the permissible federal debt limit, could
adversely affect the funding for individual programs and delay purchasing or payment decisions by our customers. Considerable uncertainty exists regarding how future budget and program decisions will unfold and what challenges budget reductions
will present for us and the industry for our solutions and products.
Current U.S. government spending levels may not be sustained and
future spending and program authorizations may not increase or may decrease or shift to programs in areas in which we do not provide services or are less likely to be awarded contracts. Such changes in spending authorizations and budgetary
priorities may occur as a result of uncertainty surrounding the federal budget, increasing political pressure and legislation, shifts in spending priorities as a result of competing demands for federal funds, or other factors. In
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the event government funding relating to our contracts with the U.S. government
becomes unavailable, or is reduced or delayed, or planned orders are reduced, our contract or subcontract under such programs may be terminated or adjusted by the U.S. government or the prime contractor, if applicable. Our operating results
could also be adversely affected by spending caps or changes in the budgetary priorities of the U.S. government, as well as delays in program starts or the award of contracts or task orders under contracts.
In addition, changes to the federal acquisition system and
contracting models could affect whether and how we pursue certain opportunities and the terms under which we are able to do so. A significant decline in overall U.S. government spending, a significant shift in its spending priorities,
significant delays in contract or task order awards for large programs could adversely affect our business, financial condition, and results of operations and limit our growth prospects.
A delay in the completion of the U.S.
government’s budget and appropriation process could delay procurement of solutions we provide and have an adverse effect on our future revenues.
The funding of U.S. government programs is subject to an annual
congressional budget authorization and appropriations process. In years when the U.S. government does not complete its appropriations before the beginning of the new fiscal year on October 1, government operations are typically funded pursuant
to a “continuing resolution,” which allows federal government agencies to operate at spending levels approved in the previous appropriations cycle but does not authorize new spending initiatives. When the U.S. government operates under a
continuing resolution, delays can occur in the procurement of our products and solutions and may result in new initiatives being canceled. Revenue from government customers is often cyclical and based upon delays or change in the appropriation
cycle or government shutdowns and thus can impact future performance. When the U.S. government fails to complete its appropriations process or to provide for a continuing resolution, a full or partial federal government shutdown may result. A
federal government shutdown could, in turn, result in our incurrence of substantial labor or other costs without reimbursement under customer contracts, the delay or cancellation of key programs or the delay of contract payments, which could
have a negative effect on our cash flows and adversely affect our business, financial condition, and results of operations. For many programs, Congress appropriates funds on an annual fiscal year basis even though the program performance period
may extend over several years. Consequently, programs are often partially funded initially, and additional funds are committed only as Congress makes further appropriations. If we incur costs in excess of funds obligated on a contract, we may
be at risk for reimbursement of those costs unless or until additional funds are earmarked to the contract. In addition, when supplemental appropriations are required to operate the U.S. government or fund specific programs and passage of
legislation needed to approve any supplemental appropriations bill is delayed, the overall funding environment for our business could be adversely affected.
Due to the competitive process to obtain
contracts and the likelihood of bid protests, we may be unable to achieve or sustain revenue growth and our business, financial condition, and results of operations may be adversely affected.
Following the Business Combination, we expect that a substantial
portion of the business that we seek with respect to our solutions will be subject to competitive bidding processes with U.S. government customers. The U.S. government has increasingly relied on contracts that are subject to a continuing
competitive bidding process which has resulted in greater competition and increased pricing pressure. The competitive bidding process involves substantial costs and several risks, including significant cost and managerial time to prepare bids
and proposals for contracts that may not be awarded to us, may be split among competitors or that may be awarded but for which we do not receive meaningful task orders, and to the risk of inaccurately estimating the resources and costs that
will be required to fulfill any contract we win.
Following contract award, we may encounter significant expense,
delay, contract modifications or even contract loss because of our competitors challenging (or protesting) the award of contracts to us in competitive bidding. Any resulting loss or delay of start-up and funding of work under protested contract
awards may adversely affect our revenues and/or profitability. In addition, multi-award contracts require that we make sustained post-award efforts to obtain task orders under the contract. As a result, we may not be able to obtain these task
orders or recognize revenues under these multi-award contracts. We are also experiencing increased competition generally which impacts our ability to obtain contracts. Our failure to compete effectively in this procurement environment would
adversely affect our revenues and our business, financial condition, and results of operations may be adversely affected.
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The U.S. government may terminate, cancel,
stop, modify or curtail our contracts at any time prior to their completion and, if we do not replace them, this may adversely affect our future revenues and profitability.
Many of the U.S. government programs in which we may participate as a
prime contractor or subcontractor extend for several years and include one or more base years and one or more option years. These programs are normally funded on an annual basis. Under our contracts, the U.S. government generally has the right
to not exercise options to extend or expand our contracts and may otherwise terminate, cancel, stop, modify, or curtail our contracts at its convenience. Any decisions by the U.S. government to not exercise contract options or to terminate,
cancel, stop, modify or curtail our major programs or contracts would adversely affect our revenues, revenue growth and profitability.
We may also experience technological or other performance
difficulties under our contracts, which may result in delays, cost overruns, and failures in our performance of these contracts. If a government customer terminates a contract for default, we may be exposed to liability, including for excess
costs incurred by the customer in procuring undelivered services and solutions from another source. Depending on the nature and value of the contract, a performance issue or termination for default could cause our actual results to differ from
those anticipated and could harm our reputation, and even lead to a suspension or debarment action.
Our failure to comply with a variety of complex
procurement rules and regulations could result in our being liable for civil or criminal penalties, termination of our U.S. government contracts, disqualification from bidding on future U.S. government contracts, and suspension or debarment
from U.S. government contracting.
As a U.S. government contractor, we must comply with laws and
regulations relating to the formation, administration, and performance of U.S. government contracts, which affect how we do business with our customers. Such laws and regulations may potentially impose added costs on our business and our
failure to comply with them may lead to civil or criminal penalties, termination of our U.S. government contracts, or suspension or debarment from contracting with federal agencies. Some significant laws and regulations that affect us include,
but are not limited to the following:
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the Federal Acquisition Regulations (“FAR”) and FAR supplements, which regulate the formation, administration and performance of
U.S. government contracts;
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Truthful Cost or Pricing Data, formerly known as the Truth in Negotiations Act, which requires certification and disclosure of
cost and pricing data in connection with certain contract negotiations;
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the Procurement Integrity Act, which regulates access to competitor bid and proposal information and government source selection
information and our ability to provide compensation to certain former government officials;
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the Civil False Claims Act, which provides for substantial civil penalties for violations, including for the knowing submission
of a false or fraudulent claim to the U.S. government for payment or approval;
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the False Statements Act, which imposes civil and criminal liability for making false statements to the U.S. government; and
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the U.S. government Cost Accounting Standards, which imposes accounting requirements that govern our right to reimbursement
under certain cost-based U.S. government contracts.
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The FAR and many of our U.S. government contracts contain
organizational conflict of interest clauses that may limit our ability to compete for or perform certain other contracts or other types of services for particular customers. Organizational conflicts of interest (“OCI”) arise when we engage in
activities that may make us unable to render impartial assistance or advice to the U.S. government, impair our objectivity in performing contract work or provide us with an unfair competitive advantage in winning or performing on a contract. An
OCI that precludes our competition for or performance on a significant program or contract could harm our prospects. Conversely, our failure to identify and disclose an OCI can result in civil and/or criminal penalties.
The U.S. government may adopt new contract
rules and regulations or revise its procurement practices in a manner adverse to us at any time without notice and/or compensation, which could adversely affect our profitability, cash position or growth prospects.
Our industry has experienced, and we expect it will continue to
experience, significant changes to business practices because of an increased focus on affordability, efficiencies and recovery of costs, among other items. U.S. government agencies may face restrictions or pressure regarding the type and
number of services that they
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may obtain from private contractors. Legislation, regulations, and initiatives
dealing with enhanced governance, oversight, and/or security (physical or cyber), procurement reform, mitigation of potential conflicts of interest, and environmental responsibility or sustainability, as well as any resulting shifts in the
buying practices of U.S. government agencies, such as increased usage of fixed-price contracts, multiple-award contracts and small business set-aside contracts, could have adverse effects on government contractors. Any of these changes could
impair our ability to obtain new contracts or renew our existing contracts when customers recompete those contracts. Any new contracting requirements or procurement methods could be costly or administratively difficult for us to implement and
could adversely affect our business, financial condition, and results of operations.
As a U.S. government contractor, we are subject
to reviews, audits, and cost adjustments by the U.S. government, which, if resolved unfavorably to us, could adversely affect our profitability, cash position or growth prospects.
U.S. government contractors (including their subcontractors and
others with whom they do business) operate in a highly regulated environment and are routinely audited and reviewed by the U.S. government and its agencies. These agencies review a contractor’s performance on government contracts, cost
structure, indirect rates, and pricing practices and compliance with applicable contracting and procurement laws, regulations, terms and standards, as well as the adequacy of our systems and processes in meeting government requirements. They
also review the adequacy of the contractor’s compliance with government standards for its business systems, including a contractor’s accounting system, earned value management system, estimating system, materials management and accounting
system, property management system and purchasing system.
Both contractors and the U.S. government agencies conducting these
audits and reviews have come under increased scrutiny. As a result, the current audits and reviews have become more rigorous and the standards to which we are held are being more strictly interpreted, increasing the likelihood of an audit or
review resulting in an adverse outcome.
A finding of significant control deficiencies in our system audits or
other reviews can result in decremented billing rates to our U.S. government customers until the control deficiencies are corrected and our remediations are accepted. Government audits and reviews may conclude that our practices are not
consistent with applicable laws and regulations and result in adjustments to contract costs and mandatory customer refunds. Such adjustments can be applied retroactively, which could result in significant customer refunds. Our receipt of
adverse audit findings or the failure to obtain an “approved” determination of our various business systems from the responsible U.S. government agency could significantly and adversely affect our business, including our ability to bid on new
contracts and our competitive position in the bidding process. A determination of non-compliance with applicable contracting and procurement laws, regulations and standards could also result in the U.S. government imposing penalties and
sanctions against us, including reductions of the value of contracts, contract modifications or termination, withholding of payments, the loss of export/import privileges, administrative or civil judgements and liabilities, criminal judgements
or convictions, liabilities and consent or other voluntary decrees or agreements, other sanctions, the assessment of penalties, fines or compensatory, treble or other damages or non-monetary relief or actions, suspension or debarment,
suspension of payments, and increased government scrutiny that could negatively impact our reputation, delay or adversely affect our ability to invoice and receive timely payment on contracts, perform contracts or compete for contracts with the
U.S. government and may adversely affect our revenues and profitability.
Risks Relating to Financial, Tax and Accounting Issues
We have debt outstanding and may incur
additional debt in the future, which may adversely affect our financial condition and future financial results. Our existing debt agreements contain restrictive covenants that may limit our ability to operate our business.
As of April 30, 2022, ZeroFox had outstanding secured indebtedness
with Stifel and Orix of $15.0 million and $37.5 million, respectively, and outstanding unsecured debt with the ZeroFox Investors and InfoArmor of $5.1 million and $3.0 million, respectively. Our indebtedness contains, a number of restrictive
covenants that impose significant operating and financial restrictions on us. As a result of these covenants, our ability to respond to changes in business and economic conditions and engage in beneficial transactions, including to obtain
additional financing as needed, may be restricted. Furthermore, our failure to comply with our debt covenants could result in a default under our debt agreements, which would cause our indebtedness under such debt agreements to become
immediately due and payable. If any of our debt is accelerated, we may not have sufficient funds available to repay it.
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Our ability to make scheduled payments of principal and interest
and other required repayments depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flows from operations in the future sufficient to
service our debt and make necessary capital expenditures. If we are unable to generate such cash flows, we may be required to adopt one or more alternatives, such as selling assets, restructuring operations, restructuring debt or obtaining
additional equity capital on terms that may be onerous or dilutive.
We may incur additional indebtedness in the future in the ordinary
course of business, which could include restrictive covenants. If new debt is added to current debt levels, including the Notes, the risks described above could intensify.
Prior to the Business Combination, our
management has concluded that uncertainties around our ability to raise additional capital raise substantial doubt about our ability to continue as a going concern if we do not receive additional financing capital in a timely manner.
ZeroFox has experienced recurring losses and negative cash flows from
operations, and has no certainty of achieving or growing revenues in the future. To date, we have not generated sufficient liquidity to fund our operations and have relied on funding through a combination of equity financing and bank debt.
Without additional financing, such as in connection with the Business Combination, these conditions raise substantial doubt about ZeroFox’s ability to continue as a going concern, meaning that we may be unable to continue operations for at
least the next twelve months or realize assets and discharge liabilities in the ordinary course of operations. The report of ZeroFox’s independent registered public accounting firm on our financial statements for the years ended January 31,
2022, 2021 and 2020 includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. Additionally, our financial statements have been prepared assuming that ZeroFox will continue as
a going concern and do not include adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
We may need to raise additional capital to
maintain and expand our operations and invest in new solutions, which capital may not be available on terms acceptable to us, or at all, and which could reduce our ability to compete and could harm our business.
Retaining or expanding our current levels of personnel and products
offerings may require additional funds to respond to business challenges, including the need to develop new products and enhancements to our platform, improve our operating infrastructure, or acquire complementary businesses and technologies.
Our need for additional capital will be exacerbated to the extent a significant number of Public Shareholders redeem their Public Shares in connection with the Business Combination, including as a result of the Extension Amendment Redemptions.
The failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products and solutions could reduce our ability to compete and could harm our business. Accordingly, we may need to
engage in additional equity or debt financings to secure additional funds. If we raise additional equity financing, shareholders may experience significant dilution of their ownership interests and the market price of the New ZeroFox Common
Stock could decline. If we engage in debt financing, the holders of debt would have priority over the holders of the New ZeroFox Common Stock, and we may be required to accept terms that restrict our operations or our ability to incur
additional indebtedness or to take other actions that would otherwise be in the interests of the debt holders. Any of the above could harm our business, results of operations and financial condition.
Future acquisitions, strategic investments,
partnerships, or alliances could be difficult to identify and integrate, divert the attention of key management personnel, disrupt our business, dilute shareholder value, and adversely affect our results of operations and financial condition.
As part of our business strategy, we have in the past and expect to
continue to make investments in and/or acquire complementary businesses and assets. Our ability as an organization to acquire and integrate other companies, services, or technologies in a successful manner in the future is not guaranteed. We
may not be able to find suitable acquisition candidates, and we may not be able to complete such acquisitions on favorable terms, if at all. If we do complete acquisitions or strategic investments, we may not ultimately strengthen our
competitive position or ability to achieve our business objectives, and any acquisitions or investments we complete could be viewed negatively by our end-customers or investors. In addition, our due diligence may fail
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to identify all the problems, liabilities or other shortcomings or challenges of an
acquired business, product, or technology, including issues related to intellectual property, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or issues with employees
or customers. If we are unsuccessful at integrating such acquisitions, or the technologies associated with such acquisitions, into our company, the revenue, and results of operations of the Company could be adversely affected. Any integration
process may require significant time and resources, and we may not be able to manage the process successfully. We may not successfully evaluate or utilize the acquired technology or personnel, or accurately forecast the financial impact of an
acquisition transaction, including accounting charges. We may have to pay cash, incur debt or issue equity securities to pay for any such acquisition, each of which could adversely affect our financial condition and the market price of New
ZeroFox Common Stock. The sale of equity or issuance of debt to finance any such acquisitions could result in dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could also include
covenants or other restrictions that would impede our ability to manage our operations.
Additional risks we may face in connection with acquisitions include:
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diversion of management time and focus from operating our business to addressing acquisition integration challenges;
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coordination of research and development and sales and marketing functions
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integration of product and service offerings;
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retention of key employees from the acquired company;
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changes in relationships with strategic partners as a result of product acquisitions or strategic positioning resulting from the
acquisition;
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cultural challenges associated with integrating employees from the acquired company into our organization;
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integration of the acquired company’s accounting, management information, human resources and other administrative systems;
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the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked
sufficiently effective controls, procedures and policies;
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additional legal, regulatory or compliance requirements;
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financial reporting, revenue recognition or other financial or control deficiencies of the acquired company that we do not
adequately address and that cause our reported results to be incorrect;
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liability for activities of the acquired company before the acquisition, including intellectual property infringement claims,
violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities;
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unanticipated write-offs or charges; and
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litigation or other claims in connection with the acquired company, including claims from terminated employees, customers,
former shareholders or other third parties.
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Our failure to address these risks or other problems encountered in
connection with acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally.
ZeroFox identified a material weakness in its
internal control over financial reporting and we may identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, which may result in material misstatements of our
financial statements or cause us to fail to meet our periodic reporting obligations. This material weakness could adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our
management is likewise
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required, on a quarterly basis, to evaluate the effectiveness of our internal
controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. If we conclude that a material weakness occurred or is occurring, we
expect to evaluate and pursue steps to remediate the material weakness. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects.
In connection with the preparation and audit of ZeroFox’s financial
statements for its fiscal year ended January 31, 2022, a material weakness was identified in its internal control over financial reporting. While we added accounting and financial reporting personnel with requisite technical knowledge and
experience in GAAP and SEC rules, we continue to add financial reporting personnel and finalizing our processes and procedures, establishing clear authorities and approvals and segregating duties to facilitate accurate and timely financial
reporting.
We are implementing a remediation plan, which includes adding
additional resources as well as improving the control environment around financial systems and processes. In fiscal year 2022, we completed the following remedial actions:
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hired additional full-time accounting personnel with appropriate levels of experience, and augmented skills gaps with external
advisors;
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established and implemented controls surrounding the approval of transactions, related to, but not limited to, review of routine
and non-standard transactions and certain monitoring controls; and
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selected and began implementing a financial accounting system to support effective internal controls over financial reporting as
well as the anticipated growth of the business.
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There can be no assurance that the actions we already have completed
coupled with the additional actions we have planned under our remediation plan will be sufficient to remediate the material weakness identified and strengthen our internal control over financial reporting. The actions we are taking are subject
to ongoing senior management review, as well as Audit Committee oversight.
Any failure to maintain such internal control could adversely impact
our ability to report our financial position and results of operations on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial
statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchange on which New ZeroFox Common Stock is listed, the SEC or other regulatory authorities. In either case, there could result a
material adverse effect on our business. Failure to timely file will cause us to be ineligible to utilize short form registration statements on Form S-3, which may impair our ability to obtain capital in a timely fashion to execute our business
strategies or issue shares to effect an acquisition. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
We can give no assurance that any additional material weaknesses or
resulting restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in
strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.
IDX identified a material weakness in its
internal control over financial reporting, and may identify additional material weaknesses in its internal control over financial reporting.
IDX’s management is responsible for establishing and maintaining
adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. A material
weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that material misstatements of annual or interim financial statements will not be prevented or
detected on a timely basis.
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In connection with the preparation and audit of IDX’s financial
statements, a material weakness was identified in its internal control over financial reporting related to IDX not maintaining adequate controls over the review of the valuation of its common stock as of December 31, 2021. Specifically, the
valuation did not include all known or knowable information available to determine the value of the potential transaction outcome.
Any failure to maintain adequate internal control could adversely
affect IDX’s ability to report its financial position and results of operations on a timely and accurate basis. If its financial statements are not accurate, investors may not have a complete understanding of its or New ZeroFox’s operations.
We can give no assurance that any additional material weaknesses or
restatements of financial results will not arise or be identified before the Business Combination, due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls.
Our ability to use our net operating loss
carryforwards and certain other tax attributes may be limited.
As of January 31, 2022, ZeroFox had aggregate U.S. federal and state
net operating loss carryforwards, or NOLs, of $101.9 million, which may be available to offset future taxable income for income tax purposes, and portions of which expire in various years. A lack of future taxable income would adversely affect
our ability to utilize these NOLs before they expire. Under the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), as modified by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), federal NOLs incurred in tax years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such federal NOLs in tax years beginning after December 31, 2020
is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act.
In addition, under Section 382 of the Code, a corporation that
undergoes an “ownership change” (as defined under Sections 382 and 383 of the Code and applicable Treasury Regulations) is subject to limitations on its ability to utilize its pre-change NOLs and certain other tax attributes to offset
post-change taxable income or taxes. We may experience a future ownership change under Section 382 of the Code that could affect our ability to utilize our NOLs to offset our income. Furthermore, our ability to utilize NOLs of companies that we
have acquired or may acquire in the future may be subject to limitations. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state
taxes owed. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability, which could potentially result in increased future tax liability to us and could
adversely affect our operating results and financial condition.
IDX failed to collect sales and use tax
prior to January 1, 2022, and currently is in the process of mitigating such failure
Prior to January 1, 2022, IDX did not collect sales and use tax from
its customers for its services. During 2020, IDX engaged an external tax consultant to perform a full sales tax nexus study and analysis. IDX has accrued and reflected historical liabilities in its financial statements, and IDX is in the
process of filing Voluntary Disclosure Agreements (VDA) in relevant jurisdictions, and will be remitting liabilities accordingly. As of January 1, 2022, IDX collects, reports, and remits appropriate sales tax from its customers in all
applicable jurisdictions.
Our goodwill and identifiable intangible assets
could become impaired, which could reduce the value of our assets and reduce our net income in the year in which the write-off occurs.
Goodwill represents the excess of the cost of an acquisition over the
fair value of the net assets acquired. We also ascribe value to certain identifiable intangible assets, which consist primarily of customer relationships, developed technology and trade names, among others, as a result of acquisitions. We may
incur impairment charges on goodwill or identifiable intangible assets if we determine that the fair values of goodwill or identifiable intangible assets are less than their current carrying values. We evaluate, on a regular basis, whether
events or circumstances have occurred that indicate all, or a portion, of the carrying amount of goodwill may no longer be recoverable, in which case an impairment charge to earnings would become necessary.
A decline in general economic conditions or global equity valuations
could impact the judgments and assumptions about the fair value of our business and we could be required to record impairment charges on our goodwill or other identifiable intangible assets in the future, which could impact our consolidated
balance sheet, as well as our consolidated statement of comprehensive loss.
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If our estimates or judgments relating to our
critical accounting policies prove to be incorrect or financial reporting standards or interpretations change, our results of operations could be adversely affected.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We have historically based our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances as discussed in the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations of IDX.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are
not readily apparent from other sources. Significant assumptions and estimates used in our consolidated financial statements will include, and may include in the future, those related to revenue recognition; valuation of intangibles in purchase
accounting; allowance for doubtful accounts; costs to obtain or fulfill a contract; valuation of common stock; carrying value and useful lives of long-lived assets; loss contingencies; and the provision for income taxes and related deferred
taxes. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of industry or financial
analysts and investors, resulting in a decline in the market price of the New ZeroFox Common Stock.
Additionally, we will regularly monitor our compliance with
applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant to us. As a result of new standards, changes to existing standards and changes in their interpretation, we might be required to change
our accounting policies, alter our operational policies and implement new or enhance existing systems so that they reflect new or amended financial reporting standards, or we may be required to restate our published financial statements. Such
changes to existing standards or changes in their interpretation may have an adverse effect on our reputation, business, financial position and profit, or cause an adverse deviation from our revenue and operating profit targets, which may
negatively impact our financial results.
Risks Related to Legal and Regulatory Matters
Failure to adequately obtain, maintain, protect,
and enforce our intellectual property and other proprietary rights could adversely affect our business.
Our success and ability to compete depends in part on our ability to
protect the proprietary information, methods, software, and technologies that we develop, hold, or claim under a combination of intellectual property and proprietary rights in and outside the U.S. Despite our efforts, third parties may still
attempt to disclose, obtain, copy, use or otherwise exploit our intellectual property or other proprietary information, methods or technologies without our authorization, and our efforts to protect our intellectual property and other
proprietary rights may not prevent such unauthorized disclosure, use, exploitation, misappropriation, infringement, reverse engineering or other violation of our intellectual property or other proprietary rights. Further, effective protection
of our rights may not be available to us in every country in which our platform or products and solutions are available. The laws of some countries also may not be as protective of intellectual property and other proprietary rights as those in
the U.S., and mechanisms for enforcement of intellectual property and other proprietary rights may be inadequate. In addition, we may need to license our intellectual property in order to participate in patent pools or industry standard setting
activities or to receive third-party grants as a part of stand-alone licensing arrangements. Accordingly, despite our efforts, we may be unable to prevent third parties from using our intellectual property or other proprietary information or
technology.
While we hold a number of issued patents and have a number of pending
patent applications, we may be unable to obtain patent protection for the technology covered in our patent applications or such patent protection may not be obtained quickly enough to meet our business needs. Furthermore, the patent prosecution
process is expensive, time-consuming, and complex, and we may not be able to prepare, file, prosecute, maintain, and enforce all necessary or desirable patent applications at a reasonable cost or in a timely manner. The scope of patent
protection also can be reinterpreted after issuance and issued patents may be invalidated. Even if our patent applications do issue as patents, they may not issue in a form that is sufficiently broad to protect our technology, prevent
competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage. In addition, any of our patents, copyrights, trademarks, or other proprietary rights may be challenged, narrowed, invalidated,
held unenforceable, or circumvented in litigation or other proceedings,
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including, where applicable, opposition, re-examination, inter partes review,
post-grant review, interference, nullification and derivation proceedings, and equivalent proceedings in foreign jurisdictions, and such intellectual property or other proprietary rights may be lost or no longer provide us meaningful
competitive advantages. Such proceedings may result in substantial cost and require significant time from our management, even if the eventual outcome is favorable to us. Third parties also may legitimately and independently develop solutions,
services, and technology similar or duplicative of our platform.
Besides protection under intellectual property laws, we enforce and
protect our rights through confidentiality or license agreements that we generally enter into with our corporate partners, employees, consultants, advisors, vendors, and customers. We generally limit access to our intellectual property and
control access to our proprietary information. However, we cannot guarantee protection of our intellectual property or proprietary information with all of the parties who may have or have had access, and we cannot guarantee that such agreements
we have entered into will not be breached or challenged, or that such breaches will be detected. Furthermore, non-disclosure provisions within such agreements can be difficult to enforce, and even if successfully enforced, may not be entirely
effective.
Despite our efforts, we cannot guarantee that any of the measures we
have taken will limit the unauthorized use of our proprietary information or prevent infringement, misappropriation, or other violation of our technology or other intellectual property or proprietary rights. We may be an attractive target for
cyberattacks or other unauthorized intrusion or access, and we may also have a heightened risk of unauthorized access to, and misappropriation of, our proprietary and competitively sensitive information. We therefore may be required to spend
significant resources to monitor and protect our intellectual property and other proprietary rights, and we may conclude that in at least some instances the benefits of protecting our intellectual property or other proprietary rights may be
outweighed by the expense or distraction to our management. We may initiate claims or litigation against third parties for infringement, misappropriation, or other violation of our intellectual property or other proprietary rights or to
establish the validity of our intellectual property or other proprietary rights. Any such claims or litigation, whether or not it is resolved in our favor, could be time-consuming, result in significant expense to us and divert the efforts of
our technical and management personnel. Furthermore, attempts to enforce our intellectual property rights against third parties could also provoke these third parties to assert their own intellectual property or other rights against us, or
result in a holding that invalidates or narrows the scope of our intellectual property rights, in whole or in part.
Claims by others that we infringe their
proprietary technology or other intellectual property rights could result in significant costs and substantially harm our business, financial condition, results of operations, and prospects.
Claims by others that we infringe their intellectual property rights
or violate other rights in their proprietary technology could harm our business. Companies in our industry hold a large number of patents and also protect their copyright, trade secret and other intellectual property rights, and companies in
the security industry frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights. As we face increasing competition and grow, the possibility of intellectual property rights
claims against us also grows. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that such personnel have divulged proprietary or other confidential information to us.
Third parties may in the future also assert claims against our
customers or channel partners, whom our standard license and other agreements obligate us to indemnify against third-party claims that our products and solutions infringe the intellectual property rights of third parties. As the number of
products and competitors in the security and IT operations market increases and overlaps occur, third-party claims of infringement, misappropriation, and other violations of intellectual property rights may also increase. While we intend to
increase the size of our patent portfolio, many of our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. In addition, future litigation may involve non-practicing
entities, companies or other patent owners who have no relevant product offerings or revenue and against whom our own patents may therefore provide little or no deterrence or protection. Any claim of intellectual property infringement by a
third party, even a claim without merit, could cause us to incur substantial costs defending against such claim, could distract our management from our business and could require us to cease use of such intellectual property.
Additionally, our insurance policies may not cover intellectual
property infringement claims. In the event that we fail to successfully defend ourselves against an infringement claim, a successful claimant could secure a judgment or otherwise require payment of legal fees, settlement payments, ongoing
royalties or other costs or
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damages; we may agree to a settlement that prevents us from offering certain services
or features; or we may be required to obtain a license, which may not be available on reasonable terms, or at all, to use the relevant technology. If we are prevented from using certain technology or intellectual property, we may be required to
develop alternative, non-infringing technology, which could require significant time and costs, during which we could be unable to continue to offer our affected products and services or features, and may ultimately not be successful. Any of
these events could harm our business, financial condition and results of operations.
Although third parties may alternatively offer a license to their
technology or other intellectual property, the terms of any such license may not be acceptable, and the failure to obtain a license or the costs associated with any license could cause our business, financial condition and results of operations
to be adversely affected. In addition, some licenses may be nonexclusive, and therefore our competitors may have access to the same technology licensed to us.
Some of our technologies incorporate
“open-source” software, which could negatively affect our ability to sell our platform and subject us to possible litigation.
Our platform and subscriptions contain third-party open-source
software components, and failure to comply with the terms of the underlying open-source software licenses could restrict our ability to sell our platform and services. The use and distribution of open-source software may also entail greater
risks than the use of third-party commercial software, as open-source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. Many of the risks associated with use
of open-source software cannot be eliminated and could negatively affect our business. In addition, the wide availability of open code used in our solutions could expose us to security vulnerabilities.
Certain open-source licenses may contain requirements that we make
available source code for the modifications or derivative works we create based upon the type of open-source software used. If we combine our proprietary software with such open-source software, under such open-source licenses, we may be
required to release the source code of our proprietary software to the public, including authorizing further modification and redistribution, or otherwise be limited in the licensing of our services, each of which could provide an advantage to
our competitors or other entrants to the market, create security vulnerabilities in our solutions, require us to re-engineer all or a portion of our platform, and could reduce or eliminate the value of our services. This would allow our
competitors to create similar products with lower development effort and time and ultimately could result in a loss of sales for us.
The terms of many open-source licenses have not been interpreted by
U.S. courts, and there is a risk that these licenses could be construed in ways that could impose unanticipated conditions or restrictions on our ability to commercialize products, solutions and subscriptions incorporating such software.
Moreover, we cannot assure you that the Company’s processes for controlling its use of open-source software in its products, solutions and subscriptions has been or will be effective. From time to time, the Company may face claims from third
parties asserting ownership of, or demanding release of, the open-source software or derivative works that we developed using such software (which could include our proprietary source code), or otherwise seeking to enforce the terms of the
applicable open-source license. These claims could result in litigation that could be costly to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development
resources to change our solutions. Responding to any infringement or noncompliance claim by an open-source vendor, regardless of its validity, discovering certain open-source software code in our platform, or a finding that we have breached the
terms of an open-source software license, could harm our business, results of operations and financial condition, by, among other things:
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resulting in time-consuming and costly litigation;
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diverting management’s time and attention from developing our business;
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requiring us to pay monetary damages or enter into royalty and licensing agreements that we would not normally find acceptable;
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causing delays in the deployment of our platform or service offerings to our customers;
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requiring us to stop offering certain services or features of our platform;
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requiring us to redesign certain components of our platform using alternative non-infringing or non-open-source technology,
which could require significant effort and expense;
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requiring us to disclose our proprietary software source code and the detailed program commands for our software;
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prohibiting us from charging license fees for the proprietary software that uses certain open source; and
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requiring us to satisfy indemnification obligations to our customers.
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We may become involved in litigation that may
adversely affect us.
We may become subject to claims, suits, and government investigations
and other proceedings including patent, product liability, class action, whistleblower, personal injury, property damage, labor and employment (including all allegations of wage and hour violations), commercial disputes, compliance with laws
and regulatory requirements and other matters, and we may become subject to additional types of claims, suits, investigations and proceedings as our business develops. Such claims, suits, and government investigations and proceedings are
inherently uncertain, and their results cannot be predicted. Regardless of the outcome, any of these types of legal proceedings can have an adverse impact on us because of legal costs and diversion of management attention and resources and
could cause us to incur significant expenses or liability, adversely affect our brand recognition, and/or require us to change our business practices. The expense of litigation and the timing of this expense from period to period are difficult
to estimate, subject to change and could adversely affect our results of operations. It is possible that a resolution of one or more such proceedings could result in substantial damages, settlement costs, fines and penalties that could
adversely affect our business, consolidated financial position, results of operations, or cash flows in a particular period. These proceedings could also result in reputational harm, sanctions, consent decrees, or orders requiring a change in
our business practices. Because of the potential risks, expenses, and uncertainties of litigation, we may, from time to time, settle disputes, even where we have meritorious claims or defenses, by agreeing to settlement agreements. Because
litigation is inherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on our business, financial condition, results of operations, and prospects. Any of these consequences
could adversely affect our business and results of operations.
If we are not able to satisfy data protection,
security, privacy, and other government- and industry-specific requirements or regulations, our business, results of operations, and financial condition could be harmed.
Personal privacy, data protection, information security regulations,
and other laws applicable to specific categories of information raise significant issues in the U.S., Europe and in other jurisdictions where we offer our products and solutions. The data that we collect, analyze, and store is subject to a
variety of laws and regulations, including regulation by various government agencies. The U.S. federal government, and various state and foreign governments, have adopted or proposed limitations on the collection, distribution, use, retention,
protection, transfer, processing, and storage of certain categories of information, such as the personal information of individuals. These laws and regulations include, but are not limited to, the Federal Trade Commission Act, the Computer
Fraud and Abuse Act, the Health Insurance Portability and Accountability Act, and the Gramm-Leach-Bliley Act.
The nature of cybersecurity product and service offerings requires
the collection of various types of data. In the operation of our business we may collect the types of data covered by these laws and regulations including personally identifiable information, such as information about an individual's health and
financial information about individuals. To the extent we are in possession of such data and these various laws and regulations are determined to apply to us, this could require us to adopt additional operational, technological and security
measures to protect and manage such information which could increase our costs of operations. Our failure to comply with such laws and regulations could also result in monetary fines and reputational damage which would have a negative impact on
our business. Laws and regulations outside the U.S., and particularly in Europe, often are more restrictive than those in the U.S. Applicable laws and regulations may require us to implement privacy and security policies, permit customers to
access, correct, and delete personal information stored or maintained by us, inform individuals of security breaches that affect their personal information, and, in some cases, obtain individuals’ consents to use personal information for
certain purposes. In addition, some foreign governments require that personal information collected in a country not be disseminated outside of that country without consent or other implemented safeguards.
We may find it necessary or desirable to join industry or other
self-regulatory bodies or other information security or data protection-related organizations that require compliance with their rules pertaining to information security and data protection. We also may be bound by additional, more stringent
contractual obligations with our customers and partners relating to our collection, use and disclosure of personal, financial, and other data. We
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expect that there will continue to be new proposed laws, regulations, and industry
standards concerning privacy, data protection, information security, specific categories of data, and electronic services in the U.S., the European Union, and other jurisdictions in which we operate or may operate, and we cannot yet determine
the impact such future laws, regulations, standards, or perception of their requirements may have on our business.
For example, the European Union General Data Protection Regulation,
or GDPR, applies to the processing (which includes the collection and use) of certain personal data of data subjects in the European Economic Area, or EEA. As compared to previously effective data protection law in the European Union, the GDPR
imposes additional obligations and resulting risk upon our business and increases substantially the penalties to which we could be subject in the event of any non-compliance. Administrative fines under the GDPR can amount to 20,000,000 Euros or
four percent of our worldwide annual revenue for the prior fiscal year, whichever is higher. We may be required to incur, in the future, substantial expense in complying with the obligations imposed by the GDPR, potentially making significant
changes in our business operations, which may adversely affect our revenue and our business overall. Additionally, because there have been very few GDPR actions enforced against companies similar to ours, we are unable to predict how they will
be applied to us or our customers. Despite our efforts to comply with the GDPR, a regulator may determine that we have not done so and subject us to fines and public censure, which could harm our company financially and negatively affect our
reputation. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have been found to not provide adequate protection to such personal data, including the U.S. We have undertaken
certain efforts to conform transfers of personal data from the EEA to the U.S. and other jurisdictions based on our understanding of current regulatory obligations and the guidance of data protection authorities. Despite this, we may be
unsuccessful in establishing or maintaining conforming means of transferring such data from the EEA, in particular because of continued legal and legislative activity within the European Union that has challenged or called into question the
legal basis for existing means of data transfers to countries (including the U.S.) that have been found to not provide adequate protection for personal data.
The implementation of the GDPR has led other jurisdictions to either
amend existing laws or propose new data privacy and cybersecurity laws to resemble all or a portion of the requirements of the GDPR (e.g., for purposes of having an adequate level of data protection to facilitate data transfers from the EU).
Accordingly, the challenges we face in the EU will likely also apply to other jurisdictions outside the EU that adopt laws similar to the GDPR or regulatory frameworks of equivalent complexity. For example, the California Consumer Privacy Act
of 2018, or CCPA, became enforceable on July 1, 2020. The CCPA has been characterized as the first “GDPR-like” privacy statute to be enacted in the U.S. because it contains several provisions similar to certain provisions of the GDPR. In
addition, the California Privacy Rights Act of 2020, or the CPRA, was passed by California voters in November 2020. The CPRA amends the CCPA by creating additional privacy rights for California consumers and additional obligations on
businesses, which could subject us to additional compliance costs as well as potential fines, individual claims, and commercial liabilities. The majority of the CPRA provisions will take effect on January 1, 2023. The CCPA and CPRA could mark
the beginning of a trend toward more stringent privacy legislation in the U.S., as other states or the federal government may follow California’s lead and increase protections for U.S. residents. For example, the Virginia Consumer Data
Protection Act and the CCPA have already prompted several proposals for new federal and state privacy legislation that, if passed, could increase our potential liability, add layers of complexity to compliance in the U.S. market, increase our
compliance costs and adversely affect our business.
Evolving and changing definitions of personal data and personal
information within the European Union, the U.S., and elsewhere, especially relating to classification of IP addresses, machine identification, location data and other information, may limit or inhibit our ability to operate or expand our
business, including limiting technology alliance partnerships with other security vendors that may involve the sharing of data. Even the perception of privacy concerns, whether or not valid, may harm our reputation, inhibit adoption of our
products by current and future customers, or adversely impact our ability to attract and retain workforce talent. In addition, changes in laws or regulations that adversely affect the use of the internet, including laws impacting net
neutrality, could impact our business. We expect that existing laws, regulations and standards may be interpreted in new manners in the future. Future laws, regulations, standards and other obligations, and changes in the interpretation of
existing laws, regulations, standards and other obligations could require us to modify our products and solutions, restrict our business operations, increase our costs and impair our ability to maintain and grow our customer base and increase
our revenue.
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Beyond broader data processing regulations affecting our business,
the overall cybersecurity industry may face direct regulation. For example, in 2018, Singapore introduced what is believed to be the world’s first cybersecurity licensing requirement, mandating that providers of specific types of incident
response services receive a government license before providing such services. License requirements such as these may impose upon us significant organizational costs and high barriers of entry into new markets.
Although we have worked and will continue to work to comply with
applicable laws and regulations, applicable industry standards with which we represent compliance, and our contractual obligations, such laws, regulations, standards, and obligations are evolving and may be modified, interpreted and applied in
an inconsistent manner from one jurisdiction to another, and may conflict with one another. In addition, they may conflict with other requirements or legal obligations that apply to our business or the security features and services that our
customers expect from our solutions. As such, we cannot assure ongoing compliance with all such laws, regulations, standards, and obligations which may change in the future. Any failure or perceived failure by us or our employees,
representatives, contractors, channel partners, agents, intermediaries, or other third parties to comply with applicable laws and regulations, or applicable industry standards that we represent compliance with or that may be asserted to apply
to us, or to comply with employee, customer, partner, and other data privacy and data security requirements pursuant to contract and our stated notices or policies, could result in enforcement actions against us, including fines, imprisonment
of company officials and public censure, claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing customers and prospective customers), any of which could have a
material adverse effect on our operations, financial performance and business. Any inability of us or our employees, representatives, contractors, channel partners, agents, intermediaries, or other third parties to adequately address privacy
and security concerns, even if unfounded, or comply with applicable laws, regulations, standards, and obligations, could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business and
results of operations.
We are subject to laws and regulations,
including governmental export and import controls, sanctions, foreign investment screening, and anti-corruption laws, that could impair our ability to compete in our markets and subject us to liability if we are not in full compliance with
applicable laws.
We are subject to laws and regulations, including governmental export
controls, that could subject us to liability or impair our ability to compete in our markets. Our products and solutions are subject to U.S. export controls, including the U.S. Department of Commerce’s Export Administration Regulations, and we
and our employees, representatives, contractors, agents, intermediaries, and other third parties are also subject to various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets
Control. We incorporate standard encryption algorithms into our products, which, along with the underlying technology, may be exported outside of the U.S. only with the required export authorizations, including by license, license exception or
other appropriate government authorizations, which may require the filing of an encryption registration and classification request. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain cloud-based
solutions to countries, governments, and persons targeted by U.S. sanctions. We also collect information about cyber threats from internet-accessible, and non-internet routable sources, intermediaries, and third parties that we make available
to our customers in our threat industry publications. While we have implemented certain procedures to facilitate compliance with applicable laws and regulations in connection with the collection of this information, we cannot assure you that
these procedures have been effective or that we, or third parties, many of whom we do not control, have complied with all laws or regulations in this regard. Failure by our employees, representatives, contractors, channel partners, agents,
intermediaries, or other third parties to comply with applicable laws and regulations in the collection of this information also could have negative consequences to us, including reputational harm, government investigations and penalties.
Although we take precautions to prevent our information collection
practices and services from being provided in violation of such laws, our information collection practices 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, contractors, channel partners, 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.
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Various countries regulate the import of certain encryption
technology, including through import permit and license requirements, and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries. Changes in
our products and solutions or changes in export and import regulations may create delays in the introduction of our products and solutions into international markets, prevent our customers with international operations from deploying our
products and solutions globally or, in some cases, prevent the export or import of our products and solutions to certain countries, governments or persons altogether. Any change in export or import regulations, economic sanctions or related
legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our products and solutions by, or in our
decreased ability to export or sell our products and solutions to, existing or potential customers with international operations. Any decreased use of our products and solutions or limitation on our ability to export or sell our products and
solutions would likely adversely affect our business, results of operations, and financial condition.
We may be subject to review and enforcement under domestic and
foreign laws that screen investment and to other national-security-related laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than in the United States and may impact cybersecurity providers more
specifically. As a result of these laws, investments by certain investors may impose added costs on our business, impact our operations, and/or limit our ability to engage in strategic transactions that might otherwise be beneficial to us and
our investors.
We are also subject to the FCPA, the U.K. Anti-Bribery Act, and other
anti-corruption, sanctions, anti-bribery, anti-money laundering and similar laws in the U.S. and other countries in which we conduct activities. 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 private sector. We
leverage third parties, including intermediaries, agents, and channel partners, to conduct our business in the U.S. and abroad, to sell subscriptions to our platform and to collect information about cyber threats. 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 the corrupt or other illegal activities of these third-party business partners and
intermediaries, our employees, representatives, contractors, channel partners, 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 the FCPA, the U.K. Anti-Bribery Act and other anti-corruption, sanctions, anti-bribery, anti-money laundering and similar laws, we cannot assure you that they will be effective, or that all of our employees, representatives, contractors,
channel partners, 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. As we increase our international sales
and business, 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 U.S.
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, results of operations and financial condition.
Risks Related to the Business Combination and Integration of ZeroFox
and IDX
The integration of the two companies with
different organization and compensation structures presents significant management challenges. There can be no assurance that this integration, and the synergies expected to result from that integration, will be achieved as rapidly or to the
extent currently anticipated.
The Business Combination involves the integration of two businesses
that currently operate as independent businesses. ZeroFox and IDX will be required to devote management attention and resources to integrating their business practices and operations following the Closing, and prior to the Business Combination,
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attention and resources will be required to plan for such integration. We may
encounter potential difficulties in the integration process including the following:
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the inability to successfully integrate our businesses, including operations, technologies, products and services, in a manner
that permits the Company to achieve the cost savings and operating synergies anticipated to result from the Business Combination, which could result in the anticipated benefits of the Business Combination not being realized partly or
wholly in the time frame currently anticipated or at all;
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the loss of customers as a result of certain customers of either or both of the two businesses deciding not to continue to do
business with ZeroFox or IDX, or deciding to decrease their amount of business in order to reduce their reliance on a single company;
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the necessity of coordinating geographically separated organizations, systems and facilities;
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potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Business Combination;
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the integration of personnel, including sales teams, with diverse business backgrounds and business cultures, while maintaining
focus on providing consistent, high-quality products and services;
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the consolidation and rationalization of information technology platforms and administrative infrastructures as well as
accounting systems and related financial reporting activities; and
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the challenge of preserving important relationships of both ZeroFox and IDX and resolving potential conflicts that may arise.
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Furthermore, it is possible that the integration process could result
in the loss of talented employees or skilled workers of ZeroFox and IDX. The loss of talented employees and skilled workers could adversely affect our ability to successfully conduct the business of ZeroFox and IDX because of such employees’
experience and knowledge of the respective business. In addition, we could be adversely affected by the diversion of management’s attention and any delays or difficulties encountered in connection with the integration of ZeroFox and IDX. The
process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the businesses. If we experience difficulties with the integration process, the anticipated benefits of the Business Combination may not
be realized fully or at all, or may take longer to realize than expected. These integration matters could have an adverse effect on our business, results of operations, financial condition or prospects during this transition period and for an
undetermined period after completion of the Business Combination.
ZeroFox’s and IDX’s operations may be
restricted during the pendency of the Business Combination pursuant to terms of the Business Combination Agreement.
Prior to the consummation of the Business Combination, each of
ZeroFox and IDX is subject to customary interim operating covenants relating to carrying on its business in the ordinary course of business and is also subject to customary restrictions on actions that may be taken during such period. As a
result, each of ZeroFox and IDX may be unable, during the pendency of the Business Combination, to make certain acquisitions and capital expenditures, borrow money and otherwise pursue other actions, even if such actions would prove beneficial.
Uncertainty about the effects of the Business
Combination may affect our ability to retain key employees and integrate management structures and may materially impact the management, strategy and results of our operation as a combined company.
Uncertainty about the effects of the Business Combination on
ZeroFox’s and IDX’s business, employees, customers, third parties with whom ZeroFox and IDX have relationships, and other third parties may adversely affect us. These uncertainties may impair our ability to attract, retain and motivate key
personnel for a period of time after the Business Combination. If key employees depart because of issues related to the uncertainty and difficulty of integration or a desire not to remain with the Company, our business could be harmed.
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Some of ZeroFox’s or IDX’s existing
agreements contain change in control or early termination rights that may be implicated by the Business Combination.
Parties with which ZeroFox or IDX currently do business or may do
business in the future, including customers and suppliers, may experience uncertainty associated with the Business Combination, including with respect to current or future business relationships with ZeroFox, IDX and the Company. As a result,
the business relationships of ZeroFox, IDX and the Company may be subject to disruptions if customers, suppliers or others attempt to negotiate or renegotiate changes in existing business relationships or consider entering into business
relationships with parties other than ZeroFox, IDX and the Company. For example, certain customers, suppliers and third-party providers may have contractual consent rights or termination rights that may be triggered by a change of control.
These disruptions could harm our relationships with existing third parties with whom ZeroFox and IDX have relationships, all of which could have a material adverse effect on our business, financial condition and results of operations, cash
flows, and/or share price of the Company. The effects of such disruptions could be exacerbated by a delay in the consummation of the Business Combination.
Risks Related to Ownership of New ZeroFox Common Stock Following the
Business Combination
All references in this section to “we,” “us” or “our” mean L&F
prior to the Closing and the Company after the Closing, as the context requires. References to the “Company” refer to New ZeroFox and its consolidated subsidiaries subsequent to the Business Combination.
Subsequent to the completion of the Business
Combination, the Company may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition and its share price, which could cause you to
lose some or all of your investment.
We cannot assure you that the due diligence we conducted on the
Target Companies will reveal all material issues that may be present with regard to the Target Companies, or that factors outside of our control will not later arise. As a result of unidentified issues or factors outside of our control, we may
be forced to later write-down or write-off assets, restructure operations, or incur impairment or other charges that could result in reporting losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise
and previously known risks may materialize in a manner not consistent with the preliminary risk analysis conducted by L&F. Even though these charges may be non-cash items that would not have an immediate impact on our liquidity, reporting
charges of this nature could contribute to negative market perceptions about the Company or its securities. In addition, charges of this nature may cause us to violate leverage or other covenants to which we are subject. Accordingly, any
shareholders who choose to remain shareholders following the Business Combination could suffer a reduction in the value of their shares from any such write-down or write-downs.
Our ability to be successful following the
Business Combination will depend upon the efforts of the Company’s Board and the Target Companies’ key personnel and the loss of such persons could negatively impact the operations and profitability of the Company’s business following the
Business Combination.
Our ability to be successful following the Business Combination will
be dependent upon the efforts of the New ZeroFox Board and key personnel and we cannot assure you that, following the Business Combination, our Board and our key personnel will be effective or successful or remain with the Company. In addition
to the other challenges they will face, such individuals may be unfamiliar with the requirements of operating a public company, which could cause our management to expend time and resources becoming familiar with such requirements.
The NYSE American or Nasdaq may delist the
Company’s securities from trading on its exchange, which could limit investors’ ability to make transactions in the Company’s securities and subject the Company to additional trading restrictions.
The Class A Ordinary Shares are currently listed on the NYSE American
and following the Business Combination, we anticipate that the New ZeroFox Common Stock will be listed on Nasdaq. However, we cannot assure you that our Class A Ordinary Shares will continue to be listed on the NYSE American or that the New
ZeroFox Common Stock will be listed on Nasdaq in the future. Additionally, Nasdaq imposes listing standards on warrants. We cannot assure you that the Company will be able to meet those initial listing requirements.
If the NYSE American delists the Class A Ordinary Shares or Nasdaq
delists the New ZeroFox Common Stock from trading on its exchange and we are not able to list our securities on another national securities
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exchange, L&F expects the Company’s securities could be quoted on an
over-the-counter market. If this were to occur, the Company could face significant material adverse consequences, including:
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a limited availability of market quotations for its securities;
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reduced liquidity for its securities;
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a determination that the New ZeroFox Common Stock is a “penny stock” which will require brokers trading in the common stock to
adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for the Company’s securities;
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a limited amount of news and analyst coverage; and
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a decreased ability to issue additional securities or obtain additional financing in the future.
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The Company’s business and operations could
be negatively affected if it becomes subject to any securities litigation or shareholder activism, which could cause the Company to incur significant expense, hinder execution of business and growth strategy and impact its stock price.
In the past, following periods of volatility in the market price of a
company’s securities, securities class action litigation has often been brought against that company. Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing recently. Volatility in the stock
price of the New ZeroFox Common Stock or other reasons may in the future cause it to become the target of securities litigation or shareholder activism. Securities litigation and shareholder activism, including potential proxy contests, could
result in substantial costs and divert management’s and the New ZeroFox Board’s attention and resources from the Company’s business. Additionally, such securities litigation and shareholder activism could give rise to perceived uncertainties as
to the Company’s future, adversely affect its relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, the Company may be required to incur significant legal fees and other expenses
related to any securities litigation and activist shareholder matters. Further, its stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation
and shareholder activism.
Future resales of New ZeroFox Common Stock
after the consummation of the Business Combination may cause the market price of the Company’s securities to drop significantly, even if the Company’s business is doing well.
Pursuant to the Registration Rights Agreement, the Sponsor Support
Letter Agreement and the Proposed Bylaws, after the consummation of the Business Combination and subject to certain exceptions, the Sponsor Holders, those receiving shares of New ZeroFox Common Stock as consideration pursuant to the Business
Combination Agreement, directors, officers and employees of the Company receiving shares of New ZeroFox Common Stock upon the settlement or exercise of warrants, stock options or other equity awards, and warrant holders of the Company receiving
shares of New ZeroFox Common Stock upon the settlement or exercise of such warrants (other than holders of the L&F Public Warrants) will be contractually restricted from selling or transferring any of their shares of New ZeroFox Common
Stock. Such restrictions begin at Closing and end, in the case of the shares that are restricted pursuant to the Registration Rights Agreement and the Proposed Bylaws, on the date that is 180 days after Closing and in the case of the shares
restricted pursuant to the Sponsor Support Letter Agreement, on such dates as are described in the section titled “Proposal No. 2 - The Business Combination
Proposal—Related Agreements.”
However, following the expiration of the applicable lock-up period,
such equity holders will not be restricted from selling shares of the New ZeroFox Common Stock held by them, other than by applicable securities laws. As such, sales of a substantial number of shares of New ZeroFox Common Stock in the public
market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of New ZeroFox Common Stock. As restrictions on resale end and
registration statements (filed after the Closing to provide for the resale of such shares from time to time) are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in the
Company’s share price or the market price of the New ZeroFox Common Stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
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The market price of shares of the New ZeroFox
Common Stock may be volatile, which could cause the value of shareholder investments to decline.
Even if an active trading market develops following the Business
Combination, the market price of the New ZeroFox Common Stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. The securities markets have
experienced significant volatility as a result of the COVID-19 pandemic. Market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of the New ZeroFox Common Stock regardless of its
operating performance.
In addition, the Company’s operating results could be below the
expectations of public market analysts and investors due to a number of potential factors, including:
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variations in quarterly operating results or dividends, if any, to shareholders;
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additions or departures of key management personnel;
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publication of research reports about the Company’s industry;
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litigation and government investigations;
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changes or proposed changes in laws or regulations or differing interpretations or enforcement of laws or regulations affecting
the Company’s business;
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adverse market reaction to any indebtedness incurred or securities issued in the future;
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changes in market valuations of similar companies;
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adverse publicity or speculation in the press or investment community;
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announcements by competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures, or
capital commitments; and
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the impact of the COVID-19 pandemic (or future pandemics) on the Company’s management, employees, partners, customers, and
operating results.
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In response to any of the foregoing developments, the market price of
shares of the New ZeroFox Common Stock could decrease significantly. You may be unable to resell your shares at or above your purchase price.
Following periods of volatility in the overall market and the market
price of a company’s securities, securities class action litigation has often been instituted against that company. Any such litigation, if instituted against the Company, could result in substantial costs and a diversion of management’s
attention and resources.
A small number of shareholders will continue to
have substantial control over the Company after the Business Combination, which may limit other shareholders’ ability to influence corporate matters and delay or prevent a third party from acquiring control over the Company.
Upon completion of the Business Combination, the directors and
executive officers of the Company, and beneficial owners expected to own 5% or more of its voting securities and their respective affiliates, will beneficially own, in the aggregate, approximately 68.5% of its outstanding New ZeroFox Common
Stock, assuming no Public Shareholders redeem their L&F Ordinary Shares. This significant concentration of ownership may have a negative impact on the trading price for the New ZeroFox Common Stock because investors often perceive
disadvantages in owning stock in companies with controlling shareholders. In addition, these shareholders will be able to exercise influence over all matters requiring shareholder approval, including the election of directors and approval of
corporate transactions, such as a merger or other sale of the Company or its assets. This concentration of ownership could limit shareholders’ ability to influence corporate matters and may have the effect of delaying or preventing a change in
control, including a merger, consolidation or other business combination, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change in control would benefit the other
shareholders.
There may not be an active trading market for
the New ZeroFox Common Stock, which may make it difficult to sell shares of New ZeroFox Common Stock.
It is possible that after the Business Combination, an active trading
market will not develop or, if developed, that any market will not be sustained. This would make it difficult for you to sell shares of New ZeroFox
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Common Stock at an attractive price or at all. The market price per Class A Ordinary
Share prior to the Business Combination may not be indicative of the price at which shares of New ZeroFox Common Stock will trade in the public market after the Business Combination.
If the Company’s operating and financial
performance in any given period does not meet the guidance provided to the public or the expectations of investment analysts, the market price of the New ZeroFox Common Stock may decline.
We may, but are not obligated to, provide public guidance on our
expected operating and financial results for future periods. Any such guidance will consist of forward-looking statements, subject to the risks and uncertainties described in this prospectus/proxy statement and in our other public filings and
public statements. The ability to provide this public guidance, and the ability to accurately forecast our results of operations, could be impacted by the COVID-19 pandemic. Our actual results may not always be in line with or exceed any
guidance we have provided, especially in times of economic uncertainty, such as the current global economic uncertainty being experienced as a result of the COVID-19 pandemic. If, in the future, our operating or financial results for a
particular period do not meet any guidance provided or the expectations of investment analysts, or if we reduce our guidance for future periods, the market price of the New ZeroFox Common Stock may decline as well. Even if we do issue public
guidance, there can be no assurance that we will continue to do so in the future.
If securities or industry analysts do not
publish research or reports about the Company’s business or publish negative reports, the market price of the New ZeroFox Common Stock could decline.
The trading market for the New ZeroFox Common Stock will be
influenced by the research and reports that industry or securities analysts publish about us and our business. If regular publication of research reports ceases, we could lose visibility in the financial markets, which in turn could cause the
market price or trading volume of the New ZeroFox Common Stock to decline. Moreover, if one or more of the analysts who cover us downgrade the New ZeroFox Common Stock or if reporting results do not meet their expectations, the market price of
the New ZeroFox Common Stock could decline.
Subsequent to the consummation of the Business
Combination, we may issue additional shares of New ZeroFox Common Stock (including upon the exercise of warrants), which would increase the number of shares eligible for future resale in the public market and result in dilution to Company
shareholders.
Outstanding warrants to purchase an aggregate of 16,213,430 shares of
New ZeroFox Common Stock will become exercisable thirty days after the completion of the Business Combination provided in each case that the Company has an effective registration statement under the Securities Act covering the shares of New
ZeroFox Common Stock issuable upon exercise of the New ZeroFox Warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the
state of residence of the holder (or holders exercise their warrants on a cashless basis under the circumstances specified in the warrant agreement). Each warrant entitles the holder thereof to purchase one share of New ZeroFox Common Stock at
a price of $11.50 per whole share, subject to adjustment. In addition, the Notes will be convertible into approximately 13,043,475 shares of New ZeroFox Common Stock (please see “Risk Factors—Risks Related to
L&F, the Business Combination and the Company—Our Notes to be issued and outstanding after consummation of the Business Combination may impact our financial results, result in the dilution of our shareholders, create downward pressure on
the price of New ZeroFox Common Stock, and restrict our ability to raise additional capital or take advantage of future opportunities.”) The issuance of additional shares of New ZeroFox Common Stock as a result of any of the
aforementioned transactions may result in dilution to the then-existing holders of New ZeroFox Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public
market could adversely affect the market price of the New ZeroFox Common Stock.
The Company may issue additional shares of New
ZeroFox Common Stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of the New ZeroFox Common Stock.
Pursuant to the Incentive Equity Plan, following the consummation of
the Business Combination, we may issue an aggregate of up to the number of shares equal to ten percent (10%) of New ZeroFox Common Stock issued and outstanding at the Effective Time, which amount will be subject to increase from time to time.
For
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additional information about this plan, please read the discussion under the headings
“Proposal No. 7—The Incentive Equity Plan Proposal.” We may also issue additional shares of New ZeroFox Common Stock or other equity securities of equal or senior rank in the future in connection with,
among other things, future acquisitions or repayment of outstanding indebtedness, without shareholder approval, in a number of circumstances.
The issuance of additional shares or other equity securities of equal
or senior rank would have the following effects:
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existing shareholders’ proportionate ownership interest in the Company will decrease;
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the amount of cash available per share, including for payment of dividends in the future, may decrease;
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the relative voting strength of each share of previously outstanding common stock may be diminished; and
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the market price of the New ZeroFox Common Stock may decline.
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L&F’s shareholders will experience dilution
due to the issuance of shares of New ZeroFox Common Stock, and securities that are exercisable for shares of New ZeroFox Common Stock, to the Target Companies’ security holders as consideration in the Business Combination, and the issuance of
shares of New ZeroFox Common Stock to the Common Equity PIPE Investors in the Common Equity PIPE Financing or upon the conversion of the Notes.
Based on the Target Companies’ and L&F’s current capitalization,
we anticipate issuing to the Target Companies’ shareholders an aggregate of up to 111,127,779 shares of New ZeroFox Common Stock pursuant to the Business Combination Agreement (assuming the cash exercise of ZeroFox and IDX warrants and
excluding approximately 8,182,004 shares issuable upon the exercise of assumed options) and 2,000,000 shares of New ZeroFox Common Stock to the Common Equity PIPE Investors, and it is currently expected that L&F’s current shareholders would
hold in the aggregate approximately 6.4% of the outstanding New ZeroFox Common Stock (assuming that no Class A Ordinary Shares are redeemed by Public Shareholders). If any of the Class A Ordinary Shares are redeemed in connection with the
Business Combination, the percentage of the outstanding New ZeroFox Common Stock held by the Public Shareholders will decrease and the percentages of the outstanding New ZeroFox Common Stock held immediately following the Business Combination
by the L&F Initial Shareholders and the Target Companies’ security holders will increase. To the extent that any of the outstanding New ZeroFox Warrants are exercised for shares of the New ZeroFox Common Stock, L&F’s existing
shareholders would experience additional dilution. In addition, if the Notes issued in the Convertible Notes Financing are converted in full and settled fully in shares, our fully diluted share capital would increase by an additional 13,043,475
shares. Such dilution could, among other things, limit the ability of L&F’s current shareholders to influence the Company’s management through the election of directors following the Business Combination.
Risks Related to L&F, the Business Combination and the Company
All references in this section to “we,” “us” or “our” means L&F
prior to the Closing and the Company after the Closing, as the context requires. References to the “Company” refer to New ZeroFox and its consolidated subsidiaries subsequent to the Business Combination.
The Sponsor, as well as L&F’s officers and
directors have agreed to vote in favor of the Business Combination, regardless of how the Public Shareholders vote.
Unlike many other blank check companies in which the initial
shareholders agree to vote their founder shares in accordance with the majority of the votes cast by the public shareholders in connection with an initial business combination, the Sponsor and L&F’s officers and directors have agreed to
vote any L&F Ordinary Shares owned by them in favor of the Business Combination proposal and the other proposals to be presented at the Shareholder Meeting. As of the date of this proxy statement/prospectus, the Sponsor and L&F’s
officers and directors beneficially own in the aggregate shares equal to approximately 55.7% of the issued and outstanding L&F Ordinary Shares. Accordingly, it is more likely that the necessary shareholder approval will be received for the
Business Combination than would be the case if the Sponsor and L&F’s officers and directors had agreed to vote any L&F Ordinary Shares owned by them in accordance with the majority of the votes cast by the Public Shareholders.
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Since the L&F Initial Shareholders,
including L&F’s officers and directors, have interests that are different, or in addition to (and which may conflict with), the interests of the Public Shareholders, a conflict of interest may have existed in determining whether the
Business Combination with the Target Companies is appropriate as our initial business combination. Such interests include that Sponsor, as well as our officers and directors, will lose their entire investment in us if our business combination
is not completed.
When you consider the recommendation of the L&F Board to vote in
favor of approval of the Business Combination Proposal, you should keep in mind that the L&F Initial Shareholders, including L&F’s officers and directors, have interests in such proposal that are different from, or in addition to, those
of L&F shareholders generally. These interests include, among other things, the interests listed below:
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the fact that the Sponsor and L&F’s directors and officers have agreed not to redeem any Class A Ordinary Shares held by
them in connection with a shareholder vote to approve the Business Combination and the Sponsor Holders are obligated to vote in favor of the Business Combination;
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the fact that the Sponsor has irrevocably waived the anti-dilution adjustments set forth in L&F’s organizational documents,
or any other anti-dilution or similar adjustment rights to which the Sponsor may otherwise be entitled related to or arising from the Business Combination;
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the fact that the Sponsor Holders paid an aggregate amount of $25,000 for the Founder Shares, which will convert into 4,312,500
shares of New ZeroFox Common Stock in accordance with the terms of L&F’s organizational documents and such securities will have a significantly higher value at the time of the Business Combination;
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the fact that the Sponsor paid $5,450,000 for 5,450,000 L&F Private Placement Warrants, each of which is exercisable
commencing on the later of 12 months from the closing of the L&F IPO and 30 days following the Closing for one Class A Ordinary Share at $11.50 per share; if we do not consummate an initial business combination by August 24, 2022,
then the proceeds from the sale of the L&F Private Placement Warrants will be part of the liquidating distribution to the Public Shareholders and the warrants held by our Sponsor will be worthless;
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the fact that the L&F Initial Shareholders, including the Sponsor (and certain of L&F’s officers and directors who
are members of the Sponsor), have invested in L&F an aggregate of $5,475,000, comprised of the $25,000 purchase price for 4,312,500 Founder Shares and the $5,450,000 purchase price for 5,450,000 L&F Private Placement Warrants.
Subsequent to the initial purchase of the Founder Shares by the Sponsor, the Sponsor transferred 20,000 Founder Shares to Mr. Albert Goldstein and 50,000 Founder Shares to Senator Joseph Lieberman at a nominal purchase price of $0.004
per Founder Share prior to the closing of the L&F IPO and 39,733 Founder Shares to Mr. Kurt Summers shortly after his being appointed to the L&F Board in December 2021 for no cash consideration. Assuming a trading price of
$10.09 per Class A Ordinary Share and approximately $0.35 per L&F Public Warrant (based upon the respective closing prices of the Class A Ordinary Shares and the L&F Public Warrants on the NYSE American on June 28, 2022), the
4,312,500 Founder Shares and 5,450,000 Private Placement Warrants would have an implied aggregate market value of $45,420,625. Even if the trading price of the shares of New ZeroFox Common Stock were as low as $1.27 per share, the
aggregate market value of the Founder Shares alone (without taking into account the value of the L&F Private Placement Warrants) would be approximately equal to the initial investment in L&F by the L&F Initial
Shareholders. As a result, the L&F Initial Shareholders are likely to be able to make a substantial profit on their investment in L&F at a time when shares of New ZeroFox Common Stock have lost significant value. On the other
hand, if L&F liquidates without completing a business combination before August 24, 2022, the L&F Initial Shareholders will lose their entire investment in L&F;
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the fact that the Sponsor and L&F’s officers and directors will benefit from the completion of a business combination and
may be incentivized to complete an acquisition of a less favorable target company or on terms less favorable to shareholders rather than liquidate;
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the fact that the L&F Initial Shareholders including the Sponsor (and the L&F’s officers and directors who are members
of the Sponsor) can earn a positive rate of return on their investment, even if other L&F shareholders experience a negative rate of return in New ZeroFox;
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the fact that the L&F Initial Shareholders and L&F’s other current officers and directors have agreed to waive their
rights to liquidating distributions from the Trust Account with respect to any L&F Ordinary Shares (other than Public Shares) held by them if L&F fails to complete an initial business combination by August 24, 2022;
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the fact that, at the option of the Sponsor, any amounts outstanding under any loan made by the Sponsor or any of its affiliates
to L&F in an aggregate amount of up to $1,500,000 may be converted into L&F Private Placement Warrants in connection with the consummation of the Business Combination;
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the fact that the Sponsor and L&F’s officers and directors will lose their entire investment in L&F and will not be
reimbursed for any loans extended, fees due or out-of-pocket expenses if an initial business combination is not consummated by August 24, 2022. As of the date of this proxy statement/prospectus there are no loans extended, fees due or
outstanding out-of-pocket expenses for which the Sponsor and L&F’s officers and directors are awaiting reimbursement;
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the fact that if the Trust Account is liquidated, including in the event L&F is unable to complete an initial business
combination within the required time period, Sponsor has agreed to indemnify L&F to ensure that the proceeds in the Trust Account are not reduced below $10.15 per L&F Public Share, or such lesser per Public Share amount as is in
the Trust Account on the liquidation date, by the claims of prospective target businesses with which L&F has entered into an acquisition agreement or claims of any third party for services rendered or products sold to L&F, but
only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;
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the fact that L&F may be entitled to distribute or pay over funds held by L&F outside the Trust Account to Sponsor or
any of its affiliates prior to the Closing;
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the fact that (i) L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity
affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam Gerchen, our chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the
chairman of the L&F Board) and an affiliate of Corbin Capital Partners, LP, a significant security holder of L&F, have executed and delivered Common Equity Subscription Agreements for an aggregate amount of $10,000,000,
(ii) L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) and an affiliate of Corbin Capital Partners, LP, a significant security
holder of L&F, have executed and delivered Convertible Notes Subscription Agreements for an aggregate principal amount of $30,000,000, and (iii) Adam Gerchen (our chief executive officer and director of L&F) is a limited partner
in funds managed by Monarch Capital, and that Monarch Capital has executed and delivered a Convertible Notes Subscription Agreement for an aggregate principal amount of $120,000,000;
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the fact that L&F has agreed to pay Jefferies, L&F’s co-PIPE placement agent and financial advisor, and sole underwriter
in the L&F IPO: (i) a cash fee for their services in connection with the L&F IPO in an aggregate amount equal to 5.5% of the gross proceeds of the L&F IPO, with 2.0% of the gross proceeds being paid to the underwriters at
the time the L&F IPO was completed and 3.5% of the gross proceeds (i.e., the deferred underwriting fee) being payable, and conditioned, upon consummating an initial business combination; the aggregate underwriting fee is fixed at
5.5% of the gross proceeds from the L&F IPO and will not be adjusted based on the number of shares that are redeemed in connection with the Business Combination; the deferred underwriting fee of $6,037,500 represents approximately
17.6% and 35.2% of the aggregate proceeds from the L&F IPO, net of redemptions, in the no redemption and 50% redemption scenarios (after giving effect to the Extension Amendment Redemptions), respectively; (ii) a placement agency
fee as a percentage of the aggregate gross proceeds received or to be received from one or more commitments for financing the Business Combination from sources other than any affiliates of ZeroFox, IDX or L&F, and split with Stifel
(defined below); and (iii) financial advisory fees as a fixed amount related to capital markets financial advice and assistance in connection with the Business Combination, as applicable, upon completion of the Business Combination;
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the fact that, Stifel, co-PIPE placement agent for the Common Equity PIPE Financing and a creditor of ZeroFox, will be entitled
to receive a placement agency fee as a percentage of the aggregate gross proceeds received or to be received from one or more commitments for financing the Business Combination from sources other than any affiliates of ZeroFox, IDX or
L&F, and split with Jefferies, upon completion of the Business Combination;
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the fact that (i) James C. Foster, Peter Barris, Corey Mulloy, Samskriti King, and Todd Headley, current directors of ZeroFox,
(ii) Thomas F. Kelly and Sean Cunningham, current directors of IDX and (iii) Adam Gerchen, current officer of the Sponsor, are each expected to be directors and James C. Foster is expected to be chief executive officer, of New ZeroFox
after the consummation of the Business Combination. As such, in the future each of the aforementioned will receive any cash fees, stock options, stock awards or other remuneration that New ZeroFox’s board of directors determines to pay
them and any applicable compensation as described under the section titled “Executive and Director Compensation”; and
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the fact that the Sponsor Group will have paid an aggregate of approximately $7,975,000 for its investment in New ZeroFox,
including the investments of L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam
Gerchen, our chief executive officer and a director of L&F) and JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board) in the Common Equity PIPE Financing, as summarized in the table
below, and, following the consummation of the Business Combination, the aggregate value of the Sponsor Group’s investment will be approximately $47,943,125, based upon the respective closing prices of the Class A Ordinary Shares and
the L&F Public Warrants on the NYSE American on June 28, 2022.
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The L&F Board concluded that the potentially disparate interests
would be mitigated because (i) these interests were disclosed in the prospectus for L&F's IPO and are disclosed in this proxy statement/prospectus, (ii) most of these disparate interests would exist with respect to a business combination by
L&F with any other target business or businesses, and (iii) the Sponsor Group will hold equity interests in New ZeroFox with value that, after the Closing, will be based on the future performance of New ZeroFox Common Stock. In addition,
L&F's independent directors reviewed and considered these interests during their evaluation of the Business Combination and in unanimously approving, as members of the L&F Board, the Business Combination Agreement and the related
agreements and the transactions contemplated thereby, including the Business Combination.
Based on its review of the forgoing considerations, the L&F Board
concluded that the potentially negative factors associated with the Business Combination were outweighed by the potential benefits that it expects the L&F shareholders will receive as a result of the Business Combination. The L&F Board
realized that there can be no assurance about future results, including results considered or expected as disclosed in the foregoing reasons.
For more information about the factors the L&F Board considered
in evaluating and recommending the Business Combination to the L&F shareholders, see sections entitled “Proposal No. 2 - The Business Combination Proposal — The L&F Board's Reasons for the Approval of
the Business Combination”, “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination” and “Proposal No. 2 - The Business Combination Proposal —
Conflicts of Interest and Waiver of Corporate Opportunity Doctrine”.
Sponsor Group Beneficial Ownership of L&F Prior to Closing
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Securities held by
Sponsor Group
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Sponsor Cost at L&F’s
Initial Public Offering
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Class A Ordinary Shares
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—
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—
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Founder Shares
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4,312,500
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$25,000
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L&F Private Placement Warrants
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5,450,000
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$5,450,000
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Total
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$5,475,000
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Sponsor Group Beneficial Ownership of New ZeroFox
Following the Closing(1)
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Securities
held by
Sponsor
Group at
Closing
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Value per
Security
as of
June 28,
2022
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Sponsor
Group Cost
at Closing
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Total Value
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New ZeroFox Common Stock Issued Pursuant to the Common
Equity PIPE Financing
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250,000
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$10.09
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$2,500,000
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$2,522,500
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New ZeroFox Common Stock Issued to Holders of Founder
Shares
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4,312,500(2)
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$10.09
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—
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$43,513,125
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New ZeroFox Private Placement Warrants
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5,450,000
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$0.35(3)
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—
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$1,907,500
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Total
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$2,500,000
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$47,943,125
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(1)
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Does not include New ZeroFox Common Stock issuable upon conversion of the Notes that are convertible at an initial conversion
price of $11.50 per share.
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(2)
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Includes 1,293,750 shares of New ZeroFox Common Stock which will be subject to an earnout, whereby such shares will be forfeited
unless certain volume-weighted average share price thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the Closing. See “Proposal No. 2 — Business Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” for more information related to the Sponsor Support Letter Agreement.
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(3)
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Approximately $0.35 based on the closing price of the L&F Public Warrants on June 28, 2022, which was $0.3498.
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L&F has identified a material weakness in
its internal control over financial reporting. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which
may adversely affect investor confidence in us and materially and adversely affect our business and operating results.
L&F identified a material weakness in its internal control over
financial reporting related to the accounting for a significant and unusual transaction related to the warrants issued in connection with its initial public offering in November 2020 and the underwriters’ partial exercise of the over-allotment
option in November 2020. As a result of this material weakness, L&F’s management concluded that its internal control over financial reporting was not effective as of December 31, 2020 and December 31, 2021. This material weakness resulted
in a material misstatement of its warrant liabilities, change in fair value of warrant liabilities, additional paid-in capital, accumulated deficit and related financial disclosures for the affected periods.
L&F identified a material weakness in its internal control over
financial reporting related to the application of ASC 480-10-S99-3A to its accounting classification of the Class A Ordinary Shares. As a result of this material weakness, L&F’s management concluded that its internal control over financial
reporting was not effective as of December 31, 2021. Historically, a portion of the Class A Ordinary Shares was classified as permanent equity to maintain stockholders’ equity greater than $5 million on the basis that L&F will not redeem
its Class A Ordinary Shares in an amount that would cause its net tangible assets to be less than $5,000,001, as described in the Existing Governing Documents. Pursuant to L&F’s re-evaluation of the application of ASC 480-10-S99-3A to its
accounting classification of the Class A Ordinary Shares, L&F’s management determined that the Class A Ordinary Shares included certain provisions that required classification of all of the Class A Ordinary Shares as temporary equity
regardless of the net tangible assets redemption limitation contained in the Existing Governing Documents.
To respond to these instances of material weakness, L&F devoted,
and plans to continue to devote, significant effort and resources to the remediation and improvement of its internal control over financial reporting. While L&F has processes to identify and appropriately apply applicable accounting
requirements, it plans to enhance these processes to better evaluate its research and understanding of the nuances of the complex accounting standards that apply to its consolidated financial statements. L&F’s plans include providing
enhanced access to accounting literature, research materials and documents and increased communication among its personnel and third-party professionals with whom it consults regarding complex accounting applications. The elements of its
remediation plan can only be accomplished over time, and it can offer no assurance that these initiatives will ultimately have the intended effects.
If L&F identifies any new material weaknesses in the future, any
such newly identified material weakness could limit its ability to prevent or detect a misstatement of L&F’s accounts or disclosures that
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could result in a material misstatement of L&F’s annual or interim financial
statements. In such case, L&F 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
its financial reporting and its stock price may decline as a result. L&F cannot assure you that the measures it has taken to date, or any measures L&F or the Company may take in the future, will be sufficient to avoid potential future
material weaknesses.
As a result of these material weaknesses, our management concluded
that our internal control over financial reporting was not effective as of December 31, 2021.
L&F may face litigation and other risks
as a result of the material weaknesses in L&F’s internal control over financial reporting.
As a result of the material weaknesses L&F identified in its
internal controls over financial reporting (see above), the restatement of its financial statements, the change in accounting for the warrants, and other matters raised or that may in the future be raised by the SEC, the Financial Accounting
Standards Board and various other bodies formed to interpret and create appropriate accounting principles and guidance L&F and, following the Business Combination, the Company, face potential for litigation or other disputes which may
include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement and material weaknesses in L&F’s internal control over financial reporting and the preparation of
L&F’s financial statements. As of the date of this proxy statement/prospectus, L&F has no knowledge of any such litigation or dispute. However, L&F can provide no assurance that such litigation or dispute will not arise in the
future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on L&F’s, or following the Business Combination, the Company’s business, results of operations and financial condition or L&F’s
ability to complete the Business Combination.
If L&F does not consummate an initial
business combination by August 24, 2022, its Public Shareholders may be forced to wait until after August 24, 2022 before redemption from the Trust Account.
L&F’s Existing Governing Documents provide (following the
approval of the Extension Amendment Proposal) that it has until August 24, 2022, to consummate an initial business combination. If L&F has not consummated an initial business combination by August 24, 2022, it will: (i) cease all operations
except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the
trust account, including interest earned on the funds held in the trust account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses) divided by the number of the
then-outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible
following such redemption, subject to the approval of our remaining shareholders and L&F’s board of directors, liquidate and dissolve, subject in the case of clauses (ii) and (iii) to our obligations under Cayman Islands law to provide for
claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to L&F’s warrants, which will expire worthless if it fails to consummate an initial business
combination by August 24, 2022. L&F’s Existing Governing Documents provide that, if a resolution of L&F’s shareholders is passed pursuant to the Cayman Islands Companies Act to commence the voluntary liquidation of L&F, it will
follow the foregoing procedures with respect to the liquidation of the Trust Account as promptly as reasonably possible but not more than ten business days thereafter, subject to applicable Cayman Islands law.
As a result, investors may be forced to wait beyond August 24, 2022,
before the redemption proceeds of the Trust Account become available to them, and they receive the return of their pro rata portion of the proceeds from the Trust Account. L&F has no obligation to return funds to investors prior to the date
of our redemption or liquidation unless, prior thereto, L&F consummates its initial business combination or amends certain provisions of the Existing Governing Documents, and only then in cases where investors have sought to redeem their
Public Shares. Only upon L&F’s redemption or any liquidation will Public Shareholders be entitled to distributions if L&F does not complete its initial business combination and does not amend the Existing Governing Documents.
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L&F’s officers and directors and/or their
affiliates may enter into agreements concerning L&F’s securities prior to the Shareholder Meeting, which may have the effect of increasing the likelihood of completion of the Business Combination or decreasing the value of the L&F
Ordinary Shares.
At any time prior to the Shareholder Meeting, during a period when
they are not then aware of any material nonpublic information regarding L&F or its securities, L&F’s officers and directors and/or their affiliates may enter into a written plan to purchase L&F’s securities pursuant to Rule 10b5-1
under the Exchange Act, and may engage in other public market purchases, as well as private purchases, of securities. In addition, at any time prior to the Shareholder Meeting, during a period when they are not then aware of any material
nonpublic information regarding L&F or its securities, L&F’s officers and directors and/or their respective affiliates may (i) purchase shares from institutional and other investors who vote, or indicate an intention to vote, against
the Business Combination Proposal or the other proposals, (ii) execute agreements to purchase such shares from institutional and other investors in the future, and/or (iii) enter into transactions with institutional and other investors to
provide such persons with incentives to acquire Class A Ordinary Shares. Such an agreement may include a contractual acknowledgement that such shareholder, although still the record holder of such shares, is no longer the beneficial owner
thereof and therefore agrees not to exercise its redemption rights. In the event that L&F’s officers and directors or their affiliates purchase shares in privately negotiated transactions from Public Shareholders who have already elected to
exercise their redemption rights, such selling Public Shareholders would be required to revoke their prior elections to redeem their shares. While the exact nature of any such incentives has not been determined as of the date of this proxy
statement/prospectus, they might include, without limitation, arrangements to protect such investors or holders against potential loss in value of their shares, including the granting of put options and the transfer of shares or L&F
Warrants owned by the Sponsor for nominal value to such investors or holders. Any Class A Ordinary Shares acquired by the persons described above would not be voted in connection with the Business Combination Proposal.
The purpose of such share purchases and other transactions would be
to increase the likelihood that the conditions to the consummation of the Business Combination are satisfied or to provide additional equity financing. This may result in the completion of our Business Combination that may not otherwise have
been possible.
Entering into any such incentive arrangements may have a depressive
effect on the Class A Ordinary Shares. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares he
owns, either prior to or immediately after the Shareholder Meeting.
As of the date of this proxy statement/prospectus, there have been no
such discussions and no agreements to such effect have been entered into with any such investor or holder. L&F will file a Current Report on Form 8-K prior to the Shareholder Meeting to disclose any arrangements entered into or significant
purchases made by any of the aforementioned persons. Any such report will include (i) the amount of Class A Ordinary Shares purchased and the purchase price; (ii) the purpose of such purchases; (iii) the impact of such purchases on the
likelihood that the Business Combination transaction will be approved; (iv) the identities or characteristics of security holders who sold shares if not purchased in the open market or the nature of the sellers; and (v) the number of Class A
Ordinary Shares for which L&F has received redemption requests.
The Company will be a holding company and its
only material assets after completion of the Business Combination will be its interest in its subsidiaries, and it is accordingly dependent upon distributions made by its subsidiaries to pay taxes and pay dividends.
Upon completion of the Business Combination, we will be a holding
company with no material assets other than the equity interests in our direct and indirect subsidiaries. As a result, we will have no independent means of generating revenue or cash flow and our ability to pay taxes and pay dividends will
depend on the financial results and cash flows of our subsidiaries and the distributions we receive from our subsidiaries. Deterioration in the financial condition, earnings or cash flow of our subsidiaries for any reason could limit or impair
such subsidiaries’ ability to pay such distributions. Additionally, if we need funds and our subsidiaries are restricted from making such distributions under applicable law or regulation or under the terms of any financing arrangements, or our
subsidiaries are otherwise unable to provide such funds, our liquidity and financial condition could be adversely affected.
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Dividends on New ZeroFox Common Stock, if any, will be paid at the
discretion of the New ZeroFox Board, which will consider, among other things, the Company’s business, operating results, financial condition, current and expected cash needs, plans for expansion and any legal or contractual limitations on its
ability to pay such dividends. Financing arrangements may include restrictive covenants that restrict our ability to pay dividends or make other distributions to our shareholders. In addition, entities are generally prohibited under relevant
law from making a distribution to a shareholder to the extent that, at the time of the distribution, after giving effect to the distribution, the liabilities of such entity (subject to certain exceptions) exceed the fair value of its assets. If
our subsidiaries do not have sufficient funds to make distributions, our ability to declare and pay cash dividends may also be restricted or impaired. ZeroFox and its subsidiaries would be restricted from making distributions or advances to New
ZeroFox under ZeroFox's existing credit facilities.
L&F has not obtained an opinion from an
independent investment banking firm or another independent firm, and consequently, you have no assurance from an independent source that the terms of the Business Combination are fair to L&F from a financial point of view.
The L&F Board did not obtain a third-party valuation or fairness
opinion in connection with its determination to approve the Business Combination. L&F is not required to obtain an opinion from an independent investment banking firm that is a member of FINRA or from another independent firm that the price
it is paying is fair to L&F from a financial point of view. In analyzing the Business Combination, the L&F Board and L&F’s management conducted due diligence on the Target Companies and researched the industry in which the Target
Companies operate and concluded that the Business Combination was in the best interest of its shareholders. Accordingly, L&F’s shareholders will be relying solely on the judgment of the L&F Board in determining the value of the Business
Combination, and the L&F Board may not have properly valued such business. The lack of a third-party valuation or fairness opinion may also lead an increased number of shareholders to vote against the Business Combination or demand
redemption of their shares, which could potentially impact our ability to consummate the Business Combination. For more information about our decision-making process, see the section titled “Proposal No. 2 -
The Business Combination Proposal — The Board’s Reasons for the Approval of the Business Combination.”
The level of due diligence conducted in
connection with the Business Combination may not be as high as would be the case if the Target Companies became a public company through an underwritten public offering, which could result in defects with the Target Companies’ business or
problems with the Target Companies’ management to be overlooked.
If the Target Companies became a public company through an
underwritten public offering, the underwriters would be subject to liability under Section 11 of the Securities Act for material misstatements and omissions in the initial public offering registration statement. In general, an underwriter is
able to avoid liability under Section 11 if it can prove that, it “had, after reasonable investigation, reasonable ground to believe and did believe, at the time . . . the registration statement became effective, that the statements therein
(other than the audited financial statements) were true and that there was no omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” In order to fulfill its duty to conduct a
“reasonable investigation,” an underwriter will, in addition to conducting a significant amount of due diligence on its own, usually require that an issuer’s independent registered public accounting firm provide a comfort letter with respect to
certain numbers included in the registration statement and will require its law firm and the law firm for the issuer to provide letters to the underwriters generally stating that the law firms are not aware of any material misstatements or
omissions in the initial public offering registration statement (“Counsel Negative Assurance Letters”). Auditor comfort letters and Counsel Negative Assurance Letters are generally not required in
connection with private companies going public through a merger with a special purpose acquisition company, such as L&F, and no auditor comfort letters or Counsel Negative Assurance Letters have been requested or obtained in connection with
the Business Combination or the preparation of this proxy statement/prospectus. In addition, the amount of due diligence conducted by L&F and its advisors in connection with the Business Combination may not be as high as would have been
undertaken by an underwriter in connection with an initial public offering of the Target Companies. Accordingly, it is possible that defects in the Target Companies’ business or problems with the Target Companies’ management that would have
been discovered if the Target Companies conducted an underwritten public offering will not be discovered in connection with the Business Combination, which could adversely affect the market price of the New ZeroFox Common Stock.
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The process of taking a company public by
means of a business combination with a special purpose acquisition company (“SPAC”) is different from taking a company public through an underwritten offering and may create risks for our unaffiliated investors.
An underwritten offering involves a company engaging underwriters to
purchase its shares and resell them to the public. An underwritten offering imposes statutory liability on the underwriters for material misstatements or omissions contained in the registration statement unless they are able to sustain the
burden of providing that they did not know and could not reasonably have discovered such material misstatements or omissions. This is referred to as a “due diligence” defense and results in the underwriters undertaking a detailed review of the
company’s business, financial condition and results of operations. Going public via a business combination with a SPAC does not involve any underwriters and does not generally necessitate the level of review required to establish a “due
diligence” defense as would be customary on an underwritten offering.
In addition, going public via a business combination with a SPAC does
not involve a book-building process as is the case in an underwritten public offering. In any underwritten public offering, the initial value of a company is set by investors who indicate the price at which they are prepared to purchase shares
from the underwriters. In the case of a SPAC transaction, the value of the company is established by means of negotiations between the target company, the SPAC and, in some cases, “PIPE” investors who agree to purchase shares at the time of the
business combination. The process of establishing the value of a company in a SPAC business combination may be less effective than the book-building process in an underwritten public offering and also does not reflect events that may have
occurred between the date of the business combination agreement and the closing of the transaction. In addition, underwritten public offerings are frequently oversubscribed resulting in additional potential demand for shares in the aftermarket
following the underwritten public offering. There is often no such book of demand built up in connection with SPAC transaction and no underwriters with the responsibility of stabilizing the share price which may result in the share price being
harder to sustain after the consummation of the business combination.
The unaudited pro forma financial information
included in the section titled “Unaudited Pro Forma Condensed Combined Financial Information” may not be representative of the Company’s results if the Business Combination is completed.
L&F and the Target Companies currently operate as separate
companies and have had no prior history as a combined entity, and the Target Companies’ and the Company’s operations have not previously been managed on a combined basis. The pro forma financial information included in this proxy
statement/prospectus is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that would have actually occurred had the Business Combination been completed at or as of the
dates indicated, nor is it indicative of the future operating results or financial position of the Company. The unaudited pro forma financial information does not reflect future events that may occur after the Business Combination and does not
consider potential impacts of future market conditions on revenues or expenses. The pro forma financial information included in the section titled “Unaudited Pro Forma Condensed Combined Financial Information” has been derived from L&F’s and the Target Companies’ historical financial statements and certain adjustments and assumptions have been made regarding the Company after giving effect to the
Business Combination. There may be differences between preliminary estimates in the pro forma financial information and the final acquisition accounting, which could result in material differences from the pro forma information presented in
this proxy statement/prospectus in respect of the estimated financial position and results of operations of the Company.
In addition, the assumptions used in preparing the pro forma
financial information may not prove to be accurate and other factors may affect our financial condition or results of operations following the Closing. Any potential decline in our financial condition or results of operations may cause
significant variations in the stock price of the Company.
During the pendency of the Business
Combination, L&F will not be able to enter into a business combination with another party because of restrictions in the Business Combination Agreement. Furthermore, certain provisions of the Business Combination Agreement will discourage
third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Business Combination Agreement.
Covenants in the Business Combination Agreement impede the ability of
L&F to make acquisitions or complete other transactions that are not in the ordinary course of business pending completion of the Business Combination. As a result, L&F may be at a disadvantage to its competitors during that period. In
addition, while
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the Business Combination Agreement is in effect, neither L&F nor the Target
Companies may solicit, assist, facilitate the making, submission or announcement of, or intentionally encourage any alternative acquisition proposal, such as a merger, material sale of assets or equity interests or other business combination,
with any third party, even though any such alternative acquisition could be more favorable to L&F’s shareholders than the Business Combination. In addition, if the Business Combination is not completed, these provisions will make it more
difficult to complete an alternative business combination following the termination of the Business Combination Agreement due to the passage of time during which these provisions have remained in effect.
If the conditions to the Business Combination
Agreement are not met, the Business Combination may not occur.
Even if the Business Combination Agreement is approved by the
shareholders of L&F, specified conditions must be satisfied or waived before the parties to the Business Combination Agreement are obligated to complete the Business Combination. For a list of the material closing conditions contained in
the Business Combination Agreement, see the section titled “Proposal No. 2 - The Business Combination Proposal — The Business Combination Agreement — Conditions to the
Closing of the Business Combination.” L&F and the Target Companies may not satisfy all of the closing conditions in the Business Combination Agreement. If the closing conditions are not satisfied or waived, the Business Combination
will not occur, or will be delayed pending later satisfaction or waiver, and such delay may cause L&F and the Target Companies to each lose some or all of the intended benefits of the Business Combination.
L&F’s warrants are accounted for as
liabilities and the changes in value of its warrants could have a material effect on its financial results.
L&F is subject to complex securities laws and regulations and
accounting principles and interpretations. The preparation of its financial statements requires L&F to interpret accounting principles and guidance and to make estimates and judgments that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. L&F bases its interpretations, estimates and judgments on
its historical experience and on various other factors that L&F believes are reasonable under the circumstances, the results of which form the basis for the preparation of its financial statements. GAAP presentation is subject to
interpretation by the SEC, the Financial Accounting Standards Board and various other bodies formed to interpret and create appropriate accounting principles and guidance. If one of these bodies disagrees with L&F’s accounting recognition,
measurement or disclosure or any of its accounting interpretations, estimates or assumptions, it may have a significant effect on its reported results and may retroactively affect previously reported results.
On April 12, 2021, the staff (the “SEC Staff”) of the SEC issued a
statement titled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (‘SPACs’)” (the “SEC Staff Statement”).” In the SEC Staff
Statement, the SEC Staff expressed its view that certain terms and conditions common to SPAC warrants may require the warrants to be classified as liabilities on the SPAC’s balance sheet as opposed to equity. Since issuance on November 23,
2020, the outstanding warrants were accounted for as equity within L&F’s balance sheet. After discussion and evaluation, including with the L&F’s independent registered public accounting firm and the audit committee of the board of
directors (the “Audit Committee”), and taking into consideration the SEC Staff Statement, L&F reevaluated the accounting treatment of L&F’s 8,625,000 L&F Public Warrants and 7,588,430 L&F Private Placement Warrants, and
determined to classify the warrants as derivative liabilities measured at fair value, with changes in fair value each period reported in earnings.
As a result of the foregoing, on May 11, 2021, the Audit Committee
concluded, in consultation with L&F’s management, that its previously issued financial statements for the periods beginning with the period from August 20, 2020 (date of inception) through December 31, 2020 should be restated because of a
misapplication of the guidance around accounting for the warrants and should no longer be relied upon.
As a result, included on L&F’s consolidated balance sheets as of
March 31, 2022 and December 31, 2021 contained elsewhere in this proxy statement/prospectus are derivative liabilities related to embedded features contained within L&F’s warrants. Accounting Standards Codification 815, Derivatives and
Hedging, provides for the re-measurement of the fair value of such derivatives at each balance sheet date, with a resulting non-cash gain or loss related to the change in the fair value being recognized in earnings in the statement of
operations. As
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a result of the recurring fair value measurement, L&F’s consolidated financial
statements and results of operations may fluctuate quarterly, based on factors which are outside of L&F’s control. Due to the recurring fair value measurement, L&F expects that it will recognize non-cash gains or losses on its warrants
each reporting period and that the amount of such gains or losses could be material.
Any further restatement of the L&F financial results could, among
other potential adverse effects:
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affect L&F’s ability to timely file its periodic reports until the restatement is completed;
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divert the attention of L&F’s management and employees from managing the business;
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result in material changes to L&F’s historical and future financial results;
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result in investors losing confidence in L&F’s operating results;
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subject L&F to securities class action litigation; and
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Even if L&F consummates the Business
Combination, there is no guarantee that the New ZeroFox Public Warrants will ever be in the money, and they may expire worthless.
The exercise price for L&F Public Warrants is $11.50 per L&F
Ordinary Share and, if the Business Combination is consummated, the L&F Public Warrants will be exchanged for New ZeroFox Public Warrants. There is no guarantee that the New ZeroFox Public Warrants will ever be in the money prior to their
expiration, and as such, the New ZeroFox Public Warrants may expire worthless.
We may amend the terms of the New ZeroFox
Public Warrants in a manner that may be adverse to holders of such warrants with the approval by the holders of at least 50% of the then outstanding New ZeroFox Public Warrants. As a result, the exercise price of the New ZeroFox Public Warrants
could be increased, the exercise period could be shortened and the number of shares of New ZeroFox Common Stock purchasable upon exercise of a New ZeroFox Public Warrant could be decreased, all without any particular public warrantholder’s
approval.
The L&F Public Warrants (which will convert to New ZeroFox Public
Warrants following the Domestication) were issued in registered form under the L&F Warrant Agreement. The L&F Warrant Agreement provides that the terms of the public warrants may be amended without the consent of any holder to cure any
ambiguity, mistake or correct any defective provision, but requires the approval by the holders of at least 50% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders of such
warrants. Accordingly, we may amend the terms of the New ZeroFox Public Warrants in a manner adverse to a holder if holders of at least 50% of the then outstanding public warrants approve of such amendment and, solely with respect to any
amendment to the terms of the New ZeroFox Private Placement Warrants or any provision of the L&F Warrant Agreement with respect to the New ZeroFox Private Placement Warrants, 50% of the number of the then outstanding New ZeroFox Private
Placement Warrants. Although our ability to amend the terms of the New ZeroFox Public Warrants with the consent of at least 50% of the then outstanding public warrants is unlimited, examples of such amendments could be amendments to, among
other things, increase the exercise price of the warrants, convert the warrants into cash, shorten the exercise period or decrease the number of shares of New ZeroFox Common Stock purchasable upon exercise of a warrant.
We may redeem your unexpired New ZeroFox Public
Warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
We have the ability to redeem all, but not less than all, of the
outstanding New ZeroFox Public Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the closing price of the New ZeroFox Common Stock equals or exceeds $18.00 per share
(as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we give proper
notice of such redemption to the warrants holders and provided certain other conditions are met. We may not redeem the warrants unless an effective registration statement under the Securities Act covering the shares of New ZeroFox Common Stock
issuable upon exercise of the warrants is effective and a current prospectus relating to
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those shares is available throughout the minimum 30-day notice period discussed
below. If and when the New ZeroFox Public Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Redemption of the outstanding warrants could force you to (i) exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) sell your warrants at the then-current market price when
you might otherwise wish to hold your warrants or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. None
of the New ZeroFox Private Placement Warrants will be redeemable by us in accordance with these provisions so long as they are held by the Sponsor, Jefferies or their permitted transferees.
In addition, we have the ability to redeem all, but not less than
all, of the outstanding New ZeroFox Public Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.10 per warrant, provided that the closing price of the New ZeroFox Common Stock equals or exceeds
$10.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we
give proper notice of such redemption to the warrants holders and provided certain other conditions are met, including that holders will be able to exercise their warrants on a “cashless basis” prior to redemption for a number of shares of New
ZeroFox Common Stock determined based on the period of time to expiration of the warrants and the redemption fair market value of the New ZeroFox Common Stock, both as set forth in a table in the L&F Warrant Agreement. See “Description of Securities—Warrants—New ZeroFox Public Warrants—Redemption of New ZeroFox Warrants when the price per share of New ZeroFox Common Stock equals or exceeds $10.00.” If and when the New ZeroFox
Public Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. The value received upon exercise of the
warrants (1) may be less than the value the holders would have received if they had been able to exercise their warrants at a later time at which the underlying share price is higher and (2) may not compensate the holders for the value of the
warrants, including because the number of shares received on a cashless exercise basis is capped at 0.361 of a share of New ZeroFox Common Stock per warrant (subject to adjustment) irrespective of the remaining life of the New ZeroFox Public
Warrants. If the closing price of the New ZeroFox Common Stock is less than $18.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30
trading-day period ending on the third trading day prior to the date on which we give proper notice of such redemption to the warrants holders, we may only redeem the New ZeroFox Public Warrants in accordance with these provisions if we
concurrently redeem the outstanding New ZeroFox Private Placement Warrants on the same terms.
The closing price of the Class A Ordinary Shares for 20 trading
days within a 30 trading-day period ending as of June 28, 2022 would have exceeded the $10.00 closing price threshold but would have been lower than the $18.00 closing price threshold. It is not possible to predict what the trading price of
the New ZeroFox Common Stock will be after the closing of the Business Combination, and the trading price of our securities may fluctuate following the consummation of the Business Combination, and can vary due to general economic conditions
and forecasts, our general business condition and the release of our financial reports.
In the event that we elect to redeem the New ZeroFox Public Warrants
in either of the scenarios described above we would only be required to have the notice of redemption mailed by first class mail, postage prepaid, by us not less than thirty (30) days prior to the redemption date to the registered holders of
the outstanding warrants to be redeemed at their last addresses as they shall appear on the registration books. Any notice mailed in the manner provided above will be conclusively presumed to have been duly given whether or not the registered
holder of the warrants received such notice. We are not contractually obligated to notify investors when New ZeroFox Public Warrants become eligible for redemption, and we do not intend to so notify investors upon eligibility of the warrants
for redemption.
The L&F Warrant Agreement designates the
courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of L&F Warrants, which
could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with L&F.
The L&F Warrant Agreement provides that, subject to applicable
law, (i) any action, proceeding or claim against L&F arising out of or relating in any way to the L&F Warrant Agreement, including under the Securities
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Act, will be brought and enforced in the courts of the State of New York or the
United States District Court for the Southern District of New York, and (ii) that L&F irrevocably submits to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. L&F will waive any
objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. However Section 22 of the Securities Act provides that federal and state courts have concurrent jurisdiction over lawsuits brought under the
Securities Act or the rules and regulations thereunder. To the extent the exclusive forum provision restricts the courts in which claims arising under the Securities Act may be brought, there is uncertainty as to whether a court would enforce
such a provision. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
Notwithstanding the foregoing, these provisions of the L&F
Warrant Agreement do not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person
or entity purchasing or otherwise acquiring any interest in any L&F Warrants shall be deemed to have notice of and to have consented to the forum provisions in the L&F Warrant Agreement. If any action, the subject matter of which is
within the scope the forum provisions of the L&F Warrant Agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of L&F Warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with
any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such warrant holder in any such enforcement action by service
upon such warrant holder’s counsel in the foreign action as agent for such warrant holder.
This choice-of-forum provision may limit a warrant holder’s ability
to bring a claim in a judicial forum that it finds favorable for disputes with L&F, which may discourage such lawsuits. Alternatively, if a court were to find this provision of the L&F Warrant Agreement inapplicable or unenforceable
with respect to one or more of the specified types of actions or proceedings, L&F may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial
condition and results of operations and result in a diversion of the time and resources of our management and board of directors.
Our Notes to be issued and outstanding after
consummation of the Business Combination may impact our financial results, result in the dilution of our shareholders, create downward pressure on the price of New ZeroFox Common Stock, and restrict our ability to raise additional capital or
take advantage of future opportunities.
In connection with the Business Combination, L&F entered into the
Convertible Notes Subscription Agreements, pursuant to which L&F agreed to issue and sell the Notes in private placements to close substantially concurrently with the consummation of the Business Combination in an aggregate principal amount
of $150,000,000. The Notes will be convertible into shares of New ZeroFox Common Stock at an initial conversion rate of 86.9565 shares of New ZeroFox Common Stock (subject to adjustment as provided in the Indenture) per $1,000 of principal
amount of Notes and 86.9565 shares of New ZeroFox Common Stock (subject to adjustment as provided in the Indenture) per $1,000 of accrued and unpaid interest on any Notes. To the extent the Company exercises its option to pay interest in kind
with respect to the Notes rather than in cash, the number of shares of New ZeroFox Common Stock into which the Notes may be converted would increase. The sale of the Notes may affect our earnings per share, as accounting procedures may require
that we include in our calculation of earnings per share the number of shares of the New ZeroFox Common Stock into which the Notes are convertible.
Upon a conversion of the Notes, we will have the ability to settle by
payment of cash, by issuance of New ZeroFox Common Stock, or a combination of both. If shares of New ZeroFox Common Stock are issued to the holders of the Notes upon conversion, there will be dilution to the Company’s shareholders and the
market price of the New ZeroFox Common Stock may decrease due to the additional selling pressure in the market. Any downward pressure on the price of New ZeroFox Common Stock caused by the sale, or potential sale, of shares issuable upon
conversion of the Notes could also encourage short sales by third parties, creating additional selling pressure on our share price.
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We may not have the ability to raise the
funds necessary to settle in cash conversions of the Notes, repurchase the Notes upon a fundamental change or repay the Notes in cash at their maturity, and our future debt may contain limitations on our ability to pay cash upon conversion,
redemption or repurchase of the Notes.
Holders of the Notes will have the right under the Indenture to
require us to repurchase all or a portion of their Notes upon the occurrence of a fundamental change before the applicable maturity date at a repurchase price equal to 100% of the principal amount of such Notes to be repurchased plus accrued
and unpaid interest to, but not including, the repurchase date. Moreover, we will be required to repay the Notes in cash at their maturity, unless earlier converted, redeemed or repurchased. We may not have enough available cash or be able to
obtain financing at the time we are required to make repurchases of such Notes surrendered or pay cash with respect to such Notes being converted (which we otherwise may elect to do upon the conversion of Notes in lieu of issuing shares).
Upon a conversion of the Notes, we will have the ability to settle by
payment of cash, by issuance of New ZeroFox Common Stock, or a combination of both. Our ability to repurchase, redeem or to pay cash upon conversion of Notes may be limited by law, regulatory authority, or agreements governing our future
indebtedness. Our failure to repurchase the Notes at a time when the repurchase is required by the Indenture would constitute a default under such indenture (provided that upon a conversion, we could settle by issuance of New ZeroFox Common
Stock). A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable
notice or grace periods, we may not have sufficient funds to repay the interest on such indebtedness and repurchase the Notes or to pay cash upon conversion of the Notes.
We may still incur substantially more debt or
take other actions that would diminish our ability to make payments on the Notes when due.
We and our subsidiaries may be able to incur substantial additional
debt in the future, subject to the restrictions contained in our debt instruments, including, pursuant to the Indenture governing the Notes. Pursuant to the Indenture, we and our subsidiaries are not permitted to issue any Senior Indebtedness,
Disqualified Capital Stock and Preferred Stock (each term as defined in the Indenture) in an aggregate principal amount in excess of $50,000,000. However, we will not be restricted from recapitalizing our debt or taking a number of other
actions that are not limited by the terms of the Indenture that could have the effect of diminishing our ability to make payments on the Notes when due.
L&F will not have any right to make
damage claims against the Target Companies’ shareholders for the breach of any representation, warranty or covenant made by the Target Companies in the Business Combination Agreement.
The Business Combination Agreement provides that all of the
representations, warranties and covenants of the parties contained therein shall not survive the closing of the Business Combination, except for those covenants that by their terms apply or are to be performed in whole or in part after the
Closing, and then only with respect to breaches occurring after Closing. Accordingly, there are no remedies available to the parties with respect to any breach of the representations, warranties, covenants or agreements of the parties to the
Business Combination Agreement after the Closing of the Business Combination, except for covenants to be performed in whole or in part after the Closing. As a result, L&F will have no remedy available to it if the Business Combination is
consummated and it is later revealed that there was a breach of any of the representations, warranties and covenants made by the Target Companies at the time of the Business Combination.
L&F does not have a specified maximum
redemption threshold. The absence of such a redemption threshold may make it possible for L&F to complete the Business Combination with which a substantial majority of its shareholders does not agree.
The Business Combination imposes the Available Acquiror Closing Cash
Condition. For more details see “Proposal No. 2 - The Business Combination Proposal — The Business Combination Agreement — Conditions to the Closing of the Business
Combination.” As the proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing are expected to satisfy the Available Acquiror Closing Cash Condition, L&F may be able to complete the Business Combination
even though a substantial majority of the Public Shareholders does not agree with the transaction and have redeemed their shares.
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You will not have any rights or interests in
funds from the Trust Account, except under certain limited circumstances. Therefore, to liquidate your investment, you may be forced to sell your Class A Ordinary Shares or L&F Warrants, potentially at a loss.
The Public Shareholders are entitled to receive funds from the Trust
Account only upon the earliest to occur of: (i) L&F’s completion of an initial business combination, and then only in connection with those Class A Ordinary Shares that such shareholder properly elected to redeem, subject to the limitations
and on the conditions described herein; (ii) the redemption of any Public Shares properly submitted in connection with a shareholder vote to amend L&F’s Existing Governing Documents (A) to modify the substance or timing of L&F’s
obligation to allow redemption in connection with its initial business combination or to redeem 100% of its Public Shares if L&F does not complete its initial business combination by August 24, 2022 or (B) with respect to any other material
provisions relating to shareholders’ rights or pre-initial business combination activity; and (iii) the redemption of L&F’s Public Shares if it is unable to complete an initial business combination by August 24, 2022, subject to applicable
law and as further described herein. In no other circumstances will a Public Shareholder have any right or interest of any kind in the Trust Account. Holders of warrants will not have any right to the proceeds held in the Trust Account with
respect to the warrants. Accordingly, to liquidate your investment, you may be forced to sell your Class A Ordinary Shares or L&F Warrants, potentially at a loss.
The ability of the Public Shareholders to
exercise redemption rights with respect to a large number of its Public Shares may not allow L&F to complete the most desirable business combination or optimize the capital structure of the Company.
At the time of entering into the Business Combination Agreement,
L&F did not know how many shareholders may exercise their redemption rights, and therefore, L&F structured the transaction based on L&F’s expectations as to the number of shares that will be submitted for redemption. The
consummation of the Business Combination is conditioned upon, among other things, (i) the approval by L&F’s shareholders of the Condition Precedent Proposals being obtained; (ii) the applicable waiting period under the HSR Act relating to
the Business Combination Agreement having expired or been terminated (which expired on January 31, 2022); (iii) the Available Closing Acquiror Cash being not less than $170,000,000; (iv) the approval by NYSE or Nasdaq of L&F’s initial
listing application in connection with the Business Combination; and (v) the consummation of the Domestication. Therefore, unless these conditions are waived by the applicable parties to the Business Combination Agreement, the Business
Combination Agreement could terminate and the Business Combination may not be consummated. For further details, see the section titled “Proposal No. 2 - The Business Combination Proposal — The Business
Combination Agreement — Conditions to the Closing of the Business Combination.”
L&F has no operating history, and L&F’s
management has determined that the mandatory liquidation of L&F should an initial business combination not be consummated by August 24, 2022, 2022 raises substantial doubt about L&F’s ability to continue as a going concern.
L&F is a blank check company with no operating history or
results. L&F’s management has determined that the mandatory liquidation of L&F, should a business combination not occur by August 24, 2022, and potential subsequent dissolution, raises substantial doubt about L&F’s ability to
continue as a going concern. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of L&F—Liquidity and Capital Resources.”
L&F and the Target Companies have incurred
and expect to incur significant costs associated with the Business Combination.
L&F and the Target Companies expect to incur significant,
non-recurring costs in connection with consummating the Business Combination and operating as a public company following the Business Combination. The Target Companies may also incur additional costs to retain key employees. All expenses
incurred in connection with the Business Combination Agreement and the transactions contemplated thereby, including all legal, accounting, consulting, investment banking and other fees, expenses and costs, will be for the account of the party
incurring such fees, expenses and costs, provided that if the Closing occurs, L&F will bear and pay at or promptly after Closing all L&F and Target Companies’ transaction expenses.
The aggregate transaction expenses as a result of the Business
Combination are expected to be approximately $32 million. The per-share amount we will distribute to shareholders who properly exercise their
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redemption rights will not be reduced by the transaction expenses and after such
redemptions, the per-share value of shares held by non-redeeming shareholders will reflect our obligation to pay the transaction expenses.
The exercise of L&F’s directors’ and
officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when determining whether such changes to the terms of the Business Combination or waivers of conditions are
appropriate and in the best interests of L&F shareholders.
In the period leading up to the closing of the Business Combination,
events may occur that, pursuant to the Business Combination Agreement, would require L&F to agree to amend the Business Combination Agreement, to consent to certain actions taken by the Target Companies or to waive rights that L&F is
entitled to under the Business Combination Agreement. Such events could arise because of changes in the course of the Target Companies’ business, a request by the Target Companies to undertake actions that would otherwise be prohibited by the
terms of the Business Combination Agreement or the occurrence of other events that would have a material adverse effect on the Target Companies’ business and would entitle L&F to terminate the Business Combination Agreement. In any of such
circumstances, it would be at L&F’s discretion, acting through its board of directors, to grant its consent or waive those rights. The existence of the financial and personal interests of the directors described in the preceding risk
factors may result in a conflict of interest on the part of one or more of the directors between what they may believe is best for L&F and what they may believe is best for themselves in determining whether or not to take the requested
action. As of the date of this proxy statement/prospectus, L&F does not believe there will be any material changes or waivers that L&F’s directors and officers would be likely to make after the mailing of this proxy
statement/prospectus. L&F will circulate a supplemental or amended proxy statement/prospectus if changes to the terms of the Business Combination that would have a material impact on its shareholders are required prior to the vote on the
Business Combination proposal.
If, after L&F distributes the proceeds in
the Trust Account to the Public Shareholders, it files a bankruptcy or insolvency petition or an involuntary bankruptcy or insolvency petition is filed against it that is not dismissed, a bankruptcy or insolvency court may seek to recover such
proceeds, and the members of the L&F Board may be viewed as having breached their fiduciary duties to the creditors of L&F, thereby exposing L&F and the members of the L&F Board to claims of punitive damages.
If, after L&F distribute the proceeds in the Trust Account to the
Public Shareholders, it files a bankruptcy or insolvency petition or an involuntary bankruptcy or insolvency petition is filed against it that is not dismissed, any distributions received by the Public Shareholders could be viewed under
applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by the Public Shareholders. In
addition, the L&F Board may be viewed as having breached its fiduciary duty to the creditors of L&F and/or having acted in bad faith, thereby exposing itself and L&F to claims of punitive damages, by paying Public Shareholders from
the Trust Account prior to addressing the claims of creditors.
If, before distributing the proceeds in the
Trust Account to the Public Shareholders, L&F files a bankruptcy or insolvency petition or an involuntary bankruptcy or insolvency petition is filed against L&F that is not dismissed, the claims of creditors in such proceeding may have
priority over the claims of L&F shareholders and the per-share amount that would otherwise be received by L&F shareholders in connection with L&F’s liquidation may be reduced.
If, before distributing the proceeds in the Trust Account to the
Public Shareholders, L&F files a bankruptcy or insolvency petition or an involuntary bankruptcy or insolvency petition is filed against L&F that is not dismissed, the proceeds held in the Trust Account could be subject to applicable
bankruptcy law, and may be included in L&F’s bankruptcy estate and subject to the claims of third parties with priority over the claims of L&F’s shareholders. To the extent any bankruptcy claims deplete the Trust Account, the per-share
amount that would otherwise be received by L&F’s shareholders in connection with L&F’s liquidation may be reduced.
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Risks Related to the Consummation of the Domestication and the
Adoption of the Proposed Governing Documents
All references in this section to “we,” “us” or “our” mean L&F
prior to the Closing and the Company after the Closing, as the context requires. References to the “Company” refer to New ZeroFox and its consolidated subsidiaries subsequent to the Business Combination.
The Domestication may result in adverse tax
consequences for holders of the L&F Public Shares and public warrants.
As discussed more fully under “Certain Material United States Federal Income Tax Considerations,” the Domestication generally should qualify as an F Reorganization. However, L&F has not requested, and does not intend to request,
a ruling from the IRS as to the U.S. federal income tax consequences of the Domestication. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a contrary position. Accordingly, each U.S.
Holder of our securities is urged to consult its tax advisor with respect to the particular tax consequences of the Domestication to such U.S. Holder. If the Domestication qualifies as a reorganization within the meaning of Section
368(a)(1)(F) of the Code, U.S. Holders (as defined in “Certain Material United States Federal Income Tax Considerations — U.S. Holders” below) will be subject to
Section 367(b) of the Code and, as a result of the Domestication, as well as the “passive foreign investment company,” or PFIC, rules of the Code (discussed in the section entitled “Certain Material
United States Federal Income Tax Considerations — U.S. Holders — PFIC Considerations” below):
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a U.S. Holder that holds Public Shares that have a fair market value of less than $50,000 on the date of the Domestication and
that is not a U.S. Shareholder (as defined herein) on the date of the Domestication generally will not recognize any gain or loss and will not be required to include any part of L&F’s earnings in income;
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a U.S. Holder that holds Public Shares that have a fair market value of $50,000 or more on the date of the Domestication and
that is not a U.S. Shareholder (as defined herein) on the date of the Domestication generally will recognize gain (but not loss) on the exchange of L&F Public Shares for ZeroFox Holdings, Inc.’s Common Stock pursuant to the
Domestication. As an alternative to recognizing gain, such U.S. Holder may file an election to include in income as a deemed dividend the “all earnings and profits amount,” as defined in the U.S. Department of the Treasury Regulations
under Section 367(b) of the Code, attributable to its Public Shares provided certain other requirements are satisfied; and
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a U.S. Holder that, on the date of the Domestication, owns (directly or constructively) 10% or more of the total combined
voting power of all classes of our stock entitled to vote or 10% or more of the total value of all classes of our stock (a “U.S. Shareholder”) generally will be required to include in income as a deemed dividend the “all earnings and
profits amount” attributable to its Public Shares provided certain other requirements are satisfied.
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L&F does not expect to have significant cumulative earnings and
profits through the date of the Domestication.
Furthermore, even if the Domestication qualifies as an F
Reorganization, a U.S. Holder of L&F Public Shares or public warrants may, in certain circumstances, still recognize gain (but not loss) upon the exchange of its L&F Public Shares or public warrants for the common stock or warrants of
ZeroFox Holdings, Inc. pursuant to the Domestication under the PFIC rules of the Code. Proposed Treasury Regulations with a retroactive effective date have been promulgated under Section 1291(f) of the Code that generally require that a U.S.
person who disposes of stock of a PFIC (including for this purpose exchanging public warrants for newly issued warrants in the Domestication) must recognize gain equal to the excess, if any, of the fair market value of the common stock or
warrants of ZeroFox Holdings, Inc. received in the Domestication and the U.S. Holder’s adjusted tax basis in the corresponding L&F Public Shares or public warrants surrendered in exchange therefor, notwithstanding any other provision of
the Code. Because L&F is a blank check company with no current active business, L&F takes the position that it is classified as a PFIC for U.S. federal income tax purposes. As a result, these proposed Treasury Regulations, if
finalized in their current form, would generally require a U.S. Holder of L&F Public Shares or public warrants to recognize gain on the exchange of such shares or warrants for common stock or warrants of ZeroFox Holdings, Inc. pursuant to
the Domestication, unless, in the case of only common stock, such U.S. Holder has made certain tax elections with respect to such U.S. Holder’s Public Shares. A U.S.
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Holder cannot currently make the aforementioned elections with respect to such U.S.
Holder’s public warrants. The tax on any such gain so recognized would be imposed at the rate applicable to ordinary income and an interest charge would apply based on complex rules designed to offset the tax deferral to such U.S. Holder on the
undistributed earnings, if any, of L&F. It is not possible to determine at this time whether, in what form, and with what effective date, final Treasury Regulations under Section 1291(f) of the Code will be adopted. For a more complete
discussion of the potential application of the PFIC rules to U.S. Holders as a result of the Domestication, see the discussion in the section entitled “Certain Material United States Federal Income Tax
Considerations — U.S. Holders — PFIC Considerations.”
Additionally, the Domestication may cause non-U.S. Holders (as
defined in “Certain Material United States Federal Income Tax Considerations — Non-U.S. Holders”) to become subject to U.S. federal income withholding taxes on any dividends paid in respect of such
non-U.S. Holder’s ZeroFox Holdings, Inc.’s public shares after the Domestication.
The tax consequences of the Domestication are complex and will depend
on a holder’s particular circumstances. All holders are urged to consult their tax advisor on the tax consequences to them of the Domestication, including the applicability and effect of U.S. federal, state, local and foreign income and other
tax laws. For a more complete discussion of the U.S. federal income tax considerations of the Domestication, see “Certain Material United States Federal Income Tax Considerations.”
For a description of the tax consequences for shareholders exercising
redemption rights in connection with the Business Combination, see the sections entitled “Certain Material United States Federal Income Tax Considerations — U.S. Holders — Effects to U.S. Holders of Exercising
Redemption Rights” and “Certain Material United States Federal Income Tax Considerations — Non-U.S. Holders — Effects of Exercising Redemption Rights to Non-U.S. Holders.”
The Proposed Certificate of Incorporation
will not limit the ability of the Sponsor or its affiliates to compete with us.
The Sponsor and its affiliates engage in a broad spectrum of
activities. In the ordinary course of their business activities, the Sponsor and its affiliates may engage in activities where their interests conflict with the Company’s interests or those of its shareholders. The Proposed Certificate of
Incorporation will provide that none of the Company’s non-employee directors or his or her affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines
of business in which the Company operates. The Sponsor and its affiliates also may pursue, in their capacities other than as directors of the New ZeroFox Board, acquisition opportunities that may be complementary to the Company’s business, and,
as a result, those acquisition opportunities may not be available to the Company. In addition, the Sponsor may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment,
even though such transactions might involve risks to you.
Provisions in the Proposed Governing
Documents and provisions of the DGCL may delay or prevent an acquisition by a third party that could otherwise be in the interests of shareholders.
The Company’s Proposed Certificate of Incorporation and the Company’s
Proposed Bylaws to be in effect following the Closing of the Business Combination will contain several provisions that may make it more difficult or expensive for a third party to acquire control of the Company without the approval of the New
ZeroFox Board. These provisions, which may delay, prevent or deter a merger, acquisition, tender offer, proxy contest, or other transaction that shareholders may consider favorable, include the following:
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the division of the New ZeroFox Board into three classes and the election of each class for three-year terms;
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advance notice requirements for shareholder proposals and director nominations;
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provisions limiting shareholders’ ability to call special meetings of shareholders and to take action by written consent;
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restrictions on business combinations with interested stockholders;
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in certain cases, the approval of holders representing at least two-thirds of the total voting power of the shares entitled to
vote will be required for shareholders to adopt, amend or repeal certain provisions of the Proposed Bylaws, or amend or repeal certain provisions of the Proposed Certificate of Incorporation;
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no cumulative voting; and
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the ability of the board of directors to designate the terms of and issue new series of preferred stock without shareholder
approval, which could be used, among other things, to institute a rights plan that would have the effect of significantly diluting the stock ownership of a potential hostile acquirer, likely preventing acquisitions by such acquirer.
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These provisions of the Proposed Certificate of Incorporation and
Proposed Bylaws could discourage potential takeover attempts and reduce the price that investors might be willing to pay for the shares of New ZeroFox Common Stock in the future, which could reduce the market price of the common stock. For more
information, see the section titled “Description of Securities”.
The provision of the Proposed Certificate of
Incorporation to be in effect following the Business Combination requiring exclusive venue in the Court of Chancery in the State of Delaware and the federal district courts of the United States for certain types of lawsuits may have the effect
of discouraging lawsuits against directors and officers.
The Proposed Certificate of Incorporation will provide that, unless
otherwise consented to by the Company in writing, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of
Delaware) will, to the fullest extent permitted by law, be the sole and exclusive forum for the following types of actions or proceedings: (i) any derivative action or proceeding brought on behalf of the Company; (ii) any action asserting a
claim of breach of a duty (including any fiduciary duty) owed by any current or former director, officer, shareholder, employee or agent of the Company to the Company or the Company’s shareholders; (iii) any action asserting a claim against the
Company or any current or former director, officer, shareholder, employee or agent of the Company relating to any provision of the DGCL or the Proposed Certificate of Incorporation or the Proposed Bylaws or as to which the DGCL confers
jurisdiction on the Court of Chancery of the State of Delaware; and (iv) any action asserting a claim against the Company or any current or former director, officer, shareholder, employee or agent of the Company governed by the internal affairs
doctrine of the State of Delaware, in each such case unless the Court of Chancery (or such other state or federal court located within the State of Delaware, as applicable) has dismissed a prior action by the same plaintiff asserting the same
claims because such court lacked personal jurisdiction over an indispensable party named as a defendant therein. The Proposed Certificate of Incorporation will further provide that, unless otherwise consented to by the Company in writing to the
selection of an alternative forum, the federal district courts of the United States will, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint against any person in connection with any
offering of the Company’s securities, asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in the Company’s securities will be deemed to have notice of and consented
to this provision.
Although the Proposed Certificate of Incorporation contains the
choice of forum provisions described above, it is possible that a court could rule that such provisions are inapplicable for a particular claim or action or that such provisions are unenforceable. For example, under the Securities Act, federal
courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. In
addition, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and, therefore, the exclusive forum
provisions described above do not apply to any actions brought under the Exchange Act.
Although we believe these provisions will benefit us by limiting
costly and time-consuming litigation in multiple forums and by providing increased consistency in the application of applicable law, these exclusive forum provisions may limit the ability of our shareholders to bring a claim in a judicial forum
that such shareholders find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and other employees.
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Risks Related to Redemption
All references in this section to “we,” “us” or “our” mean L&F
prior to the Closing and the Company after the Closing, as the context requires. References to the “Company” refer to New ZeroFox and its consolidated subsidiaries subsequent to the Business Combination.
There is no guarantee that a Public
Shareholder’s decision whether to redeem its shares for a pro rata portion of the Trust Account will put the shareholder in a better future economic position.
L&F can give no assurance as to the price at which a Public
Shareholder may be able to sell the shares of New ZeroFox Common Stock in the future following the completion of the Business Combination or any alternative business combination. Certain events following the consummation of any initial business
combination, including the Business Combination, may cause an increase in New ZeroFox’s stock price, and may result in a lower value realized now than a Public Shareholder of L&F might realize in the future had the shareholder not redeemed
its shares. Similarly, if a Public Shareholder does not redeem its shares, the shareholder will bear the risk of ownership of New ZeroFox Common Stock after the consummation of the Business Combination, and there can be no assurance that a
shareholder can sell its shares of New ZeroFox Common Stock in the future for a greater amount than the redemption price set forth in this proxy statement/prospectus. A Public Shareholder should consult his, her or its own tax and/or financial
advisor for assistance on how this may affect his, her or its individual situation.
If Public Shareholders fail to receive notice
of the L&F offer to redeem their Class A Ordinary Shares in connection with the Business Combination, or if Public Shareholders fail to demand redemption rights properly, they will not be entitled to have their Class A Ordinary Shares
redeemed for a pro rata portion of the Trust Account.
L&F will comply with the proxy rules or tender offer rules, as
applicable, when conducting redemptions in connection with the Business Combination. Despite L&F’s compliance with these rules, if a Public Shareholder fails to receive L&F’s proxy materials or tender offer documents, as applicable,
such Public Shareholder may not become aware of the opportunity to redeem its shares. Public Shareholder holding Class A Ordinary Shares may demand that L&F redeem their shares for a pro rata portion of the Trust Account, calculated as of
two business days prior to the anticipated consummation of the Business Combination, including interest earned on the Trust Account and not previously released to L&F to pay its tax obligations. Public Shareholders who seek to exercise this
redemption right must deliver their shares (either physically or electronically) to L&F’s transfer agent two business days prior to the Shareholder Meeting. Any Public Shareholder who fails to deliver its shares properly as described in
this proxy statement/prospectus will not be entitled to have its shares redeemed. See the section titled “Shareholder Meeting — Redemption Rights” for the procedures to be followed if you wish to have
your Class A Ordinary Shares redeemed.
If you or a “group” of shareholders are deemed
to hold in excess of 15% of the outstanding Class A Ordinary Shares, you will lose the ability to redeem all such shares in excess of 15% of the outstanding Class A Ordinary Shares.
The Existing Governing Documents provide that a Public Shareholder,
together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13(d) of the Exchange Act), is restricted from redeeming its shares with respect to
more than an aggregate of 15% of the outstanding shares, which we refer to as the “Excess Shares,” without L&F’s prior consent. However, L&F would not be restricting its shareholders’ ability to vote all of their shares (including
Excess Shares) for or against the Business Combination or another initial business combination. Your inability to redeem the Excess Shares will reduce your influence over L&F’s ability to complete the Business Combination or another initial
business combination and you could suffer a material loss on your investment in L&F if you sell Excess Shares in open market transactions. Additionally, you will not receive redemption distributions with respect to the Excess Shares if
L&F consummates the Business Combination. As a result, you will continue to hold that number of shares exceeding 15% and, in order to dispose of such shares, would be required to sell your shares in open market transactions, potentially at
a loss.
Public Shareholders who redeem their Class A
Ordinary Shares may continue to hold any L&F Public Warrants they own, which will result in additional dilution to non-redeeming holders upon exercise of the L&F Public Warrants.
Public Shareholders who redeem their Class A Ordinary Shares may
continue to hold any L&F Public Warrants they owned prior to redemption, which will result in additional dilution to non-redeeming holders upon
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exercise of such L&F Public Warrants. Assuming (i) all redeeming Public
Shareholders acquired L&F Public Units in the L&F IPO and continue to hold the L&F Public Warrants that were included in the L&F Public Units, and (ii) maximum redemption of Class A Ordinary Shares held by the redeeming Public
Shareholders, 8,625,000 Public Warrants would be retained by redeeming Public Shareholders with a value of approximately $3,018,750, based on the market price of approximately $0.35 per warrant based on the closing price of the L&F Public
Warrants on the NYSE American on June 28, 2022. As a result of the Redemption, such redeeming Public Shareholders would recoup their entire investment and continue to hold L&F Public Warrants with an aggregate market value of
approximately $3,018,750, while non-redeeming Public Shareholders would suffer additional dilution in their percentage ownership and voting interest of the post-Business Combination company to the extent such warrants are exercised and
additional shares of New ZeroFox Common Stock are issued.
Risks if the Adjournment Proposal is Not Approved
If the Adjournment Proposal is not approved, and
an insufficient number of votes have been obtained to authorize the consummation of the Business Combination, L&F’s board of directors may not have the ability to adjourn the Shareholder Meeting to a later date in order to solicit further
votes, and, therefore, the Business Combination will not be approved.
The L&F Board of directors is seeking approval to adjourn the
Shareholder Meeting to a later date or dates if necessary to permit further solicitation and votes of proxies if, based upon tabulated votes at the time of the Shareholder Meeting, there are insufficient L&F Ordinary Shares represented
(either in person or by proxy) to constitute a quorum necessary to conduct business at the Shareholder Meeting or to approve the Articles Amendment Proposal, the Business Combination Proposal, the Domestication Proposal, the Governing Documents
Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal or the Director Election Proposal. If the Adjournment Proposal is not approved, the
L&F Board may not have the ability to adjourn the Shareholder Meeting to a later date and, therefore, the Business Combination would not be completed.
Risks Related to Being a Public Company
All references in this section to “we,” “us” or “our” mean L&F
prior to the Closing and the Company after the Closing, as the context requires. References to the “Company” refer to New ZeroFox and its consolidated subsidiaries subsequent to the Business Combination.
The Company will qualify as an “emerging growth
company.” The reduced public company reporting requirements applicable to emerging growth companies may make its common stock less attractive to investors.
Following the consummation of the Business Combination, we will
qualify as an “emerging growth company” under SEC rules. As an emerging growth company, we will be permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging
growth companies. These provisions include, but are not limited to: (1) an exemption from compliance with the auditor attestation requirement in the assessment of internal control over financial reporting pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, (2) not being required to comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit
and the financial statements, (3) reduced disclosure obligations regarding executive compensation arrangements in periodic reports, registration statements, and proxy statements, and (4) exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or
revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to
comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such
election to opt out is irrevocable. As a result, the information we provide will be different than the information that is available with respect to other public companies that are not emerging growth companies. If some investors find the New
ZeroFox Common Stock less attractive as a result, there may be a less active trading market for the New ZeroFox Common Stock, and the market price of the New ZeroFox Common Stock may be more volatile.
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ZeroFox management has limited experience in
operating a public company.
The executive officers of ZeroFox have limited experience in the
management of a publicly traded company. The ZeroFox management team may not successfully or effectively manage our transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal
securities laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these
activities, which will result in less time being devoted to the management and growth of the Company. The Company may not have adequate personnel with the appropriate level of knowledge, experience, and training in the accounting policies,
practices or internal control over financial reporting required of public companies in the United States. The development and implementation of the standards and controls necessary for the Company to achieve the level of accounting standards
required of a public company in the United States may require costs greater than expected. It is possible that the Company will be required to expand its employee base and hire additional employees to support its operations as a public company,
which will increase its operating costs in future periods.
Following the consummation of the Business
Combination, the Company will incur significant increased expenses and administrative burdens as a public company, which could negatively impact its business, financial condition and results of operations.
Following the consummation of the Business Combination, we will face
increased legal, accounting, administrative and other costs and expenses as a public company that the Target Companies have not historically incurred as private companies. The Sarbanes-Oxley Act, including the requirements of Section 404(a)
relating to disclosing (i) management’s responsibility for establishing and maintaining internal control over financial reporting and (ii) annually assessing the effectiveness of the internal control over financial reporting, as well as rules
and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, the PCAOB and the securities exchanges,
impose additional reporting and other obligations on public companies. Compliance with public company requirements will increase costs and make certain activities more time-consuming. Our management and other personnel will be required to
devote a substantial amount of time to compliance with these requirements.
A number of these requirements will require us to carry out
activities that we have not done previously. For example, we will create new board committees and adopt new internal controls and disclosure controls and procedures. In addition, expenses associated with SEC reporting requirements will be
incurred. Furthermore, if any issues in complying with those requirements are identified (for example, if we identify a material weakness or significant deficiency in the internal control over financial reporting), we could incur additional
costs rectifying those issues, and the existence of those issues could harm our reputation or investor perceptions of it. It may also be more expensive to obtain director and officer liability insurance. Risks associated with our status as a
public company may make it more difficult to attract and retain qualified persons to serve on the board of directors of the Company or as executive officers. The additional reporting and other obligations imposed by these rules and regulations
will increase legal and financial compliance costs and the costs of related legal, accounting and administrative activities. These increased costs will require us to divert a significant amount of money that could otherwise be used to expand
the business and achieve strategic objectives. Advocacy efforts by shareholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase our costs.
The Company has no current plans to pay cash
dividends on the New ZeroFox Common Stock. As a result, shareholders may not receive any return on investment unless they sell their common stock for a price greater than the purchase price.
We have no current plans to pay dividends on the New ZeroFox Common
Stock. Any future determination to pay dividends will be made at the discretion of the New ZeroFox Board, subject to applicable laws. It will depend on a number of factors, including our financial condition, results of operations, capital
requirements, contractual, legal, tax and regulatory restrictions, general business conditions, and other factors that the New ZeroFox Board may deem relevant. In addition, the ability to pay cash dividends may be restricted by the terms of
debt financing arrangements, as any future debt financing arrangement likely will contain terms restricting or limiting the amount of dividends that may be declared or paid on the New ZeroFox Common Stock. As a result, shareholders may not
receive any return on an investment in the New ZeroFox Common Stock unless they sell their shares for a price greater than that which they paid for them.
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General
L&F is furnishing this proxy statement/prospectus to its
shareholders as part of the solicitation of proxies by L&F’s Board for use at the Shareholder Meeting to be held on , 2022, and at any postponements or adjournments thereof. This proxy statement/prospectus is first being furnished to
L&F’s shareholders on or about , 2022 in connection with the vote on the proposals described in this proxy statement/prospectus. This proxy statement/prospectus provides L&F’s shareholders with information they need to know to be
able to vote or instruct their vote to be cast at the Shareholder Meeting.
Date, Time and Place of Shareholder Meeting
The Shareholder Meeting will be held on , 2022 at a.m.,
Eastern Time, at the offices of Kirkland & Ellis LLP located at 601 Lexington Avenue, New York, New York 10022, and via a virtual meeting, or at such other time, on such other date and at such other place to which the meeting may be
postponed or adjourned.
Shareholders may attend the Shareholder Meeting in person.
However, in view of the ongoing COVID-19 pandemic, we are taking precautionary measures and therefore encourage you to attend the Shareholder Meeting virtually. If you wish to attend the Shareholder Meeting in person, you must reserve your
attendance at least two business days in advance of the Shareholder Meeting by contacting L&F’s investor relations department at info@lfacquisitioncorp.com by 9:00 a.m., Eastern Time, on (two business days prior to the meeting date).
You can pre-register to attend the virtual Shareholder Meeting
starting , 2022 at 9:00 a.m., Eastern Time (five business days prior to the meeting date). Enter the URL address into your browser https://www.cstproxy.com/lfacquisitioncorp/am2022, enter your control number, name and email address. Once
you pre-register you can vote or enter questions in the chat box. At the start of the Shareholder Meeting you will need to log in again using your control number and will also be prompted to enter your control number if you vote during the
Shareholder Meeting.
Shareholders who hold their investments through a bank or broker,
will need to contact the Transfer Agent to receive a control number. If you plan to vote at the Shareholder Meeting you will need to have a legal proxy from your bank or broker or if you would like to join and not vote, the Transfer Agent will
issue you a guest control number with proof of ownership. Either way you must contact the Transfer Agent for specific instructions on how to receive the control number. The Transfer Agent can be contacted at 917-262-2373, or via email at
proxy@continentalstock.com. Please allow up to 72 hours prior to the meeting for processing your control number.
If you do not have access to Internet, you can listen only to the
meeting by dialing 1 800-450-7155 (or +1 857-999-9155 if you are located outside the United States and Canada (standard rates apply)) and when prompted enter the pin number 8345951#. Please note that you will not be able to vote or ask
questions at the Shareholder Meeting if you choose to participate telephonically.
Purpose of the Shareholder Meeting
At the Shareholder Meeting, L&F is asking holders of L&F
Ordinary Shares to consider and vote upon:
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the Articles Amendment Proposal;
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the Business Combination Proposal;
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the Domestication Proposal;
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the Governing Documents Proposal;
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the Advisory Governing Documents Proposals;
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the Listing Proposal;
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the Incentive Equity Plan Proposal;
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the Employee Stock Purchase Plan Proposal;
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the Director Election Proposal; and
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the Adjournment Proposal.
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Each of the Condition Precedent Proposals is conditioned on the
approval and adoption of each of the other Condition Precedent Proposals. The Condition Precedent Proposals will be presented to the shareholders for a vote only if the Articles Amendment Proposal is approved. The Advisory Governing Documents
Proposals will be presented to the shareholders for a vote only if the Business Combination Proposal is approved. The Articles Amendment Proposal and the Adjournment Proposal are not conditioned upon the approval of any other proposal, though
the special resolution contemplated by the Articles Amendment Proposal will be adopted only if the Business Combination Proposal is approved.
Recommendation of the L&F Board with Respect to the Proposals
The Board believes that the Business Combination Proposal and the
other proposals to be presented at the Shareholder Meeting are in the best interests of L&F’s shareholders and unanimously recommends that our shareholders vote “FOR” the Articles Amendment Proposal, “FOR” the Business Combination Proposal,
“FOR” the Domestication Proposal, “FOR” the Governing Documents Proposal, “FOR” each of the Advisory Governing Documents Proposals, “FOR” the Listing Proposal, “FOR” the Incentive Equity Plan Proposal, “FOR” the Employee Stock Purchase Plan
Proposal, “FOR” each of the director nominees set forth in the Director Election Proposal, and “FOR” the Adjournment Proposal, in each case, if presented to the Shareholder Meeting.
The existence of financial and personal interests of L&F’s
directors and officers may result in conflicts of interest, including a conflict between what may be in the best interests of L&F and its shareholders and what may be best for a director’s personal interests when determining to recommend
that shareholders vote for the proposals. These conflicts of interest include, among other things, that if we do not consummate an initial business combination by August 24, 2022, we may be forced to liquidate, and the 4,312,500 Founder Shares
owned by the Sponsor Holders and 5,450,000 Private Placement Warrants owned by our Sponsor, of which our directors and officers are members, would be worthless. See the sections titled “Proposal No. 2 -
The Business Combination Proposal — Interests of Certain Persons in the Business Combination,” “Proposal No. 2 - The Business Combination Proposal — Conflicts of
Interest and Waiver of Corporate Opportunity Doctrine”, “Risk Factors”, “Certain Relationships and Related Person Transactions,” “Executive and Director
Compensation - Director Compensation” and “Beneficial Ownership of Securities” for more information.
Record Date; Who is Entitled to Vote
We have fixed the close of business on May 27, 2022, as the “record
date” for determining the shareholders entitled to notice of and to attend and vote at the Shareholder Meeting. As of the close of business on May 27, 2022, there were 7,738,189 L&F Ordinary Shares outstanding and entitled to vote. Each
L&F Ordinary Share is entitled to one vote per share at the Shareholder Meeting.
The L&F Initial Shareholders entered into a Sponsor Support
Letter Agreement to vote their Class B Ordinary Shares and any Public Shares purchased during or after the L&F IPO, in favor of the Business Combination Proposal and the other proposals to be voted upon at the Shareholder Meeting. As of the
date hereof, the L&F Initial Shareholders own approximately 55.7% of the total outstanding L&F Ordinary Shares.
Quorum
The presence (which would include presence at the virtual Shareholder
Meeting), in person or by proxy, of shareholders holding a majority of the L&F Ordinary Shares at the Shareholder Meeting constitutes a quorum at the Shareholder Meeting. Abstentions will be considered present for the purposes of
establishing a quorum. The L&F Initial Shareholders, who own approximately 55.7% of the issued and outstanding L&F Ordinary Shares as of the Record Date, own a sufficient number of shares to constitute a quorum. As a result, as of the
Record Date, in addition to the shares of the L&F Initial Shareholders, no additional L&F Ordinary Shares held by Public Shareholders would be required to be present at the Shareholder Meeting to achieve a quorum. In the absence of a
quorum, the chairman of the Shareholder Meeting has the power to adjourn the Shareholder Meeting.
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Abstentions
Abstentions will be considered present for the purposes of
establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on the approval of any of the proposals voted upon at the Shareholder Meeting.
Under NYSE rules, if a shareholder holds their shares in “street”
name through a bank, broker or other nominee and the shareholder does not instruct their broker, bank or other nominee how to vote their shares on a proposal, the broker, bank or other nominee has the authority to vote the shares in its
discretion on certain “routine” matters. However, banks, brokers and other nominees are not authorized to exercise their voting discretion on any “non-routine” matters. This can result in a “broker non-vote,” which occurs on a proposal when (i)
a bank, broker or other nominee has discretionary authority to vote on one or more “routine” proposals to be voted on at a meeting of shareholders, (ii) there are one or more “non-routine” proposals to be voted on at the meeting for which the
bank, broker or other nominee does not have authority to vote without instructions from the beneficial owner of the shares and (iii) the beneficial owner fails to provide the bank, broker or other nominee with voting instructions on a
“non-routine” matter.
We believe that all of the proposals to be voted on at the
Shareholder Meeting will be considered non-routine matters. As a result, if you hold your shares in street name, your bank, brokerage firm or other nominee cannot vote your shares on any of the proposals to be voted on at the Shareholder
Meeting without your instruction.
Because all of the proposals to be voted on at the Shareholder
Meeting are “non-routine” matters, banks, brokers and other nominees will not have authority to vote on any proposals unless instructed, so L&F does not expect there to be any broker non-votes at the Shareholder Meeting.
Vote Required for Approval
The approval of the Articles Amendment Proposal requires a special
resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to
vote thereon at the Shareholder Meeting.
The approval of the Business Combination Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting
The approval of the Domestication Proposal requires a special
resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to
vote thereon at the Shareholder Meeting.
The approval of the Governing Documents Proposal requires a special
resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to
vote thereon at the Shareholder Meeting.
The approval of each of the Advisory Governing Documents Proposals
requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to
vote thereon at the Shareholder Meeting. Each of the Advisory Governing Documents Proposals will be voted upon on a non-binding advisory basis only.
The approval of the Listing Proposal requires an ordinary resolution
under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder
Meeting.
The approval of the Director Election Proposal requires an ordinary
resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued Class B Ordinary
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Shares who are present in person or represented by proxy and entitled to vote thereon
at the Shareholder Meeting. Pursuant to the Sponsor Support Letter Agreement, the L&F Initial Shareholders have agreed to vote their Class B Ordinary Shares in favor of the Director Election Proposal and the election of the director
nominees is therefore assured.
The approval of the Incentive Equity Plan Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting.
The approval of the Employee Stock Purchase Plan Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting.
The approval of the Adjournment Proposal requires an ordinary
resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the
Shareholder Meeting.
The approval of each of the proposals other than the Articles
Amendment Proposal, the Domestication Proposal and the Governing Documents Proposal will not require the affirmative vote of the Public Shareholders based on the ownership of the Sponsor Holders. In addition to the votes of the Sponsor Holders,
the approval of the Articles Amendment Proposal, the Domestication Proposal and the Governing Documents Proposal will require the affirmative vote of at least 846,293 L&F Ordinary Shares held by Public Shareholders (or approximately 24.7%
of the issued and outstanding Class A Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes, and the affirmative vote of no additional L&F Ordinary Shares held by Public Shareholders if
only such shares as are required to establish a quorum are represented at the Shareholder Meeting and cast votes.
Voting Your Shares
If you were a holder of record of L&F Ordinary Shares as of the
close of business on May 27, 2022, the record date for the Shareholder Meeting, you may vote with respect to the proposals in person or virtually at the Shareholder Meeting, or by completing, signing, dating and returning the enclosed proxy
card in the postage-paid envelope provided. Your proxy card shows the number of L&F Ordinary Shares that you own. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that
votes related to the shares you beneficially own are properly counted.
There are three ways to vote your L&F Ordinary Shares at the
Shareholder Meeting:
Voting by Mail.
By signing the proxy card and returning it in the enclosed prepaid and addressed envelope, you are authorizing the individuals named on the proxy card to vote your shares at the Shareholder Meeting in the manner you indicate. You are
encouraged to sign and return the proxy card even if you plan to attend the Shareholder Meeting so that your shares will be voted if you are unable to attend the Shareholder Meeting. If you receive more than one proxy card, it is an
indication that your shares are held in multiple accounts. Please sign and return all proxy cards to ensure that all of your shares are voted. Votes submitted by mail must be received by 5:00 p.m., Eastern Time, on , 2022.
Voting in Person at the Meeting. If you attend the Shareholder Meeting and plan to vote in person, you will be provided with a ballot at the Shareholder Meeting. If your shares are registered directly in your name, you are considered the
shareholder of record and you have the right to vote in person at the Shareholder Meeting. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, you should follow the
instructions provided by your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote
your shares or, if you wish to attend the Shareholder Meeting and vote in person, you will need to bring to the Shareholder Meeting a legal proxy from your broker, bank or nominee authorizing you to vote these shares.
Voting Electronically. You may attend, vote and examine the list of shareholders entitled to vote at the Shareholder Meeting by visiting https://www.cstproxy.com/lfacquisitioncorp/am2022 and entering the
control number found on your proxy card, voting instruction form or notice included in the proxy materials.
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Revoking Your Proxy
If you give a proxy, you may revoke it at any time before the
Shareholder Meeting or at the Shareholder Meeting by doing any one of the following:
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you may send another proxy card with a later date;
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you may notify L&F’s Secretary in writing to L&F Acquisition Corp., 150 North Riverside Plaza, Suite 5200, Chicago,
Illinois 60606, before the Shareholder Meeting that you have revoked your proxy; or
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you may attend the Shareholder Meeting, revoke your proxy, and vote in person, as indicated above.
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If your shares are held in “street name” or are in a margin or
similar account, you should contact your broker for information on how to change or revoke your voting instructions.
Who Can Answer Your Questions About Voting Your Shares?
If you are an L&F shareholder and have any questions about how to
vote or direct a vote in respect of your L&F Ordinary Shares, you may call Morrow Sodali, our proxy solicitor, by calling (800) 662-5200 (toll-free), or banks and brokers can call (203) 658-9400, or by emailing
LNFA.info@investor.morrowsodali.com.
Vote of L&F’s Sponsor, Directors and Officers
The L&F Initial Shareholders entered into a Sponsor Support
Letter Agreement to vote their Class B Ordinary Shares and any Public Shares purchased during or after the L&F IPO, in favor of the Business Combination Proposal and the other proposals to be voted upon at the Shareholder Meeting. As of the
date hereof, the L&F Initial Shareholders own approximately 55.7% of the total outstanding L&F Ordinary Shares.
Redemption Rights
Pursuant to the Existing Governing Documents, holders of Class A
Ordinary Shares may seek to redeem their shares for cash, regardless of whether they vote for or against, or whether they abstain from voting on, the Business Combination Proposal. Any shareholder holding Class A Ordinary Shares may demand that
L&F redeem such shares for a full pro rata portion of the Trust Account (which, for illustrative purposes, was approximately $10.16 per share as of May 27, 2022, the record date for the meeting), calculated as of two business days prior to
the anticipated consummation of the Business Combination. If a holder properly seeks redemption as described in this section and the Business Combination is consummated, L&F will redeem these shares for a pro rata portion of funds deposited
in the Trust Account and the holder will no longer own these shares following the Business Combination.
As a holder of Class A Ordinary Shares, you will be entitled to
receive cash for any Class A Ordinary Shares to be redeemed only if you:
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hold Class A Ordinary Shares;
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submit a written request to Continental, L&F’s transfer agent, in which you (i) request that L&F redeem all or a portion
of your Class A Ordinary Shares for cash, and (ii) identify yourself as the beneficial holder of the Class A Ordinary Shares and provide your legal name, phone number and address; and
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deliver your Class A Ordinary Shares to Continental, L&F’s transfer agent, physically or electronically through DTC.
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Holders must complete the procedures for electing
to redeem their Class A Ordinary Shares in the manner described above prior to 5:00 p.m., Eastern Time, on , 2022 (two business days before the Shareholder Meeting) in order for their shares to be redeemed.
The redemption rights include the requirement that a holder must
identify itself in writing as a beneficial holder and provide its legal name, phone number and address to Continental in order to validly redeem its shares. If the Business Combination is not consummated, the Class A Ordinary Shares will be
returned to the respective holder, broker or bank.
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If you hold the shares in “street name,” you will have to
coordinate with your broker to have your shares certificated or delivered electronically. Shares of L&F that have not been tendered (either physically or electronically) in accordance with these procedures will not be redeemed for cash.
There is a nominal cost associated with this tendering process and the act of certificating the shares or delivering them through DTC’s DWAC system. The Transfer Agent will typically charge the tendering broker $80 and it would be up to the
broker whether or not to pass this cost on to the redeeming shareholder. In the event the proposed Business Combination is not consummated this may result in an additional cost to shareholders for the return of their shares.
Any request for redemption, once made by a holder of Class A Ordinary
Shares, may not be withdrawn following the Redemption Deadline, unless the L&F Board determines (in its sole discretion) to permit such withdrawal of a redemption request (which it may do in whole or in part).
Any corrected or changed written exercise of redemption rights must
be received by Continental, L&F’s transfer agent, at least two business days prior to the Shareholder Meeting. No request for redemption will be honored unless the holder’s Class A Ordinary Shares have been delivered (either physically or
electronically) to Continental, L&F’s transfer agent, prior to 5:00 p.m., Eastern Time, on , 2022 (two business days before the Shareholder Meeting).
Notwithstanding the foregoing, a Public Shareholder, together with
any affiliate of such Public Shareholder or any other person with whom such Public Shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from redeeming its Class A Ordinary
Shares with respect to more than an aggregate of 15% of the outstanding Class A Ordinary Shares, without our prior consent. Accordingly, if a Public Shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the
outstanding Class A Ordinary Shares, then any such shares in excess of that 15% limit would not be redeemed for cash, without our prior consent.
The L&F Initial Shareholders have, pursuant to the Sponsor
Support Letter Agreement, agreed to, among other things, vote all of their L&F Ordinary Shares in favor of the proposals being presented at the Shareholder Meeting and waive their anti-dilution rights with respect to their Class B Ordinary
Shares in connection with the consummation of the Business Combination. Such shares will be excluded from the pro rata calculation used to determine the per-share redemption price. As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders own approximately 55.7% of the issued and outstanding L&F Ordinary Shares. See “Proposal No. 2 - Business Combination Proposal — Related Agreements — The Sponsor Support Letter
Agreement” for more information related to the Sponsor Support Letter Agreement.
If the Business Combination is not approved or completed for any
reason, then the Public Shareholders who elected to exercise their redemption rights will not be entitled to redeem their shares for a full pro rata portion of the Trust Account, as applicable. In such case, L&F will promptly return any
shares delivered by Public Shareholders.
The closing price of Class A Ordinary Shares on May 27, 2022, the
record date for the Shareholder Meeting, was $10.07 per share. The cash held in the Trust Account on such date was approximately $34,806,051 (net of taxes payable) (approximately $10.16 per Class A Ordinary Share). Prior to exercising
redemption rights, shareholders should verify the market price of Class A Ordinary Shares as they may receive higher proceeds from the sale of their Class A Ordinary Shares in the public market than from exercising their redemption rights if
the market price per share is higher than the redemption price. L&F cannot assure its shareholders that they will be able to sell their Class A Ordinary Shares in the open market, even if the market price per share is higher than the
redemption price stated above, as there may not be sufficient liquidity in its securities when its shareholders wish to sell their shares.
If a holder of Class A Ordinary Shares exercises his, her or its
redemption rights, then he, she or it will be exchanging his, her or its Class A Ordinary Shares for cash and will no longer own those shares. You will be entitled to receive cash for these shares only if you properly demand redemption by
delivering your stock certificate (either physically or electronically) to L&F’s transfer agent prior to the vote at the Shareholder Meeting, and the Business Combination is consummated.
For a discussion of the material U.S. federal income tax
considerations for shareholders with respect to the exercise of these redemption rights, see “Certain Material United States Federal Income Tax Considerations.” The consequences of a redemption to any
particular shareholder will depend on that shareholder's particular facts and circumstances. Accordingly, you are urged to consult your tax advisor to determine your tax consequences from the exercise of your redemption rights, including the
applicability and effect of U.S. federal, state, local and non-U.S. income and other tax laws in light of your particular circumstances.
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Appraisal Rights
L&F Shareholders have no appraisal rights in connection with the
Business Combination or the Domestication under the Cayman Islands Companies Act or under the DGCL.
Proxy Solicitation Costs
L&F is soliciting proxies on behalf of the L&F Board. This
proxy solicitation is being made by mail, but also may be made by telephone or in person. L&F has engaged Morrow Sodali to assist in the solicitation of proxies for the Shareholder Meeting. L&F and its directors, officers and employees
may also solicit proxies in person. L&F will ask banks, brokers and other institutions, nominees and fiduciaries to forward this proxy statement/prospectus and the related proxy materials to their principals and to obtain their authority to
execute proxies and voting instructions.
L&F will bear the entire cost of the proxy solicitation,
including the preparation, assembly, printing, mailing and distribution of this proxy statement/prospectus and the related proxy materials. L&F will pay Morrow Sodali a fee of $32,500, plus disbursements, reimburse Morrow Sodali for its
reasonable out-of-pocket expenses and indemnify Morrow Sodali and its affiliates against certain claims, liabilities, losses, damages and expenses for its services as L&F’s proxy solicitor. L&F will reimburse brokerage firms and other
custodians for their reasonable out-of-pocket expenses for forwarding this proxy statement/prospectus and the related proxy materials to L&F shareholders. Directors, officers and employees of L&F who solicit proxies will not be paid any
additional compensation for soliciting.
Potential Purchases of Public Shares and/or Warrants
At any time prior to the Shareholder Meeting, during a period when
they are not then aware of any material nonpublic information regarding L&F or our securities, L&F’s Initial Shareholders, the Target Companies and/or their respective affiliates may purchase shares and/or warrants from investors, or
they may enter into transactions with such investors and others to provide them with incentives to acquire shares of L&F Ordinary Shares. In such transactions, the purchase price for the Class A Ordinary Shares will not exceed the
redemption price. In addition, the persons described above will waive redemption rights, if any, with respect to the Class A Ordinary Shares they acquire in such transactions. However, any Class A Ordinary Shares acquired by the persons
described above would not be voted in connection with the Business Combination Proposal.
The purpose of such share purchases and other transactions would be
to increase the likelihood that the conditions to the consummation of the Business Combination are satisfied or to provide additional equity financing. This may result in the completion of our Business Combination that may not otherwise have
been possible. While the exact nature of any such incentives has not been determined as of the date of this proxy statement/prospectus, they might include, without limitation, arrangements to protect such investors or holders against potential
loss in value of their shares, including the granting of put options.
Entering into any such incentive arrangements may have a depressive
effect on the Class A Ordinary Shares. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares he
owns, either prior to or immediately after the Shareholder Meeting.
As of the date of this proxy statement/prospectus, there have been no
such discussions and no agreements to such effect have been entered into with any such investor or holder. L&F will file a Current Report on Form 8-K prior to the Shareholder Meeting to disclose any arrangements entered into or significant
purchases made by any of the aforementioned persons. Any such report will include (i) the amount of Class A Ordinary Shares purchased and the purchase price; (ii) the purpose of such purchases; (iii) the impact of such purchases on the
likelihood that the Business Combination transaction will be approved; (iv) the identities or characteristics of security holders who sold shares if not purchased in the open market or the nature of the sellers; and (v) the number of Class A
Ordinary Shares for which L&F has received redemption requests.
The existence of financial and personal interests of our directors
and officers may result in conflicts ofinterest, including a conflict between what may be in the best interests of New ZeroFox and its shareholders and what may be best for a director’s personal interests when determining to recommend that
Public Shareholders vote for the proposals. See the sections titled “Risk Factors,” “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination”, “Proposal No.
2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Beneficial Ownership of Securities” for more information and other risks.
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Overview
As discussed in this proxy statement/prospectus, L&F is asking
its shareholders to approve the Articles Amendment Proposal. The Articles Amendment Proposal is not conditioned on any other proposal, though the special resolution contemplated by the Articles Amendment Proposal will be adopted only if the
Business Combination Proposal is approved. However, the Condition Precedent Proposals will not be presented to the shareholders for a vote if the Articles Amendment Proposal is not approved.
Reasons for the Amendments
L&F shareholders are being asked to adopt the proposed amendments
to the Existing Governing Documents, prior to the Domestication, which, in the judgment of the L&F Board, is necessary to facilitate the Business Combination. The Existing Governing Documents limit L&F’s ability to consummate a Business
Combination, or to redeem Class A Ordinary Shares in connection with a Business Combination, if it would cause L&F to have less than $5,000,001 in net tangible assets. The purpose of such limitation is to ensure that the L&F Ordinary
Shares are not deemed to be a “penny stock” pursuant to Rule 3a51-1 under the Exchange Act. Because the Class A Ordinary Shares and the New ZeroFox Common Stock would not be deemed to be a “penny stock” pursuant to other applicable provisions
of Rule 3a51-1 under the Exchange Act, L&F is presenting the Articles Amendment Proposal to facilitate the consummation of the Business Combination. In connection with the approval of the Articles Amendment Proposal, the parties to the
Business Combination Agreement have waived the condition to Closing under the Business Combination Agreement that L&F have at least $5,000,0001 in tangible net assets (as determined in accordance with Rule 3a51-1(g)(1) under the Exchange
Act), subject to the approval of the Articles Amendment Proposal and the Business Combination Proposal. If the Articles Amendment Proposal is not approved and there are significant requests for redemption (including as a result of the Extension
Amendment Redemptions) such that L&F's net tangible assets would be less than $5,000,001 upon the consummation of the Business Combination, we would be unable to consummate the Business Combination even if all other conditions to Closing
are met.
Vote Required for Approval
The Articles Amendment Proposal is not conditioned on any other
proposal, though the special resolution contemplated by the Articles Amendment Proposal will be adopted only if the Business Combination Proposal is approved. The approval of the Articles Amendment Proposal requires a special resolution under
Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the
Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on the
approval of the Articles Amendment Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Articles Amendment Proposal. As of the date hereof, the L&F Initial Shareholders own approximately 55.7% of the issued and outstanding
L&F Ordinary Shares and have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting—Potential Purchases of Public Shares and/or
Warrants.” As a result, in addition to the L&F Initial Shareholders, approval of the Articles Amendment Proposal will require the affirmative vote of at least 846,293 L&F Ordinary Shares held by Public Shareholders (or
approximately 24.7% of the issued and outstanding Class A Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes; the L&F Initial Shareholders own sufficient shares to approve the Articles
Amendment Proposal if only such shares as are required to establish a quorum are represented at the Shareholder Meeting and cast votes.
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Resolution
The full text of the resolution to be voted upon is as follows:
RESOLVED, as a
special resolution, that subject to the approval of Proposal No. 2 (the Business Combination Proposal):
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(a)
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Article 49.2(b) be deleted in its entirety and be replaced with the following new Article 49.2(b):
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“provide Members with the opportunity to have their Shares repurchased by means of a
tender offer for a per-Share repurchase price payable in cash, equal to the aggregate amount then on deposit in the Trust Account, calculated as of two business days prior to the consummation of such Business Combination, including interest
earned on the Trust Account (which interest shall be net of taxes paid or payable, if any), divided by the number of then issued Public Shares. Such obligation to repurchase Shares is subject to the completion of the proposed Business
Combination to which it relates.”
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(b)
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Article 49.4 be deleted in its entirety and be replaced with the following new Article 49.4:
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“At a general meeting called for the purposes of approving a Business Combination
pursuant to this Article, in the event that such Business Combination is approved by Ordinary Resolution, the Company shall be authorised to consummate such Business Combination.”
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(c)
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the following final sentence of Article 49.5 be deleted in its entirety:
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“The Company shall not redeem Public Shares that would cause the Company’s net
tangible assets to be less than US$5,000,001 following such redemptions (the “Redemption Limitation”).”
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(d)
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the final sentence of Article 49.8 be deleted in its entirety and be replaced with the following new final sentence of Article
49.8:
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“The Company shall not provide such redemption in this Article if it would cause the
Company’s net tangible assets to be less than US$5,000,001 following such redemption.”
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR”
THE APPROVAL OF THE ARTICLES AMENDMENT PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the sections titled “Proposal No. 2 — The Business Combination Proposal — Interests of Certain Persons in the
Business Combination,” “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Risk
Factors”, for a further discussion of these considerations.
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We are asking our shareholders to approve and adopt the Business
Combination Agreement and the transactions contemplated thereby. Our shareholders should carefully read this proxy statement/prospectus in its entirety for more detailed information concerning the Business Combination Agreement, which is
attached as Annex A to this proxy statement/prospectus and is hereby incorporated by reference. Please see the subsection titled “—The Business Combination Agreement” below, for additional information
and a summary of certain terms of the Business Combination Agreement. You are urged to carefully read the Business Combination Agreement in its entirety before voting on this proposal.
Because we are holding a shareholder vote on the Business
Combination, we may consummate the Business Combination only if it is approved by the affirmative vote for the proposal by the holders of a majority of the issued L&F Ordinary Shares who, being present (in person or by proxy) and entitled
to vote at the Shareholder Meeting to approve the Business Combination Proposal, vote at the Shareholder Meeting, voting as a single class.
The Business Combination Agreement
This section describes the material provisions of the Business
Combination Agreement, but does not purport to describe all of the terms of the Business Combination Agreement. The following summary is qualified in its entirety by reference to the complete text of the Business Combination Agreement, a copy
of which is attached as Annex A hereto, which is incorporated herein by reference. Shareholders and other interested parties are urged to read the Business Combination Agreement, carefully and in its entirety (and, if appropriate, with the
advice of financial and legal counsel) because it is the primary legal document that governs the Business Combination.
The Business Combination Agreement contains representations,
warranties and covenants that the respective parties made to each other as of the date of the Business Combination Agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for
purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Business Combination Agreement. The representations, warranties and
covenants in the Business Combination Agreement are also modified in part by the underlying disclosure schedules (the “disclosure schedules”), which are not filed publicly and which are subject to a
contractual standard of materiality different from that generally applicable to shareholders and were used for the purpose of allocating risk among the parties rather than establishing matters as facts. We do not believe that the disclosure
schedules contain information that is material to an investment decision. Additionally, the representations and warranties of the parties to the Business Combination Agreement may or may not have been accurate as of any specific date and do not
purport to be accurate as of the date of this proxy statement/prospectus. Accordingly, no person should rely on the representations and warranties in the Business Combination Agreement or the summaries thereof in this proxy statement/prospectus
as characterizations of the actual state of facts about L&F, ZeroFox, IDX or any other matter.
General; Structure of the Business Combination
On December 17, 2021, L&F entered into the Business Combination
Agreement with L&F Holdings, ZF Merger Sub, IDX Merger Sub, IDX Forward Merger Sub and the Target Companies, pursuant to which, at the Closing, on the terms and subject to the conditions set forth in the Business Combination Agreement and
in accordance with the applicable provisions of the DGCL, the DLLCA and other applicable laws:
(a) ZeroFox and ZF Merger Sub will consummate the ZF Merger, pursuant
to which ZF Merger Sub will be merged with and into ZeroFox, following which the separate existence of ZF Merger Sub will cease and ZeroFox will continue after the ZF Merger as a direct, wholly-owned subsidiary of L&F Holdings;
(b) IDX and IDX Merger Sub will consummate the IDX Merger, pursuant
to which IDX Merger Sub will be merged with and into IDX, following which the separate existence of IDX Merger Sub will cease and IDX will continue as the surviving entity after the IDX Merger (referred to as Transitional IDX Entity) as a
direct, wholly-owned subsidiary of L&F Holdings; and
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(c) Immediately following the IDX Merger, Transitional IDX Entity
and IDX Forward Merger Sub will consummate the IDX Forward Merger, pursuant to which Transitional IDX Entity will be merged with and into IDX Forward Merger Sub, following which the separate existence of Transitional IDX Entity will cease and
IDX Forward Merger Sub will continue as the surviving entity after the IDX Forward Merger as a direct, wholly-owned subsidiary of L&F Holdings.
(d) On the Closing Date, prior to the consummation of the Mergers,
L&F will complete the Domestication, upon which L&F will change its name to “ZeroFox Holdings, Inc.” (for further details, see the section titled “The Domestication Proposal”).
Effect of the Domestication on Existing L&F
Equity in the Business Combination
The Domestication will result in, among other things, the following,
each of which will occur prior to the consummation of the Mergers on the Closing Date:
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each issued and outstanding Class A Ordinary Share will be converted, on a one-for-one basis, into one share of New ZeroFox
Common Stock;
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each issued and outstanding L&F Class B Ordinary Share will be converted, on a one-for-one basis, into one share of New
ZeroFox Common Stock;
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each issued and outstanding L&F Public Warrant and L&F Private Placement Warrant exercisable for one Class A Ordinary
Share will be converted, on a one-for-one basis, into one warrant exercisable for one share of New ZeroFox Common Stock; and
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the governing documents of L&F will be replaced by the Proposed Certificate of Incorporation and the Proposed Bylaws as
described in this proxy statement/prospectus and L&F’s name will be changed to “ZeroFox Holdings, Inc.”
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Consideration to be Received in the Business
Combination
In consideration for the consummation of the Business Combination and
as a result of the Mergers, among other things,
(a) Each share of ZeroFox Common Stock (including shares of ZeroFox
restricted stock) issued and outstanding immediately prior to the ZF Effective Time (after giving effect to the ZF Mandatory Conversion and other than ZF Dissenting Shares and ZF Cancelled Shares) will be automatically cancelled and
extinguished and converted into the right to receive the ZF Closing Stock Per Share Consideration. The ZF Closing Stock Per Share Consideration issued in respect of shares of ZeroFox restricted stock will continue to have, and be subject to,
the same terms and conditions (including restrictions on vesting) relating thereto as in effect immediately prior to the Closing. The ZF Closing Stock Per Share Consideration is based on a pre-money enterprise value of ZeroFox of $866,250,000
and a price of $10.00 per share of New ZeroFox Common Stock and is calculated to be a fraction of a share of New ZeroFox Common Stock equal to the quotient obtained by dividing 86,625,000 by ZeroFox’s fully diluted shares of stock. For purposes
of this calculation, ZeroFox’s fully diluted shares is equal to the sum of (i) the total number of shares of ZeroFox Common Stock (excluding unvested restricted shares), (ii) the total number of shares of ZeroFox Common Stock issuable upon the
exercise of all vested ZeroFox options, and (iii) the total number of shares of ZeroFox Common Stock issuable upon the exercise or settlement of all ZeroFox warrants (whether or not vested), in each case of clauses (ii) and (iii), determined on
a net exercise basis. Based on vested options to purchase 14,323,950 shares of ZeroFox Common Stock outstanding as of the date of this proxy statement/prospectus and assuming that outstanding warrants to purchase 5,912,146 shares of ZeroFox
Common Stock are exercised on a cash basis prior to the ZF Effective Time, the ZF Closing Stock Per Share Consideration will be 0.2866 of a share of New ZeroFox Common Stock and 83,222,734 shares of New ZeroFox Common Stock will be issued to
ZeroFox shareholders.
(b) (i) Each share of IDX Common Stock issued and outstanding
immediately prior to the IDX Effective Time (other than IDX Dissenting Shares and IDX Cancelled Shares) will be automatically cancelled and extinguished and converted into the right to receive (A) the IDX Closing Stock Per Share Consideration
and (B) the IDX Closing Cash Per Share Consideration; (ii) each share of IDX series A-1 Preferred Stock and IDX series A-2 Preferred Stock issued and outstanding immediately prior to the IDX Effective Time (other than IDX Dissenting Shares and
IDX Cancelled Shares) will be automatically cancelled and extinguished and converted
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into the right to receive (A) the IDX Closing Stock Per Share Consideration, (B) the
IDX Closing Cash Per Share Consideration, and (C) an amount in cash equal to $0.361 per share (the “IDX Liquidation Preference”); and (iii) each share of IDX series B Preferred Stock issued and
outstanding immediately prior to the IDX Effective Time (other than IDX Dissenting Shares and IDX Cancelled Shares) will be automatically cancelled and extinguished and converted into the right to receive an amount of cash equal to the IDX
Liquidation Preference. The IDX Closing Stock Per Share Consideration and IDX Closing Cash Per Share Consideration are based on a pre-money enterprise value of IDX of $338,750,000 and a price of $10.00 per share of New ZeroFox Common Stock. The
IDX Closing Stock Per Share Consideration is calculated to be a fraction of a share of New ZeroFox Common Stock equal to the quotient obtained by dividing 28,875,000 by IDX’s fully diluted shares of stock. The IDX Closing Cash Per Share
Consideration is calculated to be an amount equal to the quotient obtained by dividing $50,000,000 (subject to certain Closing adjustments for cash, working capital, debt and transaction expenses, and net of the aggregate IDX Liquidation
Preference) by IDX’s fully diluted shares of stock. For purposes of these calculation, IDX’s fully diluted shares is the sum of (i) the total number of shares of IDX Common Stock, IDX series A-1 Preferred Stock and IDX series A-2 Preferred
Stock, (ii) the total number of shares of IDX Common Stock issuable upon the exercise of all vested IDX options, and (iii) the total number of shares of IDX Common Stock issuable upon the exercise or settlement of all IDX warrants (whether or
not vested), in each case of clauses (ii) and (iii), determined on a net exercise basis. Based on vested options to purchase 1,481,694 shares of IDX Common Stock outstanding as of the date of this proxy statement/prospectus and assuming that
outstanding warrants to purchase 300,000 shares of IDX Common Stock are exercised on a cash basis prior to the IDX Effective Time, the IDX Closing Stock Per Share Consideration will be 0.6177 of a share of New ZeroFox Common Stock and,
27,905,045 shares of New ZeroFox Common Stock will be issued to IDX shareholders.
(c) To the extent not exercised and exchanged prior to the ZF
Effective Time, each warrant of ZeroFox issued, outstanding and unexercised immediately prior to the ZF Effective Time will be assumed and converted into a warrant to purchase shares of New ZeroFox Common Stock (each, a “ZF Assumed Warrant”). Each such ZF Assumed Warrant as so assumed and converted will continue to have, and will be subject to, the same terms and conditions as applied to the underlying warrant of ZeroFox
immediately prior to the ZF Effective Time. Each such ZF Assumed Warrant as so assumed and converted will be a warrant to purchase (i) that number of shares of New ZeroFox Common Stock (rounded down to the nearest whole share) equal to the
product of (A) the number of shares of ZeroFox Common Stock subject to such warrant of ZeroFox immediately prior to the ZF Effective Time (assuming the exercise of such warrant of ZeroFox immediately prior to the ZF Effective Time and, where
applicable, the ZF Mandatory Conversion) and (B) the ZF Closing Stock Per Share Consideration, (ii) at an exercise price per share of New ZeroFox Common Stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing
(x) the exercise price per share of ZeroFox Common Stock applicable to the underlying warrant of ZeroFox immediately prior to the ZF Effective Time (giving effect to the exercise of such warrant of ZeroFox immediately prior to the ZF Effective
Time and, where applicable, the ZF Mandatory Conversion) by (y) the ZF Closing Stock Per Share Consideration.
(d) To the extent not exercised and exchanged prior to the IDX
Effective Time, each warrant of IDX issued, outstanding and unexercised immediately prior to the IDX Effective Time will be assumed and converted into a warrant to purchase New ZeroFox Common Stock (each, an “IDX
Assumed Warrant”). Each such IDX Assumed Warrant as so assumed and converted will continue to have, and will be subject to, the same terms and conditions as applied to the underlying warrant of IDX immediately prior to the IDX
Effective Time. Each such IDX Assumed Warrant to purchase IDX Common Stock as so assumed and converted will be a warrant to purchase (i) that number of shares of New ZeroFox Common Stock (rounded down to the nearest whole share) equal to the
product of (A) the number of shares of IDX Common Stock subject to the underlying warrant of IDX immediately prior to the IDX Effective Time and (B) the IDX Total Per Share Consideration, (ii) at an exercise price per share of New ZeroFox
Common Stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of IDX Common Stock applicable to the underlying warrant of IDX immediately prior to the IDX Effective Time by (y)
the IDX Total Per Share Consideration. Each such IDX Assumed Warrant to purchase IDX Preferred Stock as so assumed and converted will be a warrant to purchase (i) that number of shares of New ZeroFox Common Stock (rounded down to the nearest
whole share) equal to the product of (A) the number of shares of IDX Preferred Stock subject to the underlying warrant of IDX immediately prior to the IDX Effective Time and (B) the IDX Total Preferred Per Share Consideration, (ii) at an
exercise price per share of New ZeroFox Common Stock (rounded up to the
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nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price
per share of IDX Preferred Stock applicable to the underlying warrant of IDX immediately prior to the IDX Effective Time by (y) the IDX Total Preferred Per Share Consideration. For purposes of the foregoing, (i) the IDX Total Per Share
Consideration is calculated to be a fraction of a share of New ZeroFox Common Stock equal to the sum of the IDX Closing Stock Per Share Consideration plus the quotient obtained by dividing the IDX Closing Cash Per Share Consideration by the
L&F Closing Stock Price and (ii) the IDX Total Preferred Per Share Consideration is calculated to be a fraction of a share of New ZeroFox Common Stock equal to the sum of the IDX Closing Stock Per Share Consideration plus the quotient
obtained by dividing the IDX Closing Cash Per Share Consideration plus the IDX Liquidation Preference by the L&F Closing Stock Price.
(e) Each option of ZeroFox (whether vested or unvested) that is
outstanding and unexercised as of immediately prior to the ZF Effective Time will be assumed and converted into an option to purchase shares of New ZeroFox Common Stock (each, a “New ZeroFox Option”).
Each such New ZeroFox Option as so assumed and converted will continue to have, and will be subject to, the same terms and conditions as applied to the underlying option of ZeroFox immediately prior to the ZF Effective Time. Each such New
ZeroFox Option as so assumed and converted will be an option to acquire (i) that number of shares of New ZeroFox Common Stock (rounded down to the nearest whole share) equal to the product of (A) the number of shares of ZeroFox Common Stock
subject to such option of ZeroFox immediately prior to the ZF Effective Time and (B) the ZF Closing Stock Per Share Consideration, (ii) at an exercise price per share of New ZeroFox Common Stock (rounded up to the nearest whole cent) equal to
the quotient obtained by dividing (x) the exercise price per share of ZeroFox Common Stock applicable to such option of ZeroFox immediately prior to the ZF Effective Time by (y) the ZF Closing Stock Per Share Consideration.
(f) Each option of IDX (whether vested or unvested) that is
outstanding and unexercised as of immediately prior to the IDX Effective Time will be assumed and converted into a New ZeroFox Option. Each such New ZeroFox Option as so assumed and converted will continue to have, and will be subject to, the
same terms and conditions as applied to the underlying option of IDX immediately prior to the IDX Effective Time. Each such New ZeroFox Option as so assumed and converted will be an option to acquire (i) that number of shares of New ZeroFox
Common Stock (rounded down to the nearest whole share) equal to the product of (A) the number of shares of IDX Common Stock subject to such option of IDX immediately prior to the IDX Effective Time and (B) the IDX Total Per Share Consideration,
(ii) at an exercise price per share of New ZeroFox Common Stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of IDX Common Stock applicable to such option of IDX immediately
prior to the IDX Effective Time by (y) the IDX Total Per Share Consideration.
Closing of the Business Combination
The Closing will take place (i) electronically by the mutual exchange
of electronic signatures (including portable document format (PDF)) commencing as promptly as practicable (and in any event no later than 9:00 a.m., Eastern Time, on the third Business Day) following the satisfaction or, to the extent permitted
by applicable law, waiver of the conditions set forth below in “—Conditions to the Closing of the Business Combination” (other than those conditions that by their terms or nature are to be satisfied at
the Closing; provided, that such conditions are satisfied or, to the extent permitted by applicable law, waived in writing) or (ii) at such other place, time or date as L&F, ZeroFox and IDX may mutually agree in writing.
Conditions to the Closing of the Business
Combination
Conditions to Obligations of all Parties
The respective obligations of L&F, ZeroFox and IDX to consummate
the Business Combination are subject to the satisfaction, or in the case of the last three items below, if permitted by applicable law, written waiver by all parties, of each of the following conditions:
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all applicable waiting periods (and any extensions) under the HSR Act in respect of the Business Combination will have expired
or been terminated (which expired on January 31, 2022);
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there will not be in force any law or governmental order by any governmental authority enjoining, prohibiting, or making illegal
the consummation of the Domestication or any of the transactions contemplated by the Business Combination Agreement, including the Mergers;
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the approval of each Condition Precedent Proposal by the requisite vote of the L&F Shareholders; and the approvals of the
Business Combination Agreement and the transactions contemplated by the Business Combination Agreement, including the Mergers, by the requisite consent of the shareholders of each of ZeroFox and IDX (which approvals have been received);
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the registration statement of which this proxy statement/prospectus forms a part will have become effective in accordance with
the provisions of the Securities Act, no stop order will have been issued by the SEC that remains in effect with respect to the registration statement, and no proceeding seeking such a stop order will have been threatened or initiated
by the SEC that remains pending;
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the Common Equity PIPE Financing and the Convertible Notes Financing will have been consummated or will be consummated
substantially concurrently with the Closing in accordance with the terms of the applicable subscription agreements;
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the New ZeroFox Common Stock to be issued in connection with the Business Combination will have been approved for listing on the
NYSE or Nasdaq, subject only to official notice of issuance thereof and the requirement to have a sufficient number of round lot holders, and, immediately following the Effective Time, L&F will, after giving effect to the
Redemption, satisfy any applicable initial and continuing listing requirements of the NYSE or Nasdaq, and L&F will not have received any notice of non-compliance therewith that has not been cured prior to, or would not be curable at
or immediately following, the Effective Time; and
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after giving effect to the Business Combination, (i) the Available Closing Acquiror Cash will not be less than $170,000,000, and
L&F will have made arrangements for the Available Closing Acquiror Cash held in the Trust Account to be released from the Trust Account at the Effective Time and (ii) L&F will meet the Tangible Net Assets Condition. The parties
to the Business Combination Agreement have waived the Tangible Net Assets Condition, subject to the approval of the Articles Amendment Proposal and the Business Combination Proposal.
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Additional Conditions to Obligations of L&F Parties
The obligations of the L&F Parties to consummate, or cause to be
consummated, the Business Combination are subject to the satisfaction, or written waiver by L&F, of each of the following additional conditions:
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each of the representations and warranties of the Target Companies regarding corporate organization, subsidiaries, due
authorization, current capitalization, capitalization of subsidiaries, absence of any Target Company action that would require consent of L&F, and brokers fees (the “Company Group Specified
Representations”), will be true and correct, without giving any effect to any limitation as to “materiality” or “Company Material Adverse Effect” (as such term is defined below) or any similar limitation set forth therein, in
all material respects as of the date of the Business Combination Agreement and as of the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date, which in such case, will be true and
correct in all material respects on and as of such earlier date);
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the representations and warranties of ZeroFox and IDX regarding the absence of a Company Material Adverse Effect from and after
October 31, 2021, in the case of ZeroFox, and September 30, 2021 in the case of IDX, will be true and correct in all respects as of the date of the Business Combination Agreement and as of the Closing Date;
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each of the other representations and warranties of the Target Parties will be true and correct (without giving any effect to
any limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein) as of the date of the Business Combination Agreement and as of the Closing Date as though then made (except to the
extent such representations and warranties expressly relate to an earlier date, which in such case, will be true and correct on and as of such earlier date), except, in either case, where the failure of such representations and
warranties to be so true and correct, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Company Material Adverse Effect;
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each of ZeroFox and IDX having performed in all material respects its respective covenants and agreements required to be
performed under the Business Combination Agreement;
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each of ZeroFox and IDX having delivered to L&F a certificate signed by its respective officer, certifying that the
conditions specified above with respect to ZF and IDX, as applicable, have been fulfilled;
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each of ZeroFox and IDX will have provided a properly executed statement pursuant to applicable regulations dated no more than
30 days prior to the Closing Date and signed by an officer of ZeroFox and IDX, as applicable, certifying that interests in ZeroFox or IDX, as applicable, do not constitute “United States real property interests” under applicable Code
provisions with the notice to the IRS in accordance with applicable regulations; and
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since the date of the Business Combination Agreement, there will not have occurred any Company Material Adverse Effect that is
continuing.
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Additional Conditions to Obligations of ZeroFox and IDX
The obligation of each of ZeroFox and IDX to consummate, or cause to
be consummated, the Business Combination is subject to the satisfaction, or written waiver by ZeroFox and IDX, as applicable, of each of the following additional conditions:
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each of the representations and warranties of the L&F Parties regarding corporate organization, due authorization, trust
account, brokers’ fees, capitalization, related party transactions, and absence of action that would require the consent of the Target Companies between September 30, 2021 and the date of the Business Combination Agreement (the “L&F Specified Representations”) will be true and correct (without giving any effect to any limitation as to “materiality” or any similar limitation set forth therein) in all material respects as
of the Closing Date as though then made (except to the extent such representations and warranties expressly relate to an earlier date, which in such case, will be true and correct in all material respects on and as of such earlier
date);
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the representations and warranties of the L&F Parties regarding the absence of an “Acquiror Material Adverse Effect” (as
defined below) from and after September 30, 2021 will be true and correct in all respects as of the date of the Business Combination Agreement and as of the Closing Date;
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each of the other representations and warranties of the L&F Parties will be true and correct, without giving any effect to
any limitation as to “materiality” or “Acquiror Material Adverse Effect” or any similar limitation set forth therein, as of the date of the Business Combination Agreement and as of the Closing Date as though then made (except to the
extent such representations and warranties expressly relate to an earlier date, which in such case, will be true and correct on and as of such earlier date), except, in either case, where the failure of such representations and
warranties to be so true and correct, individually or in the aggregate, has not had, and would not reasonably be expected to have, an Acquiror Material Adverse Effect;
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“Acquiror Material Adverse Effect” means, any
change, event, circumstance, occurrence, effect, development or state of facts that, individually or in the aggregate, with any other change, event, circumstance, occurrence, effect, development or state of facts, either (a) has a material
adverse effect on the business, assets, operations, results of operations or financial condition of L&F and its subsidiaries, taken as a whole, or (b) prevents or materially delays or materially impacts the ability of any of the L&F
Parties or Sponsor to consummate all or any of the Business Combination or would reasonably be expected to have any such effect; provided, however, that none of the following, alone or in combination, will be taken into account
in determining whether an Acquiror Material Adverse Effect has occurred: (i) changes or proposed changes in applicable law, regulations or interpretations thereof or decisions by any governmental authority after the date of the Business
Combination Agreement; (ii) changes or proposed changes in GAAP (or any official interpretation thereof) after the date of the Business Combination Agreement; (iii) any downturn in general economic conditions, including changes in the credit,
debt, securities, financial, capital or reinsurance markets (including changes in interest or exchange rates, prices of any security or market index or commodity or any disruption of such markets), in each case, in the United States or anywhere
else in the world; (iv) any earthquake, hurricane, tornado, pandemic or other natural or man-made disaster; (v) the taking of any action
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required by the Business Combination Agreement; (vi) the announcement of the
Business Combination Agreement or consummation of the Business Combination; (vii) any action taken, or failures to take action, or such other changes or events, in each case by, or at the request of, any Target Company or (viii) the
consummation of the Redemption.
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each of the Company Group Specified Representations made by IDX (or ZeroFox, in the case of the conditions to the obligation of
IDX to close) will be true and correct (without giving any effect to any limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein) in all material respects as of the date of the
Business Combination Agreement and as of the Closing Date as though then made (except to the extent such representations and warranties expressly relate to an earlier date, which in such case, will be true and correct in all material
respects on and as of such earlier date);
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the representations and warranties of IDX (or ZeroFox, in the case of the conditions to the obligation of IDX to close)
regarding the absence of a Company Material Adverse Effect from and after September 30, 2021 (October 31, 2021 in the case of ZeroFox) will be true and correct in all respects as of the date of the Business Combination Agreement and as
of the Closing Date;
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each of the other representations and warranties contained in Article IV of the Business Combination Agreement made by IDX (or
ZeroFox, in the case of the conditions to the obligation of IDX to close) will be true and correct (without giving any effect to any limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth
therein) as of the date of the Business Combination Agreement and as of the Closing Date as though then made (except to the extent such representations and warranties expressly relate to an earlier date, which in such case, will be true
and correct on and as of such earlier date), except, in either case, where the failure of such representations and warranties to be so true and correct, individually or in the aggregate, has not had, and would not reasonably be expected
to have, a Company Material Adverse Effect;
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the L&F Parties and IDX (or ZeroFox, in the case of the conditions to the obligation of IDX to close) having performed in
all material respects its respective covenants and agreements required to be performed under the Business Combination Agreement;
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each of L&F and IDX (or ZeroFox, in the case of the conditions to the obligation of IDX to close) having delivered to the
applicable party a certificate signed by its respective officer, certifying that the conditions specified above with respect to such party have been fulfilled;
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the Domestication having been completed as provided in the Business Combination Agreement and a time-stamped copy of the
certificates issued by the Secretary of State of the State of Delaware in relation thereto having been delivered to ZeroFox or IDX, as applicable; and
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since the date of the Business Combination Agreement, there will not have occurred any Acquiror Material Adverse Effect or
Company Material Adverse Effect (relating to IDX in the case of the conditions to the obligation of ZeroFox to close or relating to ZeroFox in the case of the conditions to the obligation of IDX to close) that is continuing.
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Limitations of Failure of a Condition
A party may not rely on the failure of any condition set forth in
Article IX of the Business Combination Agreement to be satisfied if such failure was due to the failure of such party to perform any of its obligations under the Business Combination Agreement.
Termination
The Business Combination Agreement may be terminated and the Business
Combination abandoned at any time prior to the Closing by:
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mutual written agreement of L&F and the Target Companies;
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by L&F, ZeroFox or IDX, if there is in effect any (i) law in any jurisdiction of competent authority or (ii) governmental
order issued, promulgated, made, rendered or entered into by any court or other tribunal of competent jurisdiction, that, in the case of each of clauses (i) and (ii), permanently restrains, enjoins, makes illegal or otherwise prohibits
the consummation of the Domestication or any of the Mergers;
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by L&F, ZeroFox or IDX, if the Closing has not occurred by August 23, 2022 (the “Termination
Date”);
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by L&F, ZeroFox or IDX, if the Condition Precedent Proposals are not approved by the requisite vote of the L&F
Shareholders at the Shareholder Meeting or at any adjournment or postponement thereof;
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by L&F or IDX, subject to certain exceptions, if any of the representations or warranties made by ZeroFox are not true and
correct or if ZeroFox fails to perform any of its respective covenants or agreements under the Business Combination Agreement (including an obligation to consummate the Closing) such that certain conditions to the obligations of L&F
or IDX, as applicable, as described in the section titled “—Conditions to the Closing of the Business Combination” above, would not be satisfied and the breach (or breaches) of such
representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (a) 30 days after receipt of written notice thereof and (b) the fifth business
day prior to the Termination Date;
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by ZeroFox or IDX, subject to certain exceptions, if any of the representations or warranties made by any L&F Party are not
true and correct or if any L&F Party fails to perform any of its respective covenants or agreements under the Business Combination Agreement (including an obligation to consummate the Closing) such that certain conditions to the
obligations of ZeroFox or IDX, as applicable, as described in the section titled “— Conditions to the Closing of the Business Combination” above, would not be satisfied and the breach (or
breaches) of such representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (a) 30 days after receipt of written notice thereof and (b)
the fifth business day prior to the Termination Date; and
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by L&F or ZeroFox, subject to certain exceptions, if any of the representations or warranties made by IDX are not true and
correct or if IDX fails to perform any of its respective covenants or agreements under the Business Combination Agreement (including an obligation to consummate the Closing) such that certain conditions to the obligations of L&F or
ZeroFox, as applicable, as described in the section titled “— Conditions to the Closing of the Business Combination” above, would not be satisfied and the breach (or breaches) of such
representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (a) 30 days after receipt of written notice thereof and (b) the fifth business
day prior to the Termination Date.
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If the Business Combination Agreement terminates, the Business
Combination Agreement will become void and have no effect, without any liability on the part of any party or its respective affiliates, officers, directors, employees or shareholders, other than liability of any party for any fraud or any
willful and knowing material breach of the Business Combination Agreement by such party occurring prior to such termination. The provisions in the Business Combination Agreement limiting claims against the Trust Account and relating to
confidentiality and publicity, and certain other provisions which are required to survive in order to give appropriate effect to such provisions, and the confidentiality agreements among the parties, will in each case survive any termination of
the Business Combination Agreement.
Fees and Expenses
Each of L&F, the Target Companies and its and their subsidiaries
is responsible for its own expenses incurred in connection with the Business Combination Agreement and the Business Combination whether or not such transactions will be consummated, including all fees of its legal counsel, financial advisers
and accountants; provided, that if the Closing occurs, L&F will bear and pay at or promptly after Closing all L&F transaction expenses, all ZeroFox transaction expenses and all IDX transaction expenses.
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L&F will pay all filing fees in connection with the HSR Act,
and will pay any and all similar filing fees regarding regulatory or governmental authority approval in connection with the Domestication and the Business Combination, including, but not limited to filing of the registration statement, of which
this proxy statement/prospectus is a part.
Covenants of the Parties
Joint Covenants
Each of L&F, the Target Companies and its and their subsidiaries
made certain joint covenants in the Business Combination Agreement including, among others:
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using reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably
necessary or advisable to consummate and make effective as promptly as reasonably practicable the Domestication and the Business Combination (including (i) the satisfaction of the conditions described above under the heading “– Conditions to the Closing of the Business Combination” and (ii) using reasonable best efforts to consummate the Common Equity PIPE Financing and the
Convertible Notes Financing);
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using reasonable best efforts to obtain, file with or deliver to, as applicable, any consents of any governmental authorities or
other persons necessary to consummate the Domestication, Business Combination, and other transactions contemplated by the Business Combination Agreement, including making all required filings pursuant to the HSR Act with respect to the
Business Combination;
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to cooperate with each other to prepare and make certain SEC filings, including this proxy statement/prospectus and the related
registration statement, and causing the same to be declared effective under the Securities Act as promptly as practicable after such filing and to keep the same effective as long as is necessary to consummate the Business Combination
and otherwise ensure that the information contained therein contains no untrue statement of material fact or material omission;
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with respect to L&F, to take all action necessary to duly convene the Shareholder Meeting as promptly as reasonably
practicable after the registration statement of which this proxy statement/prospectus forms a part is declared effective for the purpose of voting upon the approval of the proposals described in this proxy statement/prospectus, and
providing L&F shareholders with an opportunity to elect to redeem pursuant to the Redemption, and using its reasonable best efforts to solicit from L&F shareholders proxies in favor of the Acquiror Shareholder Matters (as
defined in the Business Combination Agreement) and to include in this proxy statement/prospectus the recommendation of the L&F Board to the L&F Shareholders to vote in favor of such proposals;
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with respect to the Target Companies, to not take, or permit any of its affiliates or representatives to take, directly or
indirectly, any action to solicit, engage in discussions with, enter into any agreement with, or encourage or provide information to, any person that is not a party or a party’s affiliates or representatives concerning any merger or
similar business combination or sale of substantially all assets or any other transaction that would in the case of the Target Companies, prohibit or delay the Business Combination, other than the Business Combination, or take any
action in connection with a public offering of equity securities, and cease any and all discussions or negotiations with any person conducted prior to the date of the Business Combination Agreement with respect to the foregoing;
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with respect to L&F, to not take, or permit any of its affiliates or representatives to take, directly or indirectly, any
action to solicit, engage in discussions with, enter into any agreement with, or encourage or provide information to, any person that is not a party or a party’s affiliates or representatives concerning any offer, inquiry, proposal,
indication of interest, written or oral relating to any other business combination involving L&F, and cease any and all discussions or negotiations with any person conducted prior to the date of the Business Combination Agreement
with respect to the foregoing;
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to cooperate on certain tax matters, including the intended tax treatment, transfer taxes, and the termination of any
tax-sharing agreements or similar agreements involving the Target Companies and any of their subsidiaries as of the Closing;
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to maintain certain standards of confidentiality with respect to information provided in connection with the Business
Combination Agreement, and to prohibit, prior to the Closing, the issuance of any press releases or the making of any public announcement without the other parties’ prior written consent,
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except that each party may make any such announcement or other communication (i) if
such announcement or other communication is required by applicable law or the rules of any stock exchange, in which case the disclosing party will, to the extent permitted by applicable law, first allow (A) ZeroFox, if the disclosing Party is
L&F or IDX, (B) IDX, if the disclosing Party is L&F or ZeroFox, or (C) L&F, if the disclosing Party is ZeroFox or IDX (prior to the Closing), to review such announcement or communication and have the opportunity to comment thereon
and the disclosing party will consider such comments in good faith, (ii) to the extent such announcements or other communications contain only information previously disclosed in a public statement, press release or other communication
previously approved in accordance with the Business Combination Agreement, and (iii) to governmental authorities in connection with any consents required to be obtained under the Business Combination Agreement or in connection with the Business
Combination, and to coordinate release of an initial joint press release and L&F’s Current Report on Form 8-K, filed on December 20, 2021;
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to take certain post-Closing actions as necessary to give effect to the Business Combination;
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with respect to L&F, to take all actions necessary until the Closing to maintain qualification as an “emerging growth
company” within the meaning of the Jumpstart Our Business Startups Act of 2012; and
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at Closing, each of the Target Companies and L&F will deliver to the other parties a copy of the Registration Rights
Agreement duly executed by those identified persons in the Business Combination Agreement and the disclosure schedules to the Business Combination Agreement.
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L&F Covenants
L&F made certain other covenants in the Business Combination
Agreement, including:
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to indemnify each present and former director, manager and officer of L&F, each Target Company and each of their respective
subsidiaries against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any action, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at or prior to the Closing;
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during the period from the date of the Business Combination Agreement until the earlier of the Closing or the termination of the
Business Combination Agreement (the “Interim Period”), unless consented to by the Target Companies (such consent not to be unreasonably withheld) or required by applicable law, subject to certain
exceptions, to use its commercially reasonable efforts to conduct and operate its business in the ordinary course of business in all material respects, and to not take the following actions (and cause its subsidiaries not to take such
actions):
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change, modify or amend the Trust Agreement (as defined in the Business Combination Agreement) or
the organizational documents of L&F or any of its subsidiaries;
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(A) declare, set aside or pay any dividends on, or make any other distribution in respect of any
outstanding equity securities of L&F or any of its subsidiaries, (B) split, combine or reclassify any equity securities of L&F or any of its subsidiaries or (C) other than in connection with the Redemption or as otherwise
required by L&F’s organizational documents in order to consummate the Business Combination, repurchase, redeem or otherwise acquire, or offer to repurchase, redeem or otherwise acquire, any equity securities of L&F or any of
its subsidiaries;
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make, change or revoke any tax election in a manner inconsistent with past practice, adopt, change
or revoke any accounting method with respect to taxes, file or amend any tax return in a manner inconsistent with past practice, prosecute, settle or compromise any tax liability or any action, audit or other similar proceeding
related to any amount of taxes, enter into any closing agreement with respect to any tax, surrender any right to claim a refund of taxes, consent to any extension or waiver of the limitations period applicable to any tax claim or
assessment, or enter into any tax allocation, tax sharing, tax indemnification or similar agreement or arrangement (other than any customary commercial agreement entered into in the ordinary course of business and not primarily
relating to taxes), in each case with respect to each foregoing item, if such action could reasonably be expected to have an adverse impact (other than a de minimis adverse impact) on L&F, ZeroFox and its subsidiaries or IDX and
its subsidiaries;
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enter into, renew or amend any transaction or contract with an affiliate of L&F (including,
for the avoidance of doubt, (A) the Sponsor and (B) any person in which the Sponsor has a direct or indirect legal, contractual or beneficial ownership interest of 5% or greater);
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settle any pending or threatened action, (A) if such settlement would require payment by L&F
or any of its subsidiaries in an amount greater than $250,000, (B) to the extent such settlement includes an agreement to accept or concede injunctive relief, or (C) to the extent such settlement involves a governmental authority or
alleged criminal wrongdoing;
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incur or assume any indebtedness or guarantee any indebtedness of another person, issue or sell
any debt securities or warrants or other rights to acquire any debt securities of another person, other than any indebtedness (A) for certain Sponsor working capital loans or (B) incurred between L&F and its wholly-owned
subsidiaries;
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(A) offer, issue, deliver, grant or sell, or authorize or propose to offer, issue, deliver, grant
or sell, any equity securities other than (i) the issuance of Class A Ordinary Shares in connection with the exercise of any L&F Warrants outstanding on the date of the Business Combination Agreement, (ii) the issuance of New
ZeroFox Common Stock at not less than $10 per share in connection with the transactions contemplated by the Common Equity Subscription Agreements, (iii) the issuance of convertible notes at a conversion price of not less than $11.50
per share in connection with the transactions contemplated by the Convertible Notes Subscription Agreements or (iv) the issuance of New ZeroFox Common Stock in connection with the conversion of the Class B Ordinary Shares as a result
of the Domestication, or (B) amend, modify or waive any of the terms or rights set forth in, any L&F Warrants or the applicable warrant agreement, including any amendment, modification or reduction of the warrant price set forth
therein;
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directly or indirectly acquire by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by purchasing all of or a substantial equity interest in, or by any other manner, any business or any corporation, partnership, limited liability company, joint venture, association or other entity or
person or division thereof;
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make any loans, advances or capital contributions to, or investments in, any other person
(including to any of its officers, directors, agents or consultants);
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adopt or enter into a plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of L&F or any of its subsidiaries (other than the Business Combination);
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enter into any new line of business outside of the business currently conducted by L&F and its
subsidiaries as of the date of the Business Combination Agreement;
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make any material change in accounting principles or methods of accounting, other than as may be
required by GAAP;
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permit any “foreign person,” as defined in Section 721 of the Defense Production Act, as amended,
including all implementing regulations thereof (the “DPA”), whether affiliated as a limited partner or otherwise, to obtain through L&F
any of the following rights with respect to L&F, ZeroFox or IDX as a result of that foreign person’s investment in L&F, ZeroFox, or IDX: (a) access to any “material nonpublic technical information” (as defined in Section 721
of the DPA) in the possession of the entity; (b) membership or observer rights on the board of directors or equivalent governing body of the entity or the right to nominate an individual to a position on the board of directors or
equivalent governing body of the entity; (c) any involvement, other than through the voting of shares, in the substantive decision making of the entity regarding (i) the use, development, acquisition, or release of any “critical
technology” (as defined in the DPA), (ii) the use, development, acquisition, safekeeping, or release of “sensitive personal data” (as defined in the DPA) of U.S. citizens maintained or collected by the entity, or (iii) the management,
operation, manufacture, or supply of “covered investment critical infrastructure” (as defined in the DPA); or (d) “control” of the entity (as defined in the DPA); or
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enter into any agreement, or otherwise become obligated, to do any action prohibited by the
foregoing sub-bullets;
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to use its commercially reasonable efforts to, and cause its subsidiaries to use their commercially reasonable efforts to,
comply with, and continue performing under, as applicable, material contracts to which L&F or its subsidiaries may be a party;
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to provide the Target Companies with reasonable access to L&F’s and its subsidiaries’ books and records and to furnish such
financial and operating information as the Target Companies may reasonably request solely for purposes of consummating the Business Combination, subject to customary exceptions, privileges and confidentiality requirements;
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to take all commercially reasonable steps to cause acquisitions or dispositions of the Class A Ordinary Shares, Class B Ordinary
Shares or New ZeroFox Common Stock that occurs or is deemed to occur by reason of or pursuant to the Business Combination by each individual who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act
with respect to L&F to be exempt under Rule 16b-3 promulgated under the Exchange Act, including adopting resolutions and taking other steps in accordance with the No-Action Letter, dated as of January 12, 1999, issued by the SEC
regarding such matters;
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subject to the L&F organizational documents, to take all necessary action to appoint the agreed-upon initial post-Closing
directors and officers of New ZeroFox;
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subject to the required shareholder approval, to adopt the Incentive Equity Plan and the ESPP;
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subject to the required shareholder approval, L&F will continue and domesticate to the State of Delaware and become a
Delaware corporation in accordance with applicable law by (i) filing a certificate of corporate domestication with respect to the domestication and a certificate of incorporation with the Secretary of State of the State of Delaware,
(ii) completing, making and procuring all those filings required to be made with the Cayman Islands Registrar of Companies in connection with the domestication and (iii) obtaining a certificate of de-registration from the Cayman Islands
Registrar of Companies described below in the section titled “Proposal No. 3 - The Domestication Proposal”;
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to not permit any amendment or modification to either the Common Equity Subscription Agreements or the Convertible Notes
Subscription Agreements, unless otherwise approved in writing by the Target Companies;
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to timely file all required SEC reports;
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to ensure that L&F remains listed as a public company on the NYSE or Nasdaq; to take such action as necessary to delist the
Class A Ordinary Shares, L&F Public Warrants and L&F Public Units from the NYSE in connection with the Closing and list the Class A Ordinary Shares and L&F Public Warrants on Nasdaq effective upon the delisting; and use
reasonable best efforts to cause the shares of New ZeroFox Common Stock to be issued or reserved for issuance in connection with the Business Combination to be approved for listing on Nasdaq, subject to official notice of issuance, on
or prior to the Closing Date; and
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to provide certain employee benefits to employees of the Target Companies post-Closing.
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Target Companies’ Covenants
Each of the Target Companies made certain other covenants in the
Business Combination Agreement, including:
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during the Interim Period, unless consented to by L&F (such consent not to be unreasonably withheld) or required by
applicable law, subject to certain exceptions to use (and cause each of its subsidiaries to use) its commercially reasonable efforts to conduct and operate its business in the ordinary course of business in all material respects,
maintain the existing relations and goodwill of such Target Company and its subsidiaries with customers, suppliers, distributors and creditors of such Target Company and its subsidiaries in all material respects, and to not take the
following actions (and cause its subsidiaries not to take such actions):
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to change or amend its certificate of formation, limited liability company agreement, certificate
of incorporation, bylaws or other organizational documents;
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to make, declare, set aside, establish a record date for or pay any dividend or distribution,
other than any dividends or distributions from any wholly owned subsidiary of such Target Company either to such Target Company or any other wholly-owned subsidiaries of such Target Company;
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except in the ordinary course of business, enter into, materially and adversely modify, materially
and adversely amend, waive any material right under, terminate or fail to renew, any material contract of such Target Company and any of its subsidiaries or any lease to which such Target Company or its subsidiaries is a party or by
which it is bound;
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to (i) issue, deliver, sell, transfer, pledge or dispose of, or place any lien, other than certain
permitted liens on, any equity securities of such Target Company or any of its subsidiaries (other than equity securities issued upon exercise of a Target Company option or warrant or conversion of Target Company preferred stock or
conversion of any outstanding convertible debt) or (ii) issue or grant any options, warrants or other rights to purchase or obtain any equity securities of such Target Company or its subsidiaries (except in the ordinary course
consistent with any applicable Target Company benefit plan);
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to sell, assign, transfer, convey, lease, exclusively license, abandon, allow to lapse or expire,
subject to or grant any lien, other than certain permitted liens on, or otherwise dispose of, any material assets, rights or properties of such Target Company and its subsidiaries, other than (i) the expiration of owned intellectual
property in accordance with the applicable statutory term or abandonment of owned intellectual property registrations or applications in the ordinary course of business and in such Target Company’s exercise of its good faith business
judgment, (ii) non-exclusive licenses of owned intellectual property granted to customers, channel partners or technology partners in the ordinary course consistent with past practices, (iii) the sale or provision of goods or services
to customers in the ordinary course of business, or the sale, permission to lapse, abandonment, or other disposition of tangible assets or equipment deemed by such Target Company in its reasonable business judgment to be obsolete or
not worth the costs of maintaining or registering the item, or (iv) transactions among such Target Company and its wholly-owned subsidiaries or among its wholly-owned subsidiaries;
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to disclose to any person any trade secrets or any source code constituting owned intellectual
property (in each case, other than to L&F and its representatives or pursuant to a written confidentiality agreement entered into in the ordinary course of business, or in connection with the Business Combination);
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to (i) cancel or compromise any claim or indebtedness owed to such Target Company or any of its
subsidiaries, (ii) settle any pending or threatened action, subject to certain exceptions or (iii) agree to modify in any respect materially adverse to such Target Company and its subsidiaries any confidentiality or similar contract
to which such Target Company or any of its subsidiaries are a party;
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to (i) make any grant or promise of any severance, retention or termination payment or arrangement
to certain designated executive officer or (ii) except in the ordinary course of business consistent with past practice or as required by the terms of any existing specified Target Company benefit plans as in effect on the date of the
Business Combination Agreement, (A) materially increase the compensation or benefits of any current or former Specified Employee (as defined in the Business Combination Agreement), (B) make any change in the key management structure
of such Target Company or any of its subsidiaries, including the hiring of any individuals who would be, upon such action, Specified Employees, or the termination (other than for “cause” or due to death or disability) of Specified
Employees, (C) take any action to accelerate any payments or benefits, or the vesting or funding of any payments or benefits, payable or that may become payable to any current or former Company Party Service Provider (as defined in
the Business Combination Agreement), or (D) establish, adopt, enter into, amend or terminate in any material respect any material Target Company benefit plan or any plan, agreement, program, policy, trust, fund, contract or other
arrangement that would be a Target Company benefit plan if it were in existence as of the date of the Business Combination Agreement (other than an employment offer letter that does not contain severance and/or a transaction or
retention payment);
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to implement or announce any employee layoffs, furloughs, reductions in force, or similar actions
that could implicate the Worker Adjustment and Retraining Notification Act of 1988, as amended, or any similar laws;
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to (i) negotiate, modify, extend, or enter into any collective bargaining agreement or
(ii) recognize or certify any labor union, labor organization, works council, or group of employees as the bargaining representative for any employee of such Target Company or any of its subsidiaries;
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to waive or release any noncompetition, nonsolicitation, nondisclosure, noninterference,
nondisparagement, or other restrictive covenant obligation of any individual who is a Company Party Service Provider;
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to hire, engage, terminate (without cause), furlough, or temporarily layoff any employee or
independent contractor with annual compensation in excess of $250,000;
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to directly or indirectly acquire any business, partnership, limited liability company, joint
venture, association or any corporation or other entity or person or division or substantial portion of the assets or a substantial equity interest thereof, in each case, that would be material to such Target Company and its
subsidiaries, taken as a whole, and other than in the ordinary course of business;
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to make any loans or advance any money or other property to any person, except for (A) advances in
the ordinary course of business to employees, officers or independent contractors of such Target Company or any of its subsidiaries for expenses not to exceed $100,000 individually or $500,000 in the aggregate, (B) prepayments and
deposits paid to suppliers of such Target Company Party or any of its subsidiaries in the ordinary course of business, (C) trade credit extended to customers of such Target Company or any of its subsidiaries in the ordinary course of
business, and (D) loans, advances or contributions among such Target Company and its wholly-owned subsidiaries or among the wholly-owned subsidiaries of such Target Company;
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○
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to redeem, purchase, repurchase or otherwise acquire, or offer to redeem, purchase, repurchase or
acquire, any equity securities of such Target Company or any of its subsidiaries, except for (i) the acquisition by such Target Company or any of its subsidiaries of any equity securities of such Target Company or its subsidiaries in
connection with the forfeiture or cancellation of such interests and (ii) transactions between such Target Company and a wholly-owned subsidiary of such Target Company or between wholly-owned subsidiaries of such Target Company;
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to adjust, split, combine, subdivide, recapitalize, reclassify or otherwise effect any change in
respect of any equity securities of such Target Company or any of its subsidiaries, except for any such transaction by a wholly-owned subsidiary of such Target Company that remains a wholly-owned subsidiary of such Target Company
after consummation of such transaction;
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○
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to make any material change in accounting principles or methods of accounting, other than as may
be required by GAAP or in Regulation S-X under the Exchange Act or in connection with the Business Combination, as agreed to by its independent public accountants;
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○
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to adopt or enter into a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of such Target Company or any of its subsidiaries (other than the Business Combination);
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○
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to make, change or revoke any tax election in a manner inconsistent with past practice, adopt,
change or revoke any accounting method with respect to taxes, file or amend any tax return in a manner inconsistent with past practice, prosecute, settle or compromise any tax liability or any action, audit or other similar proceeding
related to taxes, except as required by law, enter into any closing agreement with respect to any tax, surrender any right to claim a refund of taxes, consent to any extension or waiver of the limitations period applicable to any tax
claim or assessment, or enter into any tax allocation, tax sharing, tax indemnification or similar agreement or arrangement (other than any customary commercial agreement entered into in the ordinary course of business and not
primarily relating to taxes), in each case, to the extent such action would have a material and adverse impact on L&F or ZeroFox and its subsidiaries or IDX and its subsidiaries;
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○
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to (i) incur, create or assume any indebtedness, (ii) modify the terms of any indebtedness, or
(iii) assume, guarantee or endorse, or otherwise become responsible for, the obligations of any person for indebtedness, in each case, other than any (w) indebtedness in replacement of existing
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indebtedness for borrowed money on terms substantially consistent with or more
favorable to such Target Company or its applicable subsidiary than the indebtedness being replaced, (x) indebtedness incurred in the ordinary course of business, the proceeds of which are used solely with respect to operational aspects of such
Target Company or its applicable subsidiary and in an aggregate amount not to exceed $10,000,000, (y) indebtedness incurred between such Target Company and any of its wholly-owned subsidiaries or between any of such wholly-owned subsidiaries,
or (z) guarantees of indebtedness of a wholly-owned subsidiary of such Target Company otherwise incurred in compliance with the Business Combination Agreement;
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○
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to fail to maintain in full force and effect material insurance policies covering such Target
Company and its subsidiaries and their respective properties, assets and businesses in a form and amount consistent with past practices in a manner materially detrimental to such Target Company and its subsidiaries;
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○
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to enter into any contract or amend in any material respect any existing contract with any of such
Target Company’s shareholders, any person that is an affiliate of any such Target Company shareholder, or an affiliate of such Target Company or its subsidiaries (excluding any ordinary course payments of annual compensation,
provision of benefits or reimbursement of expenses in respect of members or shareholders who are officers or directors of such Target Company or its subsidiaries in their capacity as an officer or director);
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to amend, modify, extend, renew or terminate any material lease or enter into any new lease,
sublease, license or other agreement for the use or occupancy of any real property;
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○
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to permit any “foreign person,” as defined in Section 721 of the DPA, whether affiliated as a
limited partner or otherwise, to obtain through that Target Company any of the following rights with respect to ZeroFox or IDX as a result of that foreign person’s investment in ZeroFox or IDX: (i) access to any “material nonpublic
technical information” (as defined in the DPA) in the possession of the entity; (ii) membership or observer rights on the board of directors or equivalent governing body of the entity or the right to nominate an individual to a
position on the board of directors or equivalent governing body of the entity; (iii) any involvement, other than through the voting of shares, in the substantive decision making of the entity regarding (x) the use, development,
acquisition, or release of any “critical technology” (as defined in the DPA), (y) the use, development, acquisition, safekeeping, or release of “sensitive personal data” (as defined in the DPA) of U.S. citizens maintained or collected
by the entity, or (z) the management, operation, manufacture, or supply of “covered investment critical infrastructure” (as defined in the DPA); or (iv) “control” of the entity (as defined in the DPA); or
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to enter into any contract, or otherwise become obligated, to do any of the foregoing.
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Additional covenants that each of the Target Companies made
include:
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•
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to provide L&F (and the other Target Company) with reasonable access to such Target Company’s books and records and to
furnish such financial and operating information as L&F may reasonably request, subject to customary exceptions and confidentiality requirements;
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•
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to release certain claims it and its affiliates may have against the trust account (see the section titled “Trust Account
Waiver” below);
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•
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to provide L&F with required documentation for this proxy statement/prospectus, and providing L&F with prompt written
notice of any developments that become known by such Target Company that would cause the proxy statement/prospectus to contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the
statements, in light of the circumstances under which they were made, not misleading;
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•
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to refrain from purchasing or selling any securities of L&F while in possession of material nonpublic information; and
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•
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with regard to IDX and its subsidiaries, (i) to use commercially reasonable efforts to ensure that the General Services
Administration will allow IDX to renew or extend its GS-23F-0037T GSA Schedule in 2022, (ii) to terminate the employment of Mr. Kelly and Mr. Uppal in accordance with the Business Combination Agreement, and (iii) to comply with certain
Section 280G requirements in accordance with the Business Combination Agreement.
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Trust Account Waiver
Each of the Target Companies has agreed that it does not and will not
at any time have any right, title, interest or claim of any kind in or to any assets in the Trust Account (or distributions therefrom), and has waived any claims it, and its equity holders and affiliates, had or may have at any time against or
with respect to the Trust Account (or distributions therefrom) as a result of, or arising out of, any discussions, contracts or agreements among L&F and the Target Companies and agreed not to seek recourse against the Trust Account (or
distributions therefrom) for any reason whatsoever.
Representations and Warranties
The Business Combination Agreement contains customary representations
and warranties by the parties thereto.
In the Business Combination Agreement, L&F makes customary
representations and warranties regarding itself, L&F Holdings, ZF Merger Sub, IDX Merger Sub and IDX Forward Merger Sub, including in relation to: corporate organization, due authorization, non-contravention, litigation, governmental
authorities and required consents, trust account matters, brokers’ fees, L&F’s SEC filings and financial statements and liabilities relating thereto, prior business activities, taxes, capitalization, L&F’s listing on the NYSE or Nasdaq,
the Common Equity PIPE Financing and the Convertible Notes Financing, related party transactions, this proxy statement/prospectus, the absence of certain material adverse changes, employee matters, the Investment Company Act, foreign person
status, compliance with laws and the Sponsor Support Letter Agreement.
In the Business Combination Agreement, each of the Target Companies
makes representations and warranties regarding itself and its subsidiaries, including in relation to: corporate organization, due authorization, non-contravention, governmental authorities and required consents, current capitalization,
financial statements, undisclosed liabilities, litigation, compliance with laws, material contracts and contractual defaults, benefit plans, labor matters, taxes, insurance, compliance with permits, title to tangible assets and equipment, real
property, intellectual property and information security, environmental matters, the absence of certain material adverse changes, brokers’ fees, related party transactions, this proxy statement/prospectus, international trade and
anti-corruption matters, government contracts, and in the case of IDX only, its good standing with the U.S. General Services Administration.
Company Material Adverse Effect
Under the Business Combination Agreement, certain representations and
warranties of the Target Companies are qualified in whole or in part by a material adverse effect standard for purposes of determining whether a breach of such representations and warranties has occurred and for purposes of determining whether
certain conditions to Closing have been satisfied.
Pursuant to the Business Combination Agreement, a material adverse
effect with respect to either ZeroFox or IDX and its respective subsidiaries means any change, event, circumstance, occurrence, effect, development or state of facts that, individually or in the aggregate, either (a) has a material adverse
effect on the business, assets, operations, results of operations or financial condition of such Target Company and its subsidiaries, taken as a whole or (b) prevents or materially delays or materially impacts the ability of such Target Company
to consummate all or any of the transactions contemplated by the Business Combination Agreement or would reasonably be expected to have any such effect (“Company Material Adverse Effect”).
However, in no event would any of the following, alone or in
combination, be deemed to constitute, or be taken into account in determining whether there has been or will be, a Company Material Adverse Effect:
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(a)
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any changes or proposed changes in applicable law, regulations or interpretations thereof or decisions by any governmental
authority after the date of the Business Combination Agreement, including COVID-19 measures;
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(b)
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any changes or proposed changes in GAAP (or any official interpretation thereof) after the date of the Business Combination
Agreement;
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(c)
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any downturn in general economic conditions, including changes in the credit, debt, securities, financial, capital or
reinsurance markets (including changes in interest or exchange rates, prices of any security or market index or commodity or any disruption of such markets), in each case, in the United States or anywhere else in the world;
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(d)
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any earthquake, hurricane, tornado, pandemic or other natural or man-made disaster;
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(e)
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the taking of any action required by the Business Combination Agreement;
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(f)
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any acts of terrorism (including cyberterrorism) or war, the outbreak or escalation of hostilities, geopolitical conditions,
local, national or international political conditions;
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(g)
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any failure of such Target Company to meet any projections or forecasts;
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(h)
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any changes, events, circumstances, occurrences, effects or developments generally applicable to the industries or markets in
which such Target Company and its subsidiaries operate (including increases in the cost of products, supplies, materials or other goods purchased from third party suppliers);
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(i)
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the announcement of the Business Combination Agreement or consummation of the transactions contemplated thereby, including any
termination of, reduction in or similar adverse impact (but in each case only to the extent attributable to such announcement or consummation) on relationships, contractual or otherwise, with any landlords, customers, suppliers,
distributors, partners or employees of such Target Company and its subsidiaries; or
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(j)
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any action taken by, or at the request of, L&F;
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provided, that in the case of clauses (a), (b), (d), (f) and (h)
such changes may be taken into account to the extent (but only to the extent) that such changes have had a disproportionate impact on the Target Company and its subsidiaries, taken as a whole, as compared to other industry participants in the
industries or markets in which the Target Company and its subsidiaries operates.
No Survival of Representations and Warranties of
Pre-Closing Covenants; Amendments
L&F and the Target Companies may, to the extent legally allowed
and except as otherwise set forth in the Business Combination Agreement, extend the time for performance of any of the obligations or acts of another party, waive any inaccuracies in the representations and warranties of the another party, and
subject to the requirements of applicable law, waive compliance by the another party with any of the agreements or conditions contained in the Business Combination Agreement applicable to such party. Any agreement on the part of L&F or the
Target Companies to any such extension of waiver will be valid only if set forth in an instrument in writing signed by such party, and any delay in exercising any right pursuant to the Business Combination Agreement will not constitute a waiver
of such right.
The Business Combination Agreement may be amended or modified in
whole or in part, only by a duly authorized agreement in writing that is executed by each of the parties in the same manner as the Business Combination Agreement and which makes reference to the Business Combination Agreement; provided,
however, that no amendment will be made that pursuant to applicable law requires further approval or adoption by the shareholders of L&F or the shareholders of ZeroFox or IDX, as applicable, without such further approval or adoption.
None of the representations, warranties, covenants, obligations or
other agreements in the Business Combination Agreement or in any certificate, statement or instrument delivered pursuant to the Business Combination Agreement, including any rights arising out of any breach of such representations, warranties,
covenants, obligations, agreements and other provisions, will survive the Closing and will terminate and expire upon the occurrence of the Effective Time (and there will be no liability after the Closing in respect thereof), except for (a)
those covenants and agreements that by their terms apply in whole or in part at or after the Closing and then only with respect to any breaches occurring at or after the Closing and (b) Article XI of the Business Combination Agreement.
Ownership of New ZeroFox Immediately Following the Business
Combination
As of the date of this proxy statement/prospectus (and after giving
effect to the Extension Amendment Redemptions), there are (i) 3,425,689 Class A Ordinary Shares issued and outstanding and (ii) 4,312,500 Class B Ordinary Shares issued and outstanding. In addition, as of the date of this proxy
statement/prospectus, there are outstanding 5,450,000 L&F Private Placement Warrants held by the Sponsor, 2,138,430 L&F Private Placement Warrants held by Jefferies and 8,625,000 L&F Public Warrants. Each whole warrant entitles the
holder thereof to purchase one Class A Ordinary Share and, following the Domestication, will entitle the holder thereof to
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purchase one share of New ZeroFox Common Stock. Therefore, as of the date of this
proxy statement/prospectus (without giving effect to the Business Combination and assuming that none of the Class A Ordinary Shares are redeemed in connection with the Business Combination), L&F’s fully-diluted share capital (after giving
effect to the exercise of all of the L&F Private Placement Warrants and all of the L&F Public Warrants) would be 23,951,619 L&F Ordinary Shares.
The following table illustrates varying ownership levels in New
ZeroFox Common Stock immediately following the consummation of the Business Combination based on the varying levels of redemptions by the Public Shareholders and the following additional assumptions: (i) 83,222,734 shares of New ZeroFox Common
Stock are issued to the ZeroFox shareholders at Closing in both a no redemption scenario and a maximum redemption scenario; (ii) 27,905,045 shares of New ZeroFox Common Stock are issued to the IDX shareholders at Closing in both a no redemption
scenario and a maximum redemption scenario; (iii) all outstanding ZeroFox warrants and IDX warrants will be exercised on a cash basis immediately prior to the Closing; (iv) 2,000,000 shares of New ZeroFox Common Stock are issued in the Common
Equity PIPE Financing; (v) no New ZeroFox Public Warrants and New ZeroFox Private Placement Warrants issued in connection with the Business Combination to purchase New ZeroFox Common Stock that will be outstanding immediately following Closing
have been exercised; (vi) no Notes issued in the Convertible Notes Financing have been converted; and (vii) all outstanding vested and unvested ZeroFox options and IDX options are converted into New ZeroFox Options exercisable for shares of New
ZeroFox Common Stock.
Based on these assumptions, and assuming that no outstanding Class A
Ordinary Shares are redeemed in connection with the Business Combination, there would be approximately 120,865,968 shares of New ZeroFox Common Stock outstanding immediately following the consummation of the Business Combination. If the actual
facts are different than these assumptions, the ownership percentages in New ZeroFox will be different.
For example, there are currently outstanding an aggregate of
16,213,430 L&F Warrants to acquire our Class A Ordinary Shares, which are comprised of 7,588,430 L&F Private Placement Warrants and 8,625,000 L&F Public Warrants sold as part of the L&F Public Units sold in the L&F IPO. Each
outstanding L&F Warrant would be exercisable as a New ZeroFox Warrant commencing 30 days following the Closing for one share of New ZeroFox Common Stock. If we assume that each outstanding warrant is exercised and one share of New ZeroFox
Common Stock is issued as a result of such exercise, with payment to New ZeroFox of the exercise price of $11.50 per warrant for one share, our fully-diluted share capital would increase by a total of 16,213,430 shares, with $186,454,445 paid
to New ZeroFox to exercise the warrants. In addition, an aggregate principal amount of $150,000,000 of Notes will be issued in the Convertible Notes Financing. The Notes may be converted at a conversion price of $11.50 per share of New ZeroFox
Common Stock. If we assume that the Notes (excluding any paid-in-kind interest) are converted in full and settled fully in shares, our fully-diluted share capital would increase by a total of 13,043,475 shares.
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Share Ownership in New ZeroFox
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No Redemptions(1)
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Maximum
Redemptions(2)
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Percentage of
Outstanding Shares
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Percentage of
Outstanding Shares
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L&F Public Shareholders(3)
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2.8%
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—
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L&F Initial Shareholders(4)
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3.6%
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3.7%
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Common Equity PIPE Investors(5)
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1.7%
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1.7%
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ZeroFox Shareholders(6)
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68.9%
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70.9%
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IDX Shareholders(7)
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23.1%
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23.8%
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(1)
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Amounts do not sum due to rounding.
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(2)
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Assumes that all 3,425,689 Class A Ordinary Shares outstanding are redeemed for an aggregate payment of approximately $34,786,000
(based on the estimated per share redemption price of approximately $10.15 per share) from the Trust Account. As the proceeds (without taking into account offering expenses) from the Common Equity PIPE Financing and the Convertible
Notes Financing are expected to satisfy the Available Closing Acquiror Cash Condition, the maximum redemption scenario reflects the redemption of 100% of the Class A Ordinary Shares held by the Public Shareholders; amounts do not sum
due to rounding.
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(3)
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Represents shares of New ZeroFox Common Stock to be issued upon conversion of 3,425,689 Class A Ordinary Shares issued in
connection with the L&F IPO.
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(4)
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Represents shares of New ZeroFox Common Stock to be issued upon conversion of 4,312,500 Class B Ordinary Shares acquired by the
L&F Initial Shareholders prior to or in connection with the L&F IPO (including 20,000 shares held by Albert Goldstein, 50,000 shares
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held by Joseph Lieberman and 39,733 shares currently held by Kurt Summers).
Includes 1,293,750 shares of New ZeroFox Common Stock held by the L&F Initial Shareholders under both scenarios that are subject to forfeiture if certain earnout conditions are not satisfied, as the shares are issued and outstanding as of
the closing date of the Business Combination.
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(5)
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Consists of 2,000,000 shares of New ZeroFox Common Stock to be issued in the Common Equity PIPE Financing.
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(6)
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Includes 1,694,533 shares of New ZeroFox Common Stock to be issued in exchange for shares of ZeroFox Common Stock assumed to be
issued upon the cash exercise of ZeroFox warrants prior to the Closing.
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(7)
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Includes 185,305 shares of New ZeroFox Common Stock to be issued in exchange for shares of IDX Capital Stock assumed to be issued
upon the cash exercise of IDX warrants prior to the Closing.
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The numbers of shares and percentage interests set forth above have
been presented for illustrative purposes only and do not necessarily reflect what New ZeroFox’s share ownership will be after the Closing. For more information about the consideration to be received in the Business Combination, these scenarios
and the underlying assumptions, see “Unaudited Pro Forma Condensed Combined Financial Information” and “Proposal No. 2—The Business Combination Proposal—The Business
Combination Agreement—Consideration to be Received in the Business Combination.”
Related Agreements
This section describes certain additional agreements entered into or
to be entered into pursuant to the Business Combination Agreement, but does not purport to describe all of the terms thereof. The following summaries are qualified in their entirety by reference to the complete text of each of the agreements.
The full text of such related agreements, or forms thereof, are filed as annexes to this proxy statement/prospectus or as exhibits to the registration statement of which this proxy statement/prospectus forms a part, and the following
descriptions are qualified in their entirety by the full text of such annexes and exhibits. Shareholders and other interested parties are urged to read such related agreements in their entirety prior to voting on the proposals presented at the
Shareholder Meeting.
The Sponsor Support Letter Agreement
Concurrently with the execution of the Business Combination
Agreement, (i) L&F, (ii) the Sponsor, Albert Goldstein and Joseph Lieberman, (iii) ZeroFox, (iv) IDX, and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the limited purposes set forth therein) entered into an
Amended and Restated Sponsor Support Letter Agreement. On January 31, 2022, (i) L&F, (ii) the Sponsor Holders, (iii) ZeroFox, (iv) IDX and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the limited purposes
set forth therein), entered into a Second Amended and Restated Sponsor Support Letter Agreement (the “Sponsor Support Letter Agreement”). Pursuant to the Sponsor Support Letter Agreement, the Sponsor
Holders have agreed to subject an aggregate of 1,293,750 shares of New ZeroFox Common Stock held by such Sponsor Holders to an earnout, whereby such shares will be forfeited unless the following volume-weighted average share price thresholds
are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the Closing: one-third vesting if the volume-weighted average share price equals or
exceeds $12.50; one-third vesting if the volume-weighted average share price equals or exceeds $15.00; and one-third vesting if the volume-weighted average share price equals or exceeds $17.50.
In addition, the Sponsor Holders have agreed to (i) vote in favor of
the Business Combination Agreement and the transactions contemplated thereby (including the Mergers), (ii) waive the anti-dilution or similar protection with respect to the Founder Shares (whether resulting from the transactions contemplated by
the Common Equity PIPE Financing, the Convertible Notes Financing, the Domestication, the Mergers or otherwise), (iii) be bound by certain other covenants and agreements related to the Business Combination, and (iv) not transfer (subject to
customary exceptions) any Founder Shares until the earlier of (a) one year after the Closing, (b) the share price equaling or exceeding $12.00 on a volume-weighted average price basis for any 20 trading days within any 30 trading day period
commencing at least 150 days after the Closing, and (c) the completion of a transaction that results in all shareholders having the right to exchange shares for cash, securities or other property.
Common Equity PIPE Financing
Concurrently with the execution of the Business Combination
Agreement, L&F entered into the Common Equity Subscription Agreements with the Common Equity PIPE Investors. Pursuant to the Common Equity
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Subscription Agreements, the Common Equity PIPE Investors agreed to subscribe for and
purchase, and L&F agreed to issue and sell to such investors, on the Closing Date, an aggregate of 2,000,000 shares of New ZeroFox Common Stock in exchange for an aggregate purchase price of $20,000,000.
In addition, on December 16, 2021, the ZeroFox Investors purchased
the ZeroFox PIK Promissory Notes for an aggregate purchase price of $5,000,000. Such ZeroFox PIK Promissory Notes accrue interest that will be paid-in-kind at a rate of 5.0% per annum. If the Closing occurs, the repayment of the original
principal amount of the ZeroFox PIK Promissory Notes may be offset against amounts owed by the ZeroFox Investors under their Common Equity Subscription Agreements.
In addition, if the Closing occurs, any portion of closing cash
consideration to which the IDX Investors are entitled in connection with the consummation of the Business Combination may be reduced to fund the subscription amount the IDX Investors would otherwise be required to pay pursuant to the Common
Equity Subscription Agreements.
The closing of the Common Equity PIPE Financing is contingent upon,
among other things, the substantially concurrent consummation of the Business Combination. The Common Equity Subscription Agreements provide that L&F will grant the investors in the Common Equity PIPE Financing certain customary
registration rights.
Convertible Notes Financing
In connection with signing the Business Combination Agreement,
L&F entered into the Convertible Notes Subscription Agreements with the Convertible Notes Investors, in respect of $150,000,000 aggregate principal amount of the Notes to be issued in connection with the Closing. The principal terms of
the Notes are set forth in the form of indenture attached as an exhibit to the Convertible Notes Subscription Agreements, which Indenture will be entered into by L&F, the guarantors party thereto and the indenture trustee, and the form of
global note attached thereto. The Notes will bear interest at a rate of 7.00% per annum, payable quarterly in cash; provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum, and the Notes will be convertible at
the Conversion Price, and will mature on the date that is three years following the closing of the Convertible Notes Financing. New ZeroFox may, at its election, force conversion on or after the Conversion Trigger Date, subject to a holder’s
prior right to convert, if the volume-weighted average trading price of the New ZeroFox Common Stock (x) for the first year after the Conversion Trigger Date, is greater than or equal to 150% of the conversion price for more than 20 trading
days during a period of 30 consecutive trading days and (y) for the second year after the Conversion Trigger Date, is greater than or equal to 130% of the conversion price for more than 20 trading days during a period of 30 consecutive
trading days. Upon conversion of any Note, New ZeroFox shall have the option to settle the conversion in cash, shares of New ZeroFox Common Stock or a combination of both. Each holder of a Note will have the right to cause New ZeroFox to
repurchase for cash all or a portion of the Notes held by such holder at any time upon the occurrence of a Fundamental Change, at a price equal to par plus accrued and unpaid interest. In the event of a conversion in connection with a
make-whole Fundamental Change, the Conversion Price will be adjusted by a usual and customary make-whole Fundamental Change “make-whole table” provided in the Indenture. The Indenture includes restrictive covenants that, among other things,
will limit the ability of New ZeroFox to incur senior debt in excess of $50,000,000, subject to certain qualifications and exceptions set forth in the Indenture. The Indenture also will include customary events of default. The closing of the
Convertible Notes Financing is contingent upon, among other things, the substantially concurrent consummation of the Business Combination. L&F has agreed to execute a registration rights agreement for the benefit of the Convertible Notes
Investors, providing for customary demand, shelf and piggyback registration rights, substantially similar to the rights granted to the Common Equity PIPE Investors, and otherwise in form and substance acceptable to the Convertible Notes
Investors and L&F.
Registration Rights Agreement
At the Closing, New ZeroFox, the Sponsor Holders, Jefferies and
certain shareholders of ZeroFox and IDX will enter into the Registration Rights Agreement pursuant to which, among other things, New ZeroFox will grant to the other parties customary registration rights with respect to shares of New ZeroFox,
and former shareholders of ZeroFox and IDX will be subject to a 180-day lock-up period following execution of the Registration Rights Agreement during which period such shareholders may not transfer their shares (subject to customary
exceptions). The lock-up period described above will not apply to any shares acquired in the Common Equity PIPE Financing or shares issuable upon conversion of the Convertible Notes.
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Lock-Up
Shareholders of ZeroFox and IDX who are not party to the Registration
Rights Agreement who receive shares of New ZeroFox Common Stock in the Business Combination, including through the exercise of New ZeroFox Options, will be subject to a 180-day lock-up period during which such shareholders may not transfer
their shares (subject to customary exceptions).
Background of the Business Combination
The terms of the Business Combination Agreement and ancillary
agreements are the result of negotiations between L&F, ZeroFox and IDX, and each of their respective representatives. The following is a brief summary of the background of these negotiations and related transactions and does not purport to
catalogue every conversation between L&F, ZeroFox and IDX, or their respective representatives, but instead is intended as a summary of material developments over the course of the negotiations.
L&F is a blank check company organized under the laws of the
Cayman Islands and was formed on August 20, 2020. L&F was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses
(collectively, a “business combination”), with the intent to concentrate on identifying technology and services businesses in the governance, risk, compliance (“GRC”)
and legal sector. On September 3, 2020, L&F engaged Jefferies LLC (“Jefferies”) as a sole book-running manager and sole underwriter in the L&F IPO and as its lead financial advisor and capital
markets advisor to assist in any potential business combinations.
On August 28, 2020, the Sponsor purchased 5,750,000 Founder Shares
for an aggregate purchase price of $25,000, or approximately $0.004 per share. On November 13, 2020, the Sponsor effectuated a surrender of 1,437,500 Founder Shares to L&F for no consideration, resulting in a decrease in the total number of
Founder Shares outstanding to 4,312,500. The Sponsor transferred an aggregate of 109,733 Founder Shares to L&F’s independent directors, resulting in the Sponsor holding an aggregate of 4,202,767 Founder Shares. Up to 562,500 of these
Founder Shares were subject to forfeiture, such that the Founder Shares would comprise 20% of the outstanding shares after the L&F IPO and the exercise, if any, of the over-allotment option.
On November 23, 2020, L&F completed the L&F IPO of 15,000,000
units at a price of $10.00 per unit, generating gross proceeds of $150 million. Each unit consists of one Class A Share and one-half of one L&F Public Warrant. Each whole L&F Public Warrant entitles the holder thereof to purchase one
Class A Share at a price of $11.50 per share, subject to certain adjustments. The registration statement relating to these securities was filed with the SEC and declared effective on November 18, 2020.
Concurrent with the completion of the L&F IPO, the Sponsor
purchased an aggregate of 5,000,000 L&F Private Placement Warrants at a price of $1.00 per warrant, or $5.0 million in the aggregate, and Jefferies purchased an aggregate of 1,859,505 L&F Private Placement Warrants at a price of $1.21
per warrant, or $2,250,001.05 in the aggregate. Each whole L&F Private Placement Warrant entitles the holder thereof to purchase one Class A Share at a price of $11.50 per share, subject to certain adjustments.
In connection with the L&F IPO, L&F’s underwriter was granted
an over-allotment option to purchase up to an additional 2,250,000 units. The underwriter exercised the over-allotment option in full. This full exercise of the over-allotment option resulted in none of the Founder Shares being forfeited.
Concurrent with the underwriter’s exercise of the over-allotment,
L&F consummated private placements with the Sponsor of an additional 450,000 L&F Private Placement Warrants at a price of $1.00 per warrant, or $450,000 in the aggregate, and with Jefferies of an additional 278,925 L&F Private
Placement Warrants at a price of $1.21 per warrant, or $337,499.25 in the aggregate.
On November 19, 2020, the units began trading on the NYSE under the
symbol “LNFA.U” and, starting January 7, 2021, Class A Ordinary Shares and L&F Public Warrants that were separated started trading on the NYSE under the symbols “LNFA” and “LNFA WS”, respectively.
Prior to the consummation of the L&F IPO, neither L&F, nor
anyone on its behalf, had any substantive discussions, formal or otherwise, with any business combination target with respect to a potential business combination transaction with L&F.
After the L&F IPO, L&F commenced an active search for
prospective businesses and assets to acquire, identifying over 120 potentially attractive business combination opportunities through this process. L&F
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conducted due diligence to varying degrees on such businesses and assets, including
review of such businesses’ management, business model, competitive landscape, and certain financials, in each case, to the extent available. In addition, representatives of L&F were contacted by additional potential targets that they had
not previously identified through its search process. In total, following the L&F IPO, representatives of L&F, its advisors and the Sponsor were contacted by or initiated contact with approximately 40 business combination opportunities
in the broad GRC and legal industries. L&F, with the assistance of Jefferies, reviewed opportunities on a rolling basis, including based on discussions and information received under confidentiality agreements entered into or through
introductory materials exchanged with approximately 15 potential counterparties. After reviewing and considering the foregoing opportunities, L&F continued to cull its list of prospective businesses and assets based on a core set of
criteria, including maturity of the business, size of the business, management team, near-term path to profitability, public market readiness, including the state of financial statements and internal controls, growth prospects and impacts of
COVID-19. Following such reviews and discussions, and at various points in time, L&F discontinued its review of certain targets for failing to satisfy one or more of the aforementioned criteria, among other reasons. Throughout its active
search process, L&F extended approximately 10 non-binding proposals for a business combination to private company management teams, with varying levels of detail surrounding potential transaction structure and plans for future partnership.
Until agreeing to exclusivity with ZeroFox on July 8, 2021, L&F
engaged in a general active search process and reviewed, to the extent available, the management, business model, competitive landscape, and certain financials with respect to other potential target companies. During this time, L&F focused
its active engagement on ZeroFox and three other companies—a GRC software company (“Company A”), a legal software company (“Company B”), and a regulation and policy
information services company (“Company C”)—that merited serious consideration based on L&F’s selection criteria described above (Companies A, B, and C, the “Potential
Targets”). As further described below, throughout the second quarter of 2021 (until agreeing to exclusivity with ZeroFox), representatives of L&F and the L&F Board engaged in discussions at varying levels of depth with the
Potential Targets’, ZeroFox’s and IDX’s respective management teams. With respect to all Potential Targets, there were no agreements of exclusivity at the time L&F executed its exclusivity agreement with ZeroFox.
On January 12, 2021, representatives of Stifel Nicolaus &
Company, Incorporated (“Stifel”) spoke with Adam Gerchen, L&F’s chief executive officer, providing Mr. Gerchen with an initial overview of ZeroFox.
On February 19, 2021, Mr. Gerchen spoke with a representative of
Company A’s financial advisor who gave an overview of the industry and business model of Company A. During the call, Mr. Gerchen discussed with such representative Company A’s interest in a business combination transaction and the extent to
which Company A exhibited characteristics matching L&F’s acquisition criteria as outlined in the L&F IPO prospectus.
On March 18, 2021, a representative of Company A’s financial advisor
emailed Zack Malkin, L&F’s Secretary and a Principal at Victory Park Capital, regarding L&F’s interest in Company A and offered to broker an introduction to Company A’s management team.
On March 19, 2021, representatives of L&F including Mr. Malkin
spoke with representatives of Company A’s financial advisor virtually regarding a potential business combination with Company A.
Also in March 2021, representatives of L&F including Mr. Malkin
spoke with Company B’s chief financial officer regarding a potential transaction. Although preliminary transaction expectations were discussed, no earnest negotiations were ever held between the parties given that Company B was focused on
alternative options for raising capital.
On April 5, 2021, representatives of L&F, including Messrs.
Gerchen and Malkin, spoke with representatives of Company A regarding a potential transaction. Topics covered included, among others, Company A’s outlook for the GRC software industry, Company A’s competitive positioning, and future growth
prospects.
At the November 2020 and December 2020 meetings of the ZeroFox Board,
the ZeroFox Board discussed long-term financing alternatives which included a possible transaction with a special purpose acquisition company (“SPAC”). As part of these conversations, ZeroFox considered
whether a transaction with a SPAC should include the merger of ZeroFox and a third party in addition to ZeroFox merging with an existing SPAC. As a result, in the fourth quarter of 2020 through the first quarter of 2021, ZeroFox engaged its
financial advisor, Stifel, to evaluate acquisition targets on behalf of ZeroFox.
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On February 5, 2021, ZeroFox had a conference call with Stifel,
the purpose of which was to discuss the potential transaction structure. ZeroFox’s management and Stifel considered acquisition opportunities to fulfill ZeroFox’s growth objectives, including trends in the digital assessment and protection,
threat intelligence, security response, and security automation markets. During Stifel’s evaluation of the markets, ZeroFox identified the acquisition of IDX as a potential opportunity for growth. Since April 2019, ZeroFox and IDX were already
engaged in a commercial arrangement, pursuant to which IDX licensed certain technology from ZeroFox for purposes of bundling such ZeroFox technology with IDX offerings. Over this period, ZeroFox and IDX had been meeting periodically to discuss
alignment of customer integration, sales strategies, go-to-market campaigns and other matters relating to the commercial relationship. Other strategic rationales for a potential business combination between ZeroFox and IDX included reduced
customer acquisition cost, additional cross-sell opportunities, complementary product offerings and the unification of threat intelligence, digital protection and breach response under one business operation that would capture the entire
lifecycle of the external cybersecurity market.
Over the course of February 2021, as a result of Stifel’s evaluation
and ZeroFox’s identification of IDX, ZeroFox and Stifel had several conversations with IDX management and the IDX Board regarding an acquisition proposal and a potential merger with IDX.
On February 25, 2021, at the ZeroFox Board meeting, ZeroFox
management informed the ZeroFox Board that IDX was a top target for a potential merger and larger transaction with a SPAC. On February 25, 2021, ZeroFox and IDX also entered into a mutual non-disclosure agreement for purposes of exploring a
merger transaction with a SPAC together. Over the course of the next week, ZeroFox had a number of conference calls with IDX to discuss the potential merger and structure.
On March 5, 2021, the ZeroFox CEO emailed the IDX CEO describing the
potential framework for a ZeroFox-IDX merger.
On March 9, 2021, the IDX CEO updated the IDX Board via
videoconference on discussions with ZeroFox for a potential transaction with ZeroFox and larger transaction with a SPAC.
On March 10, 2021, the ZeroFox CEO also presented a proposal of the
ZeroFox-IDX merger to the IDX Board.
On March 10, 2021, ZeroFox signed an engagement letter with Stifel,
pursuant to which Stifel would represent ZeroFox and be compensated for a completed SPAC transaction involving ZeroFox.
On March 11, 2021, the IDX CEO updated the IDX Board by
videoconference on the proposal delivered by ZeroFox and the engagement of a financial advisor to assist IDX in connection with a potential merger and transaction with a SPAC.
Over the course of the next two weeks, ZeroFox management had a
number of conference calls with IDX management and Stifel, both individually and jointly, regarding the prospects of a transaction which included the merger of ZeroFox and IDX with a SPAC.
On March 20, 2021, ZeroFox presented an initial draft of a letter of
intent to the IDX CEO. The letter was based on the prior conversations between representatives of ZeroFox and IDX regarding the framework of a merger of ZeroFox and IDX with a SPAC. Over the course of the next three weeks, ZeroFox and IDX had
numerous conversations about the proposed transaction and exchanged a number of drafts of the letter of intent.
On March 25, 2021, IDX signed an engagement letter with DBO Partners
LLC (“DBO”) as its financial advisor in connection with a potential sale, merger or similar significant transaction.
On April 6, 2021, ZeroFox and IDX signed a letter of intent (the “Original IDX LOI”) that involved a business combination of ZeroFox, IDX and a SPAC and related financing of a private investment in a public entity.
From April 5, 2021 through July 8, 2021, Stifel contacted a variety
of SPACs and ultimately signed 13 non-disclosure agreements and held 11 management presentations with such SPACs. Eleven parties, including L&F, received bid instructions requesting a letter of intent. ZeroFox received four bids, including
a bid from L&F as described below.
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On April 12, 2021, representatives of Stifel again contacted Mr.
Gerchen by email, to provide Mr. Gerchen with an overview of ZeroFox’s business and growth prospects, including the prospective acquisition of IDX by ZeroFox, as well as a brief presentation highlighting ZeroFox’s strengths. Representatives of
Stifel included a non-disclosure agreement in the email to Mr. Gerchen.
From April 13, 2021 to April 15, 2021, members of ZeroFox management
and IDX management had in-person meetings in Portland, Oregon at IDX’s offices. The purpose of these meetings was to commence an initial diligence review and consider the framework for the merger. Shortly following these meetings, a virtual
data room was established for the parties to share information and conduct a diligence review. The initial due diligence review focused primarily on IDX’s large Office of Personnel Management government contract, as well as general corporate
and financial matters.
On April 16, 2021, L&F executed a mutual non-disclosure
agreement with Company A.
On April 22, 2021, IDX held a virtual meeting of the IDX Board that
DBO attended and discussed the progress toward selecting a SPAC party for a potential transaction and the status of the diligence meetings between ZeroFox and IDX.
On April 28, 2021, Jeffrey Hammes, Chairman of the L&F Board,
received an email from a representative of Company C’s financial advisor regarding an opportunity in the regulation and policy information services industry involving Company C. The email identified Company C and provided an overview of Company
C’s financial performance and intended use of proceeds resulting from a potential business combination transaction.
On May 3, 2021, L&F executed a mutual non-disclosure agreement
with Company C and received both video and presentation materials detailing Company C’s history, product offerings, and strategies for future growth, among other topics.
On May 6, 2021, Mr. Malkin responded to Company C’s financial
advisor’s email by providing them with overview materials on L&F detailing L&F’s management team and acquisition criteria. Additionally provided was a draft agenda for an introductory call with Company C’s management.
On May 10, 2021, representatives of L&F, including Messrs.
Gerchen and Malkin, held virtual meetings with representatives of Company A’s financial advisor and with Company A’s management team to further discuss a potential transaction with Company A. During these meetings, representatives of Company
A’s financial advisor presented information about Company A’s history, management team and product offerings, and Company A’s management team discussed their experience in both the GRC and software industries, financial performance, and
potential uses of proceeds from a business combination transaction.
On May 13, 2021, Company A shared materials with L&F detailing
Company A’s growth strategy for fiscal year 2022.
Also on May 13, 2021, representatives of L&F, including Messrs.
Gerchen and Malkin and Richard Levy, a member of the L&F Board and Founder & CEO of Victory Park Capital, held a virtual meeting with members of Company C’s management to discuss a potential transaction. Topics discussed included
introductions to Company C’s management team, a history and overview of the business, and Company C’s customer acquisition strategy, among others.
On May 14, 2021, representatives of L&F, including Mr. Gerchen,
spoke with members of Company C’s financial advisor to further discuss a potential transaction with Company C, as well as Company C’s fundraising history.
On May 19, 2021, representatives of Stifel emailed Mr. Gerchen to
follow up on L&F’s potential interest in ZeroFox and IDX, and followed up on the non-disclosure agreement on May 20, 2021. Mr. Gerchen introduced Mr. Malkin to representatives of Stifel to facilitate a virtual meeting.
On May 20, 2021, representatives of L&F spoke with members of
Company C’s management and representatives of Company C’s financial advisor to discuss additional diligence questions related to Company C’s customer base, competitive positioning within the industry, and drivers of organic growth.
Later that same day, L&F received from Company C’s financial
advisor a process letter with instructions for the submission of an indication of interest for a business combination with Company C.
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On May 24, 2021, representatives of L&F, including Mr. Malkin,
spoke with members of the Jefferies investment banking team to discuss the potential transaction with Company C.
On May 25, 2021, representatives of L&F, including Messrs.
Hammes, Gerchen, and Malkin, held a virtual meeting hosted by Company C’s financial advisor wherein members of Company C’s management team demonstrated the product offerings and capabilities of Company C’s software platform. Ultimately,
following discussion among representatives of L&F and Jefferies, a decision was made not to pursue a transaction with Company C as a result of Company C’s failure to meet one or more of L&F’s selection criteria.
On May 26, 2021, Company A shared an investor presentation with
L&F providing a company overview and financial summary, detail on Company A’s product offerings and software capabilities, and areas identified for future growth.
Between May 26, 2021 and June 10, 2021, L&F held multiple
internal meetings and corresponded with Company A’s financial advisor to discuss a potential transaction with Company A. Topics discussed, among others, included valuation of the pro forma business and structuring of a potential PIPE investment
concurrent with the proposed merger. Materials were prepared by L&F for the L&F Board outlining the proposed transaction structure and acquisition consideration.
On May 27, 2021, in response to Stifel’s email from May 19, 2021,
L&F executed a non-disclosure letter agreement with Stifel regarding ZeroFox.
On June 8, 2021, representatives of L&F, including Mr. Gerchen
and Mr. Malkin, met virtually with representatives of ZeroFox and IDX, including James C. Foster, CEO of ZeroFox, Tim Bender, CFO of ZeroFox, and Tom Kelly, CEO of IDX, along with representatives of Stifel. During this meeting, Mr. Foster and
Mr. Kelly provided overviews of the businesses, cybersecurity industry, and competitive landscape of ZeroFox and IDX. A more detailed presentation was used to present representatives of L&F with the plans for a future partnership between
ZeroFox and IDX, identified areas of growth and expansion, and forecasted performance following the close of a business combination. ZeroFox, IDX and Stifel informed L&F that they were in the early stages of initial meetings with various
SPACs. Following the meeting, Mr. Malkin and a representative of Stifel exchanged emails in which, among other things, they discussed L&F’s interest in a potential business combination and the inclusion of L&F in ZeroFox’s business
combination process. Later that day, Stifel provided L&F with access to a data room containing, among other documents, a company presentation, historical ZeroFox and IDX financials, the company’s pro forma financial model, and ZeroFox’s
capitalization table.
Later that same day, Mr. Malkin circulated an email to members of
L&F management and the L&F Board including Messrs. Gerchen, Levy and Hammes. Mr. Malkin’s email summarized the meeting with ZeroFox and IDX management held earlier that day and noted that key investors in ZeroFox included New Enterprise
Associates and Intel Capital.
From June 9, 2021 through June 13, 2021, representatives of L&F
and Stifel exchanged emails to schedule a product demonstration with ZeroFox management, as well as answer questions regarding ZeroFox’s latest financing round, the terms of ZeroFox’s acquisition of IDX in connection with a business
combination, and information regarding the integration of ZeroFox’s prior acquisitions. The product demonstration took place on June 15, 2021.
On June 10, 2021, the IDX CEO updated the IDX Board by
videoconference, which DBO attended, on the progress toward a potential transaction, in particular focusing on discussions with L&F.
On June 10, 2021, representatives of L&F received an email from a
representative of Stifel containing the Project Northstar process letter. This process letter requested a preliminary non-binding letter of intent (“LOI”) for a business combination with both ZeroFox and
IDX, and among other items requested that L&F provide detail on L&F’s background and key management, L&F’s proposed merger consideration and valuation methodology, proposed transaction structure and form of financing, and pro forma
ownership. ZeroFox’s process letter requested a response by June 21, 2021.
Also on June 10, 2021, representatives of L&F including Messrs.
Levy and Gerchen, met with members of Company A’s management team in person. At the meeting, the valuation and transaction structure mentioned above were discussed.
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Although Company A had begun to explore a variety of potential
strategic transactions, L&F ultimately decided not to pursue a business combination with Company A due to L&F’s views on Company A’s opportunities for future growth and the Company A management team’s ability to execute on Company A’s
strategy as a public company.
On June 15, 2021, Stifel hosted a virtual meeting wherein Mr. Foster
provided representatives of L&F with a product demonstration presenting some of the capabilities of the ZeroFox platform to identify and mitigate threats targeting its customers’ digital assets. Mr. Foster’s demonstration included ZeroFox’s
use cases for both mobile application (iOS and Android) and desktop software users. Additionally, Mr. Foster’s demonstration included an overview regarding the types of digital assets that ZeroFox protects, the platform’s full cloud-based
infrastructure, and its suite of application program interfaces enabling the software to integrate into ZeroFox customers’ existing user application environment. Additionally on this call, Mr. Foster provided an overview of the new customer
onboarding process and the customization tools provided to new customers for use within the ZeroFox platform.
Later that same day, Mr. Malkin emailed representatives of Jefferies
regarding the ZeroFox opportunity. Mr. Malkin’s email included an overview of ZeroFox’s business, key investors, and targeted capital raise amount in connection with a business combination. Additionally, Mr. Malkin’s email requested a call with
representatives of Jefferies to discuss the business’s valuation.
On the evening of June 15, 2021, representatives of L&F emailed
Stifel a list of diligence questions focused on the materials contained within the initial data room. Among other topics, the questions related to calculations of customer lifetime value and acquisition cost, ZeroFox’s largest customer
contracts, and the pro forma financial model. On June 16, 2021, Stifel replied with answers to these questions.
On June 16, 2021 and June 17, 2021, representatives of L&F and
Jefferies met virtually to discuss the proposed transaction. During this meeting, L&F and Jefferies discussed comparable companies and both their operating metrics and trading valuations. Additionally, representatives of L&F were
introduced to a representative of Jefferies focused on the industries in which ZeroFox and IDX operate. During these meetings, representatives of L&F and Jefferies discussed operating metrics and valuation multiples of comparable publicly
traded companies, the importance of revenue growth and gross margin expansion to software company investors, and how best to value ZeroFox and IDX.
From June 16, 2021 to June 21, 2021, representatives of L&F and
Jefferies held numerous internal calls and virtual meetings to discuss the LOI and valuation framework for the ZeroFox business combination proposal, both generally and in respect of diligence conducted to date. The participants discussed
numerous valuation methodologies, including precedent transaction comparables and a sum-of-the-parts valuation. After considering the existing partnerships between ZeroFox and IDX, and the potential operational synergies and business
development opportunities forecasted to result from the merger of ZeroFox and IDX, L&F and the Jefferies investment banking team ultimately decided on June 21, 2021 to value ZeroFox based on calendar year 2022 projected revenue.
On June 19, 2021, representatives of L&F emailed representatives
of Kirkland & Ellis LLP (“K&E”) with a draft of the LOI for the combined ZeroFox and IDX merger transaction. Representatives of K&E provided comments to the LOI, which were incorporated prior
to sharing with ZeroFox.
On June 21, 2021, Mr. Gerchen emailed the L&F Board a detailed
communication regarding the submission of the LOI for a proposed business combination with ZeroFox and IDX. Mr. Gerchen’s email contained a background on the industry, both ZeroFox’s and IDX’s business models, and opportunities for future
growth. Additionally provided was information on the bidding process and steps that representatives of L&F had taken to date in order to diligence the acquisition targets. Mr. Gerchen’s email included a draft LOI to be submitted to Stifel
and expectations surrounding valuation of the pro forma business, as well as the valuation framework options as discussed between representatives of L&F and Jefferies. The members of the L&F Board replied to Mr. Gerchen’s email
approving the submission of the LOI as drafted.
Later that day, Mr. Gerchen submitted the initial LOI via email to
representatives of Stifel, who then confirmed receipt. L&F’s initial LOI valued ZeroFox’s and IDX’s combined businesses at a $1.1 billion pre-money pro forma enterprise value. The initial LOI contemplated the issuance of shares in New
ZeroFox to current ZeroFox and IDX shareholders valued at $1 billion, at $10.00 per share, in addition to $50 million of
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cash to be paid to selling IDX shareholders. The initial LOI contemplated
$150 million for the Common Equity PIPE Financing, which would be completed concurrently with the Business Combination. The proposed valuation of ZeroFox and IDX’s combined business and the composition of the proposed Business Combination
consideration were based on the financial projections provided by ZeroFox management and prior discussions regarding the cash proceeds required for the acquisition of IDX. Pre-money pro forma enterprise valuation of the combined ZeroFox and IDX
businesses was approximately $1.1 billion, based on a 5.7x multiple of forecasted calendar year 2022 revenue when compared to comparable publicly traded companies, such as CrowdStrike Holdings, Inc. Okta, Inc., Rapid7, Inc., and Tyler
Technologies, Inc. (collectively, the “Comparable Companies”).
On June 22, 2021, the IDX CEO updated the IDX Board via
videoconference, which DBO attended, on the terms of the LOI submitted by L&F.
On June 24, 2021, representatives of L&F including Messrs.
Gerchen and Malkin hosted a virtual meeting with a representative of Stifel to discuss the submitted LOI. Among other topics, the group discussed L&F’s plan for approaching PIPE investors, the valuation of the pro forma business, and
marketing strategies for the pro forma company following a merger.
On June 25, 2021, representatives of L&F received from a
representative of Stifel an emailed document containing revised bid instructions for the proposed business combination. Among other items, these revised instructions included a request for L&F to consider subjecting 30% of its Founder
Shares to a vesting schedule, as well as further details on L&F’s due diligence process.
On June 28, 2021, the L&F Board held a virtual meeting to discuss
a revised LOI for the combined ZeroFox and IDX merger transaction. Presented to the L&F Board was a draft of the revised LOI and a management presentation outlining the key changes, including, among others, the addition of a vesting
schedule for 30% of the Founder Shares. After discussion, the L&F Board agreed to submit the revised LOI.
During the same meeting of the L&F Board, Senator Joseph
Lieberman, a member of the L&F Board, highlighted that he is acquainted with a member of ZeroFox’s Board, former Director of National Intelligence John Mike McConnell. Senator Lieberman was familiar with Mr. McConnell through their shared
involvement in legislation surrounding cybersecurity and national defense. The L&F Board discussed and agreed that Senator Lieberman should contact Mr. McConnell to discuss the proposed transaction.
Later that same day, L&F emailed a representative of Stifel
attaching the revised LOI. L&F’s revised LOI included a vesting schedule for 30% of the Founder Shares, as well as a schedule of required diligence items, including a virtual meeting with ZeroFox management to review the financial model.
Included in this email, Mr. Gerchen highlighted Senator Lieberman’s prior involvement in cybersecurity legislation and the potential benefits that the L&F Board’s industry experience could bring to structuring and marketing the merger to
PIPE investors and public shareholders focused on the cybersecurity industry.
On June 29, 2021, a representative of Stifel informed representatives
of L&F via email that L&F’s revised LOI was of interest to ZeroFox, and invited L&F to present as one of two potential merger partners to the ZeroFox Board. Also on June 29, the ZeroFox Board held a meeting and Stifel gave the
ZeroFox Board an overview of potential SPACs to consider.
On June 30, 2021, the IDX Board held a virtual meeting, which DBO
attended, to discuss the revised LOI delivered by L&F and proposed response by IDX and ZeroFox.
On June 30, 2021, ZeroFox and IDX executed a replacement letter of
intent (the “Replacement IDX LOI”) that superseded the Original IDX LOI. The Replacement IDX LOI similarly provided for a business combination of ZeroFox, IDX and a special purpose acquisition company and
related financing of a private investment in a public entity, with the shareholders of IDX receiving cash consideration of $50,000,000 and 25% of the shares issued to the parties in the transaction of the combined pro forma entity and the
shareholders of ZeroFox receiving 75% of the shares issued to the parties in the transaction of the combined pro forma entity.
Also on June 30, 2021, Mr. Malkin informed the L&F Board of the
upcoming presentation to the ZeroFox Board and invited the members of the L&F Board to join the virtual meeting.
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Later that same day, Mr. Foster emailed Mr. Gerchen and a
representative of Stifel to inform them that Senator Lieberman and Mr. McConnell had connected regarding the potential business combination and that both participants reported a constructive discussion and optimism about a future partnership.
On July 1, 2021, members of the L&F Board and management and
ZeroFox Board attended a virtual meeting to discuss the revised LOI. Among other topics, discussion ensued regarding Mr. Foster’s position as the continuing CEO of the pro forma company, L&F’s envisioned PIPE raise process, and the status
of the PIPE financing market at such time. Following a constructive discussion, the ZeroFox Board conferred, without any representatives of L&F present, regarding the revised LOI in comparison to any other indications of interest received.
On July 2 and July 3, 2021, Mr. Malkin and a representative of Stifel
held telephone conferences to discuss feedback from the July 1, 2021 meeting among members of the L&F Board and management and ZeroFox Board. Additionally, such representative of Stifel indicated ZeroFox’s interest in executing an exclusive
LOI the week of July 5, 2021 with one of the two SPACs with whom ZeroFox was then engaged, including L&F.
On July 5, 2021, representatives of L&F requested and Stifel
provided the Replacement IDX LOI detailing the terms of their proposed transaction in connection with a business combination.
Additionally, on July 5, 2021, Stifel hosted a virtual comprehensive
diligence session wherein ZeroFox management, with the consent of IDX management, presented to L&F representatives the explanations and rationale behind the pro forma financial model that had previously been distributed to L&F.
Discussion ensued regarding ZeroFox management’s post-merger operating strategy and implementation of the growth and synergistic initiatives outlined in the pro forma operating model. In addition, L&F representatives discussed with ZeroFox
management the accounting function and public company readiness of ZeroFox and IDX. Additional comprehensive diligence was performed regarding IDX’s Office of Personnel Management contract including review of terms for annual recurring revenue,
margin analysis, and duration of the contract.
On July 7, 2021, L&F received a revised version of the LOI from a
representative of Stifel, including ZeroFox’s views on valuation and the implementation of a cap on L&F’s expenses should redemptions exceed 50% of L&F’s Class A Ordinary Shares, and mutual exclusivity, among other items. ZeroFox’s
views on valuation included an increased pre-money pro forma equity valuation for ZeroFox’s and IDX’s combined businesses in the form of merger consideration consisting of $1.2 billion of shares in New ZeroFox, valued at $10.00 per share, in
addition to $50 million in cash consideration to be paid to selling IDX shareholders.
On July 6, 2021 and additionally July 7, 2021, representatives of
L&F and Jefferies met virtually to further consider the valuation framework applied to New ZeroFox. The components of the framework discussed included performance, the growth profiles of both ZeroFox and IDX, operating margins, initial
public offering, current trading prices and valuation multiples of comparable publicly traded companies. In considering valuation, these components of the framework were used as the basis of comparing ZeroFox and IDX to the Comparable
Companies. For example, the Comparable Companies were forecasted by equity research analysts to achieve median calendar year 2022 revenue growth of 19% compared to ZeroFox and IDX’s forecasted 30%. The L&F team felt confident in ZeroFox’s
ability to achieve this superior revenue growth due to ZeroFox and IDX management’s track record of 67%, 95%, and 42% revenue growth in fiscal years 2019, 2020, and 2021. This favorable positioning of ZeroFox and IDX’s growth profile in
relation to the Comparable Companies supported a higher multiple for valuation purposes. Additionally, the framework incorporates the 39% gross profit margin anticipated for New ZeroFox in fiscal year 2022, in comparison to publicly traded
Comparable Companies’ gross profit margins such as CrowdStrike, Okta, and the peer median estimated calendar year 2021 gross profit margins of 77%. This positioning of gross profit margins supported a lower valuation against the Comparable
Companies. However, this lower gross profit margin consideration also included discussion concerning Crowdstrike’s progressive gross margin improvement of 36% gross margin in fiscal year 2017 to 77% in fiscal year 2021. The framework included
considerations of ZeroFox management’s ability to achieve a similar improvement in gross margin post-closing by scaling subscriptions on their software platform and improving efficiency following the IDX acquisition. Finally, the parties
discussed potential reactions from PIPE investors regarding valuation multiples in the GRC and legal sector and the proposed valuation of New ZeroFox.
Later that same day, Mr. Malkin provided an email update to the
L&F Board outlining the terms of L&F’s further revised LOI, including the implementation of a three-tranche vesting schedule for 30% of L&F’s Founder Shares based on share price performance and entering into a period of mutual
exclusivity between ZeroFox and
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L&F. Mr. Malkin’s email additionally outlined the increased pre-money pro forma
equity valuation for New ZeroFox of $1.2 billion. Based on discussions among L&F management and the L&F Board, it was determined that the revised valuation of New ZeroFox remained attractive to L&F shareholders based on relative
valuations of comparable publicly traded companies as a multiple of go-forward revenue, and the growth and margin profiles of New ZeroFox projected in the financial model presented by ZeroFox management on July 5, 2021. L&F management and
the L&F Board, advised by Jefferies, believed that the pre-money pro forma valuation contained in the further revised LOI for the combined businesses of ZeroFox and IDX of approximately 6.4x calendar year 2022 revenue continued to provide
an attractive discount for L&F investors compared to the Comparable Companies’ median enterprise value multiple of approximately 10.1x calendar year 2022 revenue, taking into consideration the superior revenue growth and sub-scale gross
margin anticipated for New ZeroFox mentioned earlier herein. Based on this analysis and these discussions, the L&F Board determined that exclusivity was in the best interest of L&F’s shareholders and approved via email the submission of
a further revised LOI.
On July 8, 2021, the ZeroFox Board approved entering into the LOI at
a meeting called for that purpose and, later that day, following final revisions to certain provisions of the LOI, L&F and ZeroFox executed the LOI, which contained, among other things, mutual exclusivity provisions that expired on the
earlier of (i) the signing of the Business Combination Agreement, (ii) 45 days following the execution of the LOI and (iii) the mutual written consent of ZeroFox and L&F, and reflected a fully diluted pre-money equity value of approximately
$1.2 billion, consisting of $1.155 billion of shares in New ZeroFox, valued at $10.00 per share, in addition to a $50 million cash consideration to be paid to selling IDX shareholders, as outlined in the further revised LOI. With the planned
$150 million PIPE financing, the combined company would have a pro forma enterprise valuation of $1.3 billion, excluding L&F shareholder redemptions. The LOI also provided for, among other things, a minimum cash condition of $200 million,
certain forfeiture obligations in respect of 30% of the Founder Shares in certain scenarios based upon the performance of the New ZeroFox Common Stock following the closing of any business combination, post-Closing lock-up restrictions to be
applied to the shares of New ZeroFox Common Stock to be held by the Sponsor Holders and ZeroFox shareholders, and a requirement for the holders of at least a majority of ZeroFox capital stock to approve the execution of the Business Combination
Agreement.
On July 12, 2021, a virtual meeting was held between representatives
of ZeroFox, IDX, L&F, and their financial advisors, Jefferies and Stifel, to begin planning the PIPE marketing process and to discuss the timeline to closing and all of the material requirements to achieve the closing.
From July 12, 2021 through July 14, 2021, the extended management
teams of ZeroFox and IDX met at ZeroFox’s corporate headquarters in Baltimore, Maryland to discuss the combined business.
From July 12, 2021 through July 16, 2021, multiple virtual, intensive
diligence sessions occurred between representatives of ZeroFox, IDX and L&F and their advisors, Jefferies and Stifel, in order to provide each party’s advisors with background on the industry, company operating models, and plans for future
growth. Included in these sessions was discussion of ZeroFox’s and IDX’s core technologies, intellectual property, customer relationships, margin profiles, sales pipelines, and key contracts by type and size. Additionally, these sessions
included a presentation of the pro forma financial model by ZeroFox. During this period, Jefferies provided diligence request lists prepared by Jefferies and L&F to ZeroFox, ZeroFox provided key documents pertaining to ZeroFox’s and IDX’s
businesses and contracts, and Jefferies was provided access to a detailed virtual data room with underlying documents relevant to the discussion for the purpose of L&F and Jefferies conducting business and finance diligence of each of
ZeroFox and IDX.
On July 14, 2021, L&F contacted an independent research firm to
perform background checks on key management at both ZeroFox and IDX.
On July 15, 2021, Venable LLP (“Venable”),
counsel to ZeroFox, and K&E, counsel to L&F, held an introductory conference call to meet and discuss the transaction and form of Business Combination Agreement. Tim Bender, CFO of ZeroFox, and Tom FitzGerald, General Counsel of
ZeroFox, also joined the call.
On July 16, 2021, Venable and Wilson Sonsini Goodrich & Rosati (“WSGR”), counsel to IDX, held an introductory conference call to meet and discuss the transaction and form of Business Combination Agreement. Adam Mishcon, General Counsel of IDX, and Tom FitzGerald, General
Counsel of ZeroFox, also joined the call.
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On July 20, 2021, Venable and K&E had another conference call
to discuss the basic form and structure of the Business Combination Agreement.
On July 21, 2021, K&E received access to the ZeroFox and IDX data
rooms and K&E began performing legal diligence regarding ZeroFox. On July 23, 2021, Venable was granted access to the IDX data room and Venable assumed the lead role in performing legal diligence regarding IDX pursuant to the Replacement
IDX LOI, with K&E simultaneously reviewing and verifying the key diligence findings identified by Venable throughout the diligence process, including by conducting an independent review of the material Office of Personnel Management
government contract of IDX and regulatory matters related thereto. K&E first delivered a diligence request list regarding ZeroFox to Venable on July 26, 2021.
On July 22, 2021, the IDX Board held a virtual meeting, which DBO
attended, and discussed updates on the progress of the transaction and undertook an overview of the transaction documents, expected timing of the signing of the transaction documents and closing of the transaction.
On July 28, 2021, Venable and WSGR had a kick-off call regarding the
due diligence process of IDX. ZeroFox instructed Venable to conduct an in-depth legal review of IDX’s governance documents, debt instruments, material contracts, employment practices and employee benefits, real property rights, intellectual
property rights, privacy and data security practices and export controls, sanctions, anti-bribery and anti-corruption practices. Venable also requested and obtained lien and judgment searches in Delaware against IDX. Venable corresponded with
the IDX management team, and more particularly with IDX’s general counsel, who coordinated responses to Venable’s due diligence requests.
On August 4, 2021, K&E held a legal diligence call with
representatives of ZeroFox and on which Venable participated that covered corporate and material contracts, technology, intellectual property and trademarks, executive compensation, labor, employee benefits, real estate, international trade,
anti-corruption and national security and environmental, social and governance topics.
On that same day, Venable led a legal diligence call with
representatives of IDX and on which K&E participated that covered the same topics as the K&E/ZeroFox diligence call. On August 13, 2021, Venable led a follow-up management call on cybersecurity and privacy with representatives of IDX
and on which K&E participated. During the month of August, K&E and Venable exchanged various drafts of the diligence request list for ZeroFox in which ZeroFox and Venable responded to K&E’s diligence requests. K&E also prepared
a legal diligence memo covering each of the topics from the legal diligence call.
From July 19, 2021 through August 11, 2021, representatives of
L&F, ZeroFox and IDX, and their respective advisors met to discuss and draft the PIPE presentation materials to be provided to potential investors. Throughout these meetings, the parties discussed the overall timeline, allocation of
drafting responsibility and certain other topics. Additionally during this period, representatives of L&F, ZeroFox and IDX, and their advisors drafted non-disclosure agreements and constructed a wall-cross procedure to provide potential
PIPE investors with material nonpublic information related to the investment.
On July 21, 2021, Venable sent an initial tax structure presentation
to K&E and WSGR for review. On July 26, 2021, Venable, K&E and WSGR tax representatives attended a call to discuss the tax structure of the Business Combination Agreement. On July 27, 2021, Venable circulated a revised tax structure
presentation to K&E and WSGR. On July 30, 2021, Venable, K&E and WSGR tax representatives attended a call to further discuss the tax structure of the Business Combination Agreement. On August 1, 2021, Venable circulated a revised tax
structure presentation to K&E and WSGR. On August 2, 2021, WSGR provided comments to the presentation and on August 4, 2021, K&E provided additional comments to the presentation as well. K&E, WSGR and Venable continued to have
intermittent informal discussions regarding the structure, and on November 29, 2021, the parties finalized the tax structure of the Business Combination Agreement.
On August 18, 2021, the L&F Board held a virtual meeting to
discuss the PIPE financing. The L&F Board discussed the PIPE outreach process, in which the parties would seek to raise up to $150 million in external financing for the deal at a post-money, pro forma enterprise valuation of approximately
$1.3 billion, representing approximately 6.7x Fiscal Year 2023 Revenue, and a reasonable discount to established comparable public companies. Fiscal year 2023 revenue was used to better compare against other public companies with similar fiscal
year ends. Based on a summary of the discussions among representatives of L&F, ZeroFox and IDX, the L&F Board determined the $150 million external financing amount based on, among other things, the minimum
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cash condition under the Business Combination Agreement and the desired amount of
cash to the balance sheet of New ZeroFox following consummation of the Business Combination, including following payment of transaction expenses in connection with the Business Combination.
From August 18, 2021 through September 17, 2021, L&F, ZeroFox and
IDX, and their advisors held numerous meetings with potential PIPE investors regarding a common stock equity investment in connection with the Business Combination. During this period, management met with potential PIPE investors for initial
management presentations and held additional meetings with select investors to provide more detail on the proposed business combination.
Additionally during this period, representatives of L&F, ZeroFox
and IDX, and their advisors held regular process update calls to discuss the status of the PIPE financing and feedback received from investors.
During the month of August, K&E and Venable continued their
review of diligence materials in the virtual data rooms and submitted supplemental requests to ZeroFox’s and IDX’s advisors on August 7, 2021, August 11, 2021, and August 20, 2021 addressing the various questions raised by L&F, ZeroFox and
their respective advisors.
On August 19, 2021, Venable and K&E held a status update call
regarding the Business Combination Agreement.
On August 25, 2021, L&F and ZeroFox extended exclusivity under
their LOI for 30-days and the extension also provided that if the parties continued working in good faith toward execution of the Business Combination Agreement, the exclusivity automatically extended for successive periods of 30-days until the
LOI was terminated by the parties in writing.
On September 1, 2021, Venable provided a written report of its
findings regarding IDX to ZeroFox’s management team and K&E.
On September 2, 2021, Venable sent K&E and WSGR an initial draft
of the Business Combination Agreement for the proposed transaction. The initial draft of the Business Combination Agreement reflected the various business points from the LOI, as well as additional enhanced representations, warranties and
covenants of ZeroFox and IDX as a result of the due diligence completed to date.
On September 9, 2021, IDX provided responses to Venable regarding
certain questions posed by Venable in the initial draft of the Business Combination Agreement regarding the treatment of IDX warrants, IDX options and IDX convertible notes at closing and the availability of certain IDX financial statements.
On September 15, 2021 and September 16, 2021, representatives of
Jefferies hosted a virtual meeting with L&F regarding the possibility of issuing convertible note securities as additional financing in connection with the proposed business combination. Discussion ensued regarding the merits and
considerations of issuing convertible note securities and the prospective terms of such securities based on market reception.
Following the discussion with their respective advisors, L&F,
ZeroFox and IDX decided to pursue the issuance of convertible notes securities as additional financing in connection with the proposed business combination.
From September 20, 2021 through November 9, 2021, representatives of
L&F, ZeroFox and IDX, and their advisors held meetings with a select group of potential convertible notes investors regarding an investment in connection with the proposed business combination. The initial list of prospective investors was
prepared by Stifel and Jefferies and approved by both representatives of L&F and ZeroFox during their regularly scheduled virtual meetings. This list of prospective investors included Monarch Alternative Capital (“Monarch”) among other prospective investors sourced by Jefferies. During this period, management met with both potential common equity and convertible notes investors for initial management presentations and held additional
meetings with select investors. Included in these meetings were multiple virtual meetings with Monarch. During this period, L&F, ZeroFox and IDX, and their respective advisors, continued to hold regular process update calls to discuss the
capital raise process and feedback received from investors.
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On September 28, 2021, K&E sent Venable and WSGR a revised
draft of the Business Combination Agreement. The revised draft addressed matters such as the merger consideration, adjustments to the representations and warranties, covenants and closing conditions, and included the insertion of a right for
the L&F Board to consider a superior offer prior to Closing.
On September 30, 2021, WSGR sent Venable and K&E a revised draft
of the Business Combination Agreement. The WSGR revised draft also addressed matters such as the merger consideration, adjustments to the representations and warranties, covenants and closing conditions, and included the insertion of a right
for the IDX Board to consider a superior offer prior to Closing.
During the months of October, November and December, the parties
negotiated the ancillary agreements with respect to the transaction while the parties continued to discuss optimal financing for the transaction.
On October 1, 2021, October 7, 2021, and October 11, 2021, Venable
discussed the K&E and WSGR changes to the Business Combination Agreement with ZeroFox management.
On October 12, 2021, Venable hosted a conference call with WSGR to
discuss K&E’s and WSGR’s changes to the Business Combination Agreement and to confirm the overall structure of the representations and warranties to be given by ZeroFox and IDX.
On October 15, 2021, the IDX Board held a virtual meeting, which DBO
attended, to discuss progress of the transaction, outstanding material terms of the Business Combination Agreement, the PIPE market and the proposed convertible note PIPE financing.
On October 18, 2021, Venable sent a revised version of the Business
Combination Agreement to WSGR for review. The revised draft addressed the addition of provisions regarding the convertible note PIPE financing, the merger consideration, structural and substantive adjustments to the representations and
warranties, covenants, closing conditions, and termination rights, and removed the need for a ZeroFox Support Agreement or IDX Support Agreement or any right of the L&F Board, ZeroFox Board or IDX Board to consider a superior offer prior to
Closing.
On October 22, 2021, Venable sent K&E and WSGR a revised draft of
the Business Combination Agreement. The revised draft addressed matters such as the convertible note PIPE financing, consideration, structural and substantive adjustments to the representations and warranties, covenants and closing conditions,
and termination rights, and removed the need for a ZeroFox Support Agreement or IDX Support Agreement or any right of the L&F Board, ZeroFox Board or IDX Board to consider a superior offer prior to Closing.
On October 30, 2021, Venable provided ZeroFox’s management team and
K&E with a supplemental report regarding its additional due diligence findings regarding IDX.
On November 2, 2021, K&E discussed the changes to the Business
Combination Agreement with L&F. On November 5, 2021, K&E sent a revised draft of the Business Combination Agreement to Venable and WSGR, which reflected the convertible note PIPE financing and equity subscription agreements, and the
divergent views on certain matters, including the certainty of closing, breadth of representations and warranties, materiality thresholds, interim operating covenants and termination rights. K&E also reinserted the requirement for a ZeroFox
Support Agreement and IDX Support Agreement and a right of the L&F Board to consider a superior offer prior to Closing.
On November 8, 2021, Venable prepared and delivered a summary of
issues for ZeroFox to review regarding K&E’s revisions to the Business Combination Agreement. As an initial matter, on November 9, 2021, K&E, Venable and WSGR attended a conference call to discuss the support agreement structure of the
Business Combination Agreement and the right of each party to consider a superior offer prior to Closing.
On November 9, 2021, L&F, ZeroFox and IDX, and their advisors
held a virtual meeting to evaluate term sheets received as a result of the convertible notes outreach process. Discussion ensued, and after carefully reviewing multiple offers of indicative terms from convertible notes investors, L&F,
ZeroFox and IDX decided to pursue a convertible note financing with majority funding from Monarch.
On November 10, 2021, Venable and WSGR attended a conference call to
further discuss the November 5, 2021 K&E revisions to the Business Combination Agreement. On November 11, 2021, K&E, Venable and WSGR attended a second conference call to review the November 5, 2021 K&E revisions to the Business
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Combination Agreement in greater detail regarding changes to provisions that
addressed the support agreement-superior offer structure, certain representations and warranties, operations of L&F, ZeroFox and IDX prior to closing, claims against the L&F trust account and closing conditions. Later that day, Venable
sent a mark-up of the Business Combination Agreement to WSGR for further review. WSGR then sent comments back to Venable on November 15, 2021.
On November 15, 2021, ZeroFox and IDX extended exclusivity under the
Replacement IDX LOI from October 30, 2021 to December 15, 2021.
On November 15, based on a summary of the discussions among
representatives of L&F, ZeroFox and IDX, the L&F Board determined to increase the amount of external financing to $170 million from the original proposed $150 million in order to accommodate an expressed desire for further investment in
New ZeroFox by affiliates of, and existing investors in, the Sponsor, ZeroFox and IDX, to ensure there was sufficient cash at closing to cover the minimum cash condition under the Business Combination Agreement, to provide sufficient cash to
the balance sheet of New ZeroFox upon consummation of the Business Combination, and to cover expenses related to the transactions contemplated by the Business Combination.
On November 15, 2021, the L&F Board held a virtual meeting to
discuss a term sheet from Monarch and a summary of the $170 million of new financing in connection with the proposed Business Combination. Representatives of L&F conveyed to the L&F Board at such meeting that, of the $170 million,
Monarch would subscribe for $120 million of 7.00% cash or 8.75% PIK, at L&F’s option, of convertible notes, affiliates of the Sponsor would subscribe for $30 million of the same convertible notes, and certain ZeroFox insiders would
subscribe for $5 million of ZeroFox PIK Promissory Notes, which would become part of the $20 million of common stock equity funded at transaction close by affiliates of the Sponsor, ZeroFox and IDX. While no formal action was taken at such
L&F Board meeting, the L&F Board generally agreed for representatives of L&F to continue negotiating the transaction structure as outlined in the materials provided at such meeting.
Between November 15, 2021 and December 2, 2021, representatives of
K&E, Venable, WSGR, and Stroock & Stroock & Lavan, counsel to Monarch, with input from representatives of L&F, ZeroFox, IDX, and Monarch, respectively, exchanged multiple drafts of the Business Combination Agreement and the
related transaction agreements including the PIPE and convertible notes subscription agreements and negotiated key terms in the documents. The material terms of the Business Combination Agreement were substantially reflective of the terms of
the LOI, though incorporating the inclusion of convertible notes in the committed transaction financing and decreasing the minimum cash closing condition to $170 million, inclusive of all committed transaction financing and ZeroFox PIK
Promissory Notes.
On November 16, 2021, following Venable’s review of K&E’s and
WSGR’s comments to the Business Combination Agreement and multiple conference calls between Venable and ZeroFox to review these changes, Venable sent K&E and WSGR a revised draft of the Business Combination Agreement that reflected
resolution of many of the matters mentioned above in the November 5, 2021 K&E revisions to the Business Combination Agreement, again removing the support agreement-superior offer structure, further revising defined terms relating to
consideration, confirming the structure of the representations and warranties issued by ZeroFox and IDX, revising the conduct of business by L&F, ZeroFox and IDX prior to closing, clarifying claims against the L&F trust account,
revising the timing of employee benefits following closing, and reinstating certain tax provisions.
On November 17, 2021, K&E discussed the changes to the Business
Combination Agreement with L&F. K&E sent a revised draft of the Business Combination Agreement to Venable and WSGR on November 19, 2021. In such draft, K&E reinstated the provisions regarding the support agreement-superior offer
structure, introduced the potential for L&F to be traded on Nasdaq instead of NYSE, revised some of the organizational procedural approvals by L&F, revised the minimum cash requirement, made revisions to the consideration provisions,
added reference to many of the governing document exhibits and revised the governing documents section, made minor revisions to the representations and warranties, revised pay-offs of ZeroFox and IDX debt, revised the required company party
approvals, and introduced revisions to the L&F organizational documents to extend the time that L&F has to consummate a business combination.
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On November 18, 2021, the IDX CEO provided an update to the IDX
Board via videoconference, which DBO attended, on the outstanding issues in the Business Combination Agreement. WSGR attended the meeting and discussed the proposed structure and written consents required from certain IDX shareholders shortly
after the signing of the Business Combination Agreement and the implications of such structure on registration rights and the ability to accept a superior offer.
On November 22, 2021, Venable, WSGR and K&E, together with
representatives from IDX, ZeroFox and L&F, conducted a telephonic conference meeting during which the parties reviewed the status of various ancillary documents and discussed certain open negotiation points regarding the transaction
generally and the Business Combination Agreement specifically.
On November 23, 2021, Venable sent an interim mark-up of the Business
Combination Agreement to WSGR and on the same day incorporated feedback from WSGR and ZeroFox into a revised draft of the Business Combination Agreement.
On November 23, 2021, L&F and K&E also formed each of ZF
Merger Sub, Inc., IDX Merger Sub, Inc., IDX Forward Merger Sub, LLC and L&F Acquisition Holdings, LLC in Delaware, all of the subsidiaries required under the tax structure of the Business Combination Agreement.
On November 24, 2021, Venable sent K&E and WSGR a revised draft
of the Business Combination Agreement. The draft bracketed the provisions regarding the support agreement-superior offer structure for each party’s further consideration and further revised certain definitions that impacted consideration, the
governing documents section, the representations and warranties, the covenants regarding operation of the business prior to closing, management of debt pay-offs by ZeroFox and IDX at closing, the closing conditions, and rights of termination.
On November 30, 2021, K&E sent a further revised draft of the
Business Combination Agreement to Venable and WSGR. The mark-up kept the provisions regarding the support agreement-superior offer structure bracketed for further discussion and made further revision to the provisions addressing the merger
consideration, representations and warranties, operation of the business prior to closing, management of debt pay-offs by ZeroFox and IDX at closing, provisions regarding the L&F organizational documents to extend the time that L&F has
to consummate a business combination, and rights of termination.
On December 1, 2021, K&E sent L&F a supplemental summary of
its due diligence findings. The scope of the summary report focused on updates that had occurred since K&E’s delivery of its initial diligence findings on November 10, 2021, specifically relating to changes to ZeroFox’s capitalization
table, employee benefits, executive compensation and intellectual property.
Also on December 1, 2021, L&F formally engaged Jefferies as its
co-placement agent and capital markets advisor.
On December 2, 2021, Venable sent K&E and WSGR a revised draft of
the Business Combination Agreement. Later in the day on December 2, 2021, WSGR sent a further revised draft of the Business Combination Agreement to K&E and Venable. These marks-up kept the provisions regarding the support
agreement-superior offer structure bracketed for further discussion and made further revision to description of the convertible notes, the definition of material adverse effect as applied to each of the parties, consideration, representations
and warranties, operation of the business prior to closing, and conditions to closing.
On December 2, 2021, the IDX CEO updated the IDX Board on the
transaction via videoconference with WSGR and DBO present. At that meeting, WSGR provided an overview of the outstanding issues in the Business Combination Agreement and status of the PIPE transaction, the convertible notes transaction and
other ancillary documents.
Also, beginning on December 2, 2021 and until December 17, 2021,
K&E, Venable and WSGR began conducting regular telephonic conference meetings during which the parties reviewed the status of various ancillary documents and discussed certain open negotiation points regarding the Business Combination
Agreement.
On December 3, 2021, L&F management provided the L&F Board,
via email, with an interim diligence update slideshow presentation, jointly prepared with Jefferies, Maples Group, and K&E and included findings with respect to certain legal diligence matters as well as transaction structure, anticipated
timeline to closing, and
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a summary of the L&F Board resolutions to be passed. Additionally, a similar
report prepared by Venable was provided to the L&F Board detailing Venable’s diligence findings with respect to IDX and its business. Additionally, a representative of the Maples Group presented to the L&F Board regarding their
fiduciary duties as directors of a Cayman Islands exempted corporation.
On December 4, 2021, K&E sent Venable and WSGR a revised draft of
the Business Combination Agreement. The provisions regarding the support agreement-superior offer structure were ultimately removed and K&E made further revisions to the provisions regarding the merger consideration, the definition of
material adverse effect as applied to each of the parties, representations and warranties, operation of the business prior to closing, management of debt pay-offs by ZeroFox and IDX at closing, certain approval requirements and certain tax
provisions.
On December 6, 2021, Venable sent K&E and WSGR a revised draft of
the Business Combination Agreement. Later in the day on December 6, 2021, WSGR sent a further revised draft of the Business Combination Agreement to K&E and Venable. The revisions addressed the provisions regarding the merger consideration,
the definition of material adverse effect as applied to each of the parties, representations and warranties, management of debt pay-offs by ZeroFox and IDX at closing, certain approval requirements, certain tax provisions and rights of
termination.
On December 7, 2021, the L&F Board met and received updates
regarding certain diligence items. Representatives from K&E were present. At that meeting, K&E provided an overview of diligence findings regarding ZeroFox’s governmental permits, licenses and clearances, particularly in the context of
a historical investment by a foreign investor, Redline Capital, into ZeroFox and the investor’s right to appoint a director to the ZeroFox Board. The L&F Board asked several questions and discussion ensued, but no formal action was taken.
On December 7, 2021, following prior discussions among the parties,
ZeroFox entered into a letter agreement with its investor Redline Capital, pursuant to which Redline Capital irrevocably waived its right to designate a member of the ZeroFox Board and its board observer rights and pursuant to which Redline
Capital granted to ZeroFox’s chief executive officer an irrevocable proxy to vote all of its shares. For more information about the Redline Capital letter, see the section entitled “Certain Relationships and
Related Party Transactions - ZeroFox Related Party Transactions - Redline Letter Agreement.”
On December 8, 2021, K&E sent a revised draft of the Business
Combination Agreement to Venable and WSGR, and Venable and WSGR sent further revised drafts of the Business Combination Agreement to the parties later that same day. The revisions consisted of changes to provisions regarding merger
consideration, required approvals regarding the L&F domestication, the definition of material adverse effect as applied to each of the parties, management of debt pay-offs by ZeroFox at closing, certain approval requirements, and certain
tax provisions.
On December 11, 2021, K&E sent a revised draft of the Business
Combination Agreement to Venable and WSGR. K&E made revisions to provisions regarding the merger consideration, representations and warranties, certain approval requirements, management of debt pay-offs by ZeroFox at closing, and timing of
the listing application on Nasdaq.
On December 13, 2021, Venable sent revisions to the Business
Combination Agreement, which included input from WSGR, to K&E and WSGR. Venable made revisions to the provisions regarding debt pay-offs by ZeroFox at closing. Later that same day, K&E sent a revised draft of the Business Combination
Agreement to Venable and WSGR revising the provisions addressing the closing cash requirement and the debt pay-offs by ZeroFox at closing.
On December 14, 2021, following an all-hands call with K&E,
Venable, WSGR and the principals, Venable sent a revised draft of the Business Combination Agreement to K&E and WSGR, and later that same day, K&E sent a further revised draft of the Business Combination Agreement to Venable and WSGR
addressing rights of termination.
On December 15, 2021, K&E sent three further revised drafts of
the Business Combination Agreement to Venable and WSGR, following additional comments from Venable and WSGR, to further revise the provisions regarding the closing cash requirement and termination rights.
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On December 15, 2021, the L&F Board held a virtual meeting
with its advisors and representatives to discuss the Business Combination Agreement and the transaction agreements. Among other topics, the L&F Board reviewed an update of the proposed transaction since the date of the meeting of the
L&F Board on December 3, 2021 and updates with respect to certain key diligence findings.
Additionally discussed was the potential to appoint a new independent
director to join the L&F Board, including the audit committee. Kurt Summers Jr. was discussed as a candidate given his background as a director of public companies and financial expertise. At the close of the meeting, the L&F Board
determined that it was in the best interests of L&F to appoint Mr. Summers as an independent board member.
Also at the December 15, 2021 meeting of the L&F Board, the
L&F Board reaffirmed their support for the transaction, with written consents to be provided approving the transaction.
Also on December 15, 2021, L&F formalized its engagement with
Stifel to act as its co-placement agent.
On December 15, 2021, the ZeroFox Board held a virtual meeting with
Venable and Stifel to discuss the Business Combination Agreement and related transaction agreements. Among other topics, the ZeroFox Board reviewed an updated version of the Business Combination Agreement and related transaction agreements,
employee matters following the closing of the proposed transaction, the PIPE transaction, and the convertible notes transaction, and reaffirmed their support for each of them.
On December 15, 2021, the IDX Board also held a virtual meeting with
WSGR to discuss the Business Combination Agreement and related transaction agreements. Among other topics, the IDX Board reviewed an updated version of the Business Combination Agreement and related transaction agreements, the PIPE transaction,
and the convertible notes transaction, and reaffirmed their support for each of them.
On December 16, 2021, in connection with an amendment of the ZeroFox
Loan and Security Agreement with Stifel Bank, certain ZeroFox insiders purchased the ZeroFox PIK Promissory Notes for an aggregate purchase price of $5.0 million. The ZeroFox PIK Promissory Notes accrue interest that will be paid-in-kind at a
rate of 5.0% per annum. If the closing occurs, the repayment of the original principal amount of the ZeroFox PIK Promissory Notes may be offset against amounts owed by the relevant ZeroFox insiders under their PIPE subscription agreements.
Following discussion by the L&F Board and based on the factors
cited in “Proposal No. 2 - The Business Combination Proposal - The L&F Board’s Reasons for the Approval of the Business Combination” and in light of the fact that the fair market value of ZeroFox and
IDX was equal to at least 80% of the funds held in the trust account and that the transaction was in the best interest of L&F’s shareholders, the Business Combination Agreement and related documents and agreements were unanimously approved
by the L&F Board by unanimous written consent the evening of December 17, 2021, and the L&F Board determined to recommend the approval of the Business Combination Agreement to the shareholders of L&F.
On December 17, 2021, the parties finalized the transaction documents
(or forms thereof) with respect to the proposed Business Combination based on the terms agreed upon by the parties and approved by their respective boards of directors, including an Amended and Restated Sponsor Support Letter Agreement, the
Subscription Agreements with each of the PIPE Investors and Convertible Notes Investors, and the Business Combination Agreement and the exhibits thereto. Also, K&E sent final transaction documents to Venable and WSGR on December 17, 2021,
and the parties confirmed via email on December 17, 2021 and the morning of December 18, 2021 that all final transaction documents had been exchanged and the transaction documents were executed.
On December 18, 2021, the requisite number of ZeroFox and IDX
shareholders executed written consents approving, among other things, the Business Combination and related transaction agreements.
On December 20, 2021, L&F, ZeroFox and IDX issued a joint press
release publicly announcing the Business Combination.
The parties have continued and expect to continue regular discussions
regarding the timing to consummate the Business Combination and necessary preparation in connection therewith.
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On March 30, 2022, L&F filed a preliminary proxy statement
with the SEC in connection with an extraordinary general meeting of L&F’s shareholders to consider and vote upon a proposal to amend the amended and restated memorandum and articles of association to extend the date by which L&F must
complete its initial business combination from May 23, 2022 to August 24, 2022.
On April 12, 2022, L&F filed a definitive proxy statement with
the SEC in connection with the Extension Meeting.
On May 3, 2022, the L&F shareholders approved the Extension
Amendment Proposal at the Extension Meeting and on May 3, 2022, L&F filed the Extension Articles Amendment with the Register of Companies of the Cayman Islands. In connection with the vote to approve the Extension Amendment Proposal, the
holders of 13,824,311 Class A Ordinary Shares properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.154 per share, for an aggregate redemption amount of approximately $140,378,518. After
giving effect to the Extension Amendment Redemptions, as of May 4, 2022, there are 3,425,689 Class A Ordinary Shares outstanding.
On June 7, 2022, L&F issued a press release and filed a current
report on Form 8-K announcing its voluntary transfer of the Class A Ordinary Shares, the L&F Public Units and the L&F Public Warrants from the NYSE to NYSE American.
On June 10, 2022 the transfer of the Class A Ordinary Shares, the
L&F Public Units and the L&F Public Warrants to NYSE American became effective.
Summary of L&F Financial Analysis
In connection with the valuation of the Target Companies, L&F
reviewed certain financial information of certain publicly-traded companies, particularly, cybersecurity software-as-a-service companies, selected based on the experience and the professional judgment of L&F’s management team, as compared
to the historical and projected financial information of the Target Companies. Below is a summary of the material comparable company analysis prepared by L&F and reviewed by the L&F Board at its December 3, 2021 meeting.
In performing its analysis, L&F’s management team made certain
assumptions with respect to, among other things, the ability of the Target Companies to attract and retain subscribers, the ability of the Target Companies to continue to compete in the cybersecurity software-as-a-service industry globally,
that the Target Companies continue to be able to develop and properly market new cybersecurity software, and general business, market, political and economic conditions. L&F also assumed baseline growth consistent with the Target Companies’
historical trends and as adjusted in the Target Companies’ projections due to the benefits of the combination of ZeroFox and IDX, such as increased annual revenue by calendar year 2022 of approximately $195 million and by calendar year 2023 of
approximately $253 million, as well as achieving approximately 45% gross margin by calendar year 2022.
Many of these assumptions are beyond the control of L&F, ZeroFox,
IDX or any other parties to the Business Combination. None of L&F, ZeroFox, IDX, or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in this analysis are not
necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, the analysis relating to the value of the Target Companies does not
purport to be an appraisal or reflect the prices at which New ZeroFox’s securities may actually be valued or trade in the open market after the consummation of the Business Combination. Accordingly, the assumptions and estimates used in, and
the results derived from, the below analysis are inherently subject to substantial uncertainty. The quantitative information presented below, to the extent that it is based on market data, is not necessarily indicative of current market
conditions.
165
Comparable Company Analysis
L&F considered certain financial and operating data for certain
publicly-traded companies, particularly, similar cybersecurity software-as-a-service companies, which are highlighted below. None of the selected companies has characteristics identical to ZeroFox or IDX. L&F reviewed the equity value,
enterprise value (“EV”), revenue multiples (EV divided by revenue), revenues and revenue growth, capitalization profiles, and gross margins of each of the comparable companies, which L&F management deemed relevant based on its professional
judgment and expertise, and compared the same to the revenue and growth projections of ZeroFox and IDX combined, determined in accordance with the valuation analysis described below:
|
|
| |
Trading Metrics
|
||||||||||||||||||
|
|
| |
Price at
11/26/2021
|
| |
Percent of
|
| |
Equity
Value
|
| |
Enterprise
Value
|
| |
EV / Revenue
|
||||||
|
($ in Millions, except for per share)
|
| |
52-Week High
|
| |
52-Week Low
|
| |
2022E
|
| |
2023E
|
|||||||||
|
CrowdStrike Holdings, Inc.
|
| |
$232.64
|
| |
78%
|
| |
168%
|
| |
$56,316
|
| |
$55,170
|
| |
28.5x
|
| |
21.3x
|
|
Okta, Inc.(1)
|
| |
$222.69
|
| |
76%
|
| |
112%
|
| |
$37,427
|
| |
$37,155
|
| |
21.6x
|
| |
16.2x
|
|
Tyler Technologies, Inc.(2)
|
| |
$501.43
|
| |
90%
|
| |
135%
|
| |
$21,547
|
| |
$22,106
|
| |
11.9x
|
| |
10.7x
|
|
Rapid7, Inc.(3)
|
| |
$124.42
|
| |
86%
|
| |
177%
|
| |
$7,684
|
| |
$8,032
|
| |
12.3x
|
| |
10.2x
|
|
Tenable, Inc.(4)
|
| |
$50.08
|
| |
86%
|
| |
144%
|
| |
$5,999
|
| |
$5,347
|
| |
8.4x
|
| |
7.0x
|
|
SailPoint Technologies Inc.
|
| |
$51.89
|
| |
81%
|
| |
133%
|
| |
$5,176
|
| |
$4,754
|
| |
9.8x
|
| |
8.1x
|
|
Ping Identity Corporation
|
| |
$23.56
|
| |
63%
|
| |
114%
|
| |
$2,117
|
| |
$2,186
|
| |
6.5x
|
| |
5.7x
|
|
Mean
|
| |
|
| |
80%
|
| |
140%
|
| |
$19,466
|
| |
$19,250
|
| |
14.2x
|
| |
11.3x
|
|
Median
|
| |
|
| |
81%
|
| |
135%
|
| |
$7,684
|
| |
$8,032
|
| |
11.9x
|
| |
10.2x
|
|
ZeroFox Pro Forma(5)
|
| |
|
| |
|
| |
|
| |
$1,391
|
| |
$1,310
|
| |
6.7x
|
| |
5.1x
|
|
(1)
|
Shown pro forma for the acquisition of Townsend Street Labs.
|
|
(2)
|
Shown pro forma for the acquisition of Arx.
|
|
(3)
|
Shown pro forma for the acquisition of IntSights.
|
|
(4)
|
Shown pro forma for the acquisition of Accurics.
|
|
(5)
|
ZeroFox CY metrics approximated using fiscal year end Jan 31.
|
|
|
| |
Operating Metrics
|
||||||||||||||||||||||||
|
($ in Millions, except for per share)
|
| |
Cash
|
| |
Total
Debt
|
| |
% Recurring
Revenue
|
| |
Revenue
|
| |
Revenue Growth
|
| |
Gross Margin
|
|||||||||
| |
2022E
|
| |
2023E
|
| |
2022E
|
| |
2023E
|
| |
2022E
|
| |
2023E
|
|||||||||||
|
CrowdStrike Holdings, Inc.
|
| |
$1,908
|
| |
$750
|
| |
93%
|
| |
$1,934
|
| |
$2,581
|
| |
38%
|
| |
33%
|
| |
77%
|
| |
77%
|
|
Okta, Inc.(1)
|
| |
$2,482
|
| |
$2,210
|
| |
96%
|
| |
$1,717
|
| |
$2,284
|
| |
37%
|
| |
33%
|
| |
77%
|
| |
78%
|
|
Tyler Technologies, Inc.(2)
|
| |
$283
|
| |
$843
|
| |
73%
|
| |
$1,856
|
| |
$2,061
|
| |
16%
|
| |
11%
|
| |
48%
|
| |
49%
|
|
Rapid7, Inc.(3)
|
| |
$259
|
| |
$608
|
| |
90%
|
| |
$652
|
| |
$791
|
| |
23%
|
| |
21%
|
| |
73%
|
| |
74%
|
|
Tenable, Inc.(4)
|
| |
$1,027
|
| |
$375
|
| |
94%
|
| |
$639
|
| |
$760
|
| |
19%
|
| |
19%
|
| |
82%
|
| |
82%
|
|
SailPoint Technologies Inc.
|
| |
$422
|
| |
$0
|
| |
87%
|
| |
$486
|
| |
$585
|
| |
17%
|
| |
20%
|
| |
77%
|
| |
77%
|
|
Ping Identity Corporation
|
| |
$51
|
| |
$120
|
| |
94%
|
| |
$334
|
| |
$382
|
| |
13%
|
| |
14%
|
| |
80%
|
| |
80%
|
|
Mean
|
| |
$919
|
| |
$701
|
| |
90%
|
| |
$1,088
|
| |
$1,349
|
| |
23%
|
| |
22%
|
| |
74%
|
| |
74%
|
|
Median
|
| |
$422
|
| |
$608
|
| |
93%
|
| |
$652
|
| |
$791
|
| |
19%
|
| |
20%
|
| |
77%
|
| |
77%
|
|
ZeroFox Pro Forma(5)
|
| |
|
| |
|
| |
90%
|
| |
$195
|
| |
$253
|
| |
30%
|
| |
30%
|
| |
45%
|
| |
50%
|
|
(1)
|
Shown pro forma for the acquisition of Townsend Street Labs.
|
|
(2)
|
Shown pro forma for the acquisition of Arx.
|
|
(3)
|
Shown pro forma for the acquisition of IntSights.
|
|
(4)
|
Shown pro forma for the acquisition of Accurics.
|
|
(5)
|
ZeroFox CY metrics approximated using fiscal year end Jan 31.
|
The L&F Board’s Reasons for the Approval of the Business
Combination
The L&F Board, in evaluating the transaction with the Target
Companies, consulted with L&F’s management, K&E, and Jefferies. In reaching its unanimous resolution (a) that the terms and conditions of the Business Combination Agreement and the transactions contemplated thereby, including the
Business Combination and Domestication, are advisable, fair to and in the best interests of L&F and its shareholders and (b) to
166
recommend that the shareholders approve the transactions contemplated by the Business
Combination Agreement, the Board considered a wide variety of factors in connection with its evaluation of the Business Combination. In light of the complexity of those factors, the Board, as a whole, did not consider it practicable to, nor did
it attempt to, quantify or otherwise assign relative weights to the specific factors it took into account in reaching its decision. Individual members of the Board may have given different weight to different factors. This explanation of the
reasons for the Board’s approval of the Business Combination, and all other information presented in this section, is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Note Regarding Forward-Looking Statements.”
Before reaching its decision, the L&F Board reviewed the results
of the due diligence conducted by L&F’s management and advisors, which included:
|
•
|
extensive meetings and calls with ZeroFox and IDX management to understand and analyze ZeroFox’s and IDX’s respective
businesses;
|
|
•
|
review of diligence materials and interviews conducted by K&E and L&F’s other advisors and, with respect to IDX, Venable
and ZeroFox’s other advisors;
|
|
•
|
review of contracts, material liabilities and other material matters;
|
|
•
|
consultation with L&F management and legal counsel and financial advisor;
|
|
•
|
review of ZeroFox’s and IDX’s respective consolidated financial statements;
|
|
•
|
research on industry trends;
|
|
•
|
research on comparable companies;
|
|
•
|
research on comparable transactions; and
|
|
•
|
reviews of certain projections provided by the Target Companies.
|
The factors considered by the L&F Board included, but were not
limited to, the following:
|
•
|
the consideration to be offered in connection with the Business Combination, including the amount and type thereof;
|
|
•
|
the Target Companies’ management teams and experience running cybersecurity businesses with a track record of success in driving
growth;
|
|
•
|
the Target Companies’ ability to scale their combined platform and provide unique solutions that create barriers to entry with
defensible, market-leading positions;
|
|
•
|
the Target Companies’ industry, being a large and expanding market with significant whitespace opportunities, where unmet market
needs may be uncovered to create opportunities for innovation;
|
|
•
|
industry tailwinds that drive accelerated growth and further adoption of the Target Companies’ products and solutions;
|
|
•
|
the Target Companies’ financial characteristics, including consistent organic revenue growth with recurring subscription revenue
bases and the ability to generate attractive unit economics and returns on capital as New ZeroFox; and
|
|
•
|
the Target Companies’ ability to capitalize on operating leverage and improve margins while executing on numerous, tangible
growth initiatives.
|
In the course of its deliberations, the L&F Board considered a
variety of uncertainties, risks and other potentially negative reasons relevant to the Business Combination, including the below:
|
•
|
the risk that the potential benefits of the Business Combination and Domestication may not be fully achieved, or may not be
achieved within the expected timeframe and the significant fees, expenses and time and effort of management associated with completing the Business Combination and Domestication;
|
|
•
|
the risk that the Business Combination and transactions contemplated thereby might not be consummated or completed in a timely
manner or that the closing might not occur despite our best
|
167
efforts, including by reason of a failure to obtain the approval of our shareholders,
litigation challenging the Business Combination or that an adverse judgment granting permanent injunctive relief could indefinitely enjoin the consummation of the Business Combination;
|
•
|
the risk that the cost savings and growth initiatives of each Target Company’s long-term growth strategy may not be fully
achieved or may not be achieved within the expected timeframe;
|
|
•
|
the risk that changes in the regulatory and legislative landscape or new industry developments may adversely affect the business
benefits anticipated to result from the Business Combination;
|
|
•
|
the potential that a significant number of L&F shareholders elect to redeem their Class A Ordinary Shares prior to the
consummation of the Business Combination and pursuant to the Existing Governing Documents, which would potentially make the Business Combination more difficult or impossible to complete;
|
|
•
|
the risks and costs to L&F if the Business Combination is not completed, including the risk of diverting management focus
and resources from other business combination opportunities, which could result in L&F being unable to effect an initial business combination by May 23, 2022 (which date was extended to August 24, 2022 by the Extension Articles
Amendment);
|
|
•
|
competition in the cybersecurity software-as-a-service industry is intense and, as a result, ZeroFox may fail to attract and
retain users, which may negatively impact ZeroFox’s operations and growth prospects;
|
|
•
|
economic downturns and market conditions beyond the Target Companies’ control, including a reduction in spending which could
adversely affect each Target Company’s business, financial condition, results of operations and prospects;
|
|
•
|
the requirements of being a public company, including compliance with the SEC’s requirements regarding internal controls over
financial reporting, may strain New ZeroFox’s resources and divert management’s attention, and the increases in legal, accounting and compliance expenses that will result from the Business Combination may be greater than the Target
Companies anticipate;
|
|
•
|
ZeroFox’s cybersecurity software-as-a-service business may be subject to regulatory scrutiny;
|
|
•
|
New ZeroFox may invest in or acquire other businesses, or may invest or spend the proceeds of the Business Combination in ways
with which the investors may not agree or which may not yield a return, and New ZeroFox’s business may suffer if it is unable to successfully integrate acquired businesses into its company or otherwise manage the growth associated with
multiple acquisitions; and
|
|
•
|
ZeroFox’s history of net losses in combination with the pro forma expectation that New ZeroFox would be cash flow positive.
|
In addition to considering the factors described above, the L&F
Board also considered other factors including, without limitation:
|
•
|
the Sponsor, members of the L&F Board and other executive officers of L&F and the Sponsor have interests in the Business
Combination Proposal, the other Proposals described in this proxy statement/prospectus and the Business Combination that are different from, or in addition to, those of L&F shareholders generally. For more information on this
discussion, see sections entitled “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination” and “Proposal
No. 2 - Conflicts of Interest and Waiver of Corporate Opportunity Doctrine.”
|
|
•
|
The various risks associated with the Business Combination, the business of ZeroFox and IDX and the business of L&F, as
described in the section entitled “Risk Factors.”
|
After considering the foregoing potentially negative and potentially
positive reasons, the L&F Board concluded, in its business judgment, that the potentially positive reasons relating to the Business Combination, Domestication and the other related transactions outweighed the potentially negative reasons.
168
Certain Projected Financial Information
In connection with its consideration of the potential business
combination, the L&F Board was provided with the projections set forth below prepared by management of ZeroFox with input from management of IDX (collectively, the “Projections”).
ZeroFox and IDX do not as a matter of course make public projections
as to future sales, earnings, or other results. However, the management of ZeroFox with input from management of IDX has prepared the Projections to provide L&F’s shareholders access to information made available in connection with the
L&F Board’s consideration of the proposed Business Combination. The Projections should not be viewed as public guidance. Furthermore, the Projections do not take into account any circumstances or events occurring after the date on which the
Projections were updated. The Projections were first shared in June 2021 and last updated in November 2021. Furthermore, the Projections do not take into account any circumstances or events occurring after the date they were prepared.
The Projections were not prepared with a view toward public
disclosure or with a view toward complying with the guidelines established by the SEC or the American Institute of Certified Public Accountants with respect to prospective financial information.
None of the independent auditors of ZeroFox, IDX or L&F, nor any
other independent accountants, have compiled, examined, or performed any procedures with respect to the Projections, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no
responsibility for, and disclaim any association with, the Projections. See “Cautionary Note Regarding Forward-Looking Statements.”
The Projections were prepared in good faith by ZeroFox management
with input from IDX management, and are based on estimates and assumptions considered by them to be reasonable with respect to the expected combined future financial performance of ZeroFox and IDX at the time the Projections were prepared and
speak only as of that time. While presented with numerical specificity, the Projections are forward-looking and reflect numerous estimates and assumptions including, but not limited to, future industry performance under various industry
scenarios as well as assumptions for competition, general business, economic, market and financial conditions and matters specific to the businesses of ZeroFox and IDX, all of which are inherently uncertain and difficult to predict and many of
which are beyond the preparing parties’ control including, among other things, the matters described in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” The Projections are not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement/prospectus are cautioned not to place undue
reliance on the Projections. New ZeroFox will not refer back to the Projections in its future periodic reports filed under the Exchange Act.
The Projections were prepared solely for internal use to assist
L&F in its evaluation of the Target Companies and the Business Combination. ZeroFox and IDX have not warranted the accuracy, reliability, appropriateness or completeness of the projections to anyone, including L&F. Neither ZeroFox’s
management, IDX’s management, nor any of their respective representatives has made or makes any representations to any person regarding the ultimate performance of New ZeroFox relative to the Projections. The Projections are not fact. The
Projections are not a guarantee of actual future performance. The future financial results of the Target Companies may differ materially from those expressed in the Projections due to factors beyond either of their ability to control or
predict.
The Projections are not included in this proxy statement/prospectus
in order to induce any L&F shareholders to vote in favor of any of the proposals at the Shareholder Meeting.
We encourage you to review the financial statements of ZeroFox and
IDX included in this proxy statement/ prospectus, as well as the financial information in the sections titled “Summary Historical Financial Information of ZeroFox”, “Summary
Historical Financial Information of IDX” and “Unaudited Pro Forma Combined Financial Information” in this proxy statement/prospectus and to not rely on any single financial measure.
Neither L&F, ZeroFox not IDX nor any of their respective
affiliates intends to, and, except to the extent required by applicable law (including a registrant’s responsibility to make full and prompt disclosure of material facts, both favorable and unfavorable, regarding its financial condition, which
responsibility may extend to situations where management knows, or has reason to know, that its previously disclosed projections no longer
169
have a reasonable basis), each of them expressly disclaims any obligation to, update,
revise or correct the Projections to reflect circumstances existing or arising after the date such Projections were generated or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the
Projections are shown to be in error or any of the Projections otherwise would not be realized.
The key elements of the projections provided by ZeroFox management
to the L&F Board are as follows:
|
(US$ in millions)
|
| |
2022(1)
|
| |
2023(1)
|
| |
2024(1)
|
| |
2025(1)
|
| |
2026(1)
|
|
Revenue
|
| |
$150
|
| |
$195
|
| |
$253
|
| |
$329
|
| |
$428
|
|
Gross Profit(2)
|
| |
$58
|
| |
$88
|
| |
$127
|
| |
$179
|
| |
$255
|
|
Free Cash Flow(3)
|
| |
($12)
|
| |
$3
|
| |
$31
|
| |
$58
|
| |
$105
|
|
(1)
|
These are projected results that include the results of both ZeroFox and IDX for each fiscal year ended January 31.
|
|
(2)
|
Gross Profit is defined as total revenue less total cost of services.
|
|
(3)
|
Free Cash Flow is defined as Gross Profit less capitalized software expense and other operating expenses, interest expense on
existing debt (assuming all outstanding debt obligations are repaid as part of the closing of the Business Combination), interest expense on the Notes to be issued in the Convertible Notes Financing (assuming the Notes are settled as
equity in 2025), income taxes (assuming the use of net operating loss carryforwards to offset future taxable income) and capital expenditures, plus certain non-cash reconciling items and changes in operating assets and liabilities.
|
The material assumptions underlying the Projections include:
|
•
|
assumptions related to expansion of services from existing, estimated market share growth from new customers and new product
introduction and adoption and cross-selling opportunities from the companies’ customer bases, all of which are expected to result in an implied revenue compounded annual growth rate of 30% from 2022 through 2026;
|
|
•
|
other general business and market assumptions, which are based on ZeroFox’s and IDX’s ability to continue to develop and foster
strong relationships with their channel partners, maintain the historical performance of ZeroFox and IDX, benefit from economic and market growth consistent with recent years, continue to develop new products and improvements thereto,
and capitalize on other future prospects;
|
|
•
|
an implied revenue compounded annual growth rate of approximately 50% for ZeroFox subscription revenue, which is lower than
ZeroFox’s historical annual growth rate over the past four years. Net dollar retention from existing customers is projected to be 105%;
|
|
•
|
an implied revenue compounded annual growth rate of approximately 50% for IDX’s breach response revenue, which approximates
IDX’s historical annual growth rate over the past four years. The OPM contract provides a fixed value throughout the contract term of June 2024, and therefore, no growth is assumed from OPM through the contract term and the remaining
forecast period;
|
|
•
|
assumptions related to cost of sales and gross profit margins are based on ZeroFox’s and IDX’s investments in research and
development to provide new revenue producing products and services and achieve greater platform cost efficiencies to improve upon ZeroFox’s non-GAAP gross margin of 67% for the year ended January 31, 2021 to approximately 79% for the
year ended January 31, 2026;
|
|
•
|
assumptions related to operating expenses and other costs and expenses, which are based on management’s current expectations for
long term scale efficiencies in operating costs and estimated general and administrative expenses related to being a public company;
|
|
•
|
assumptions related to free cash flow reflect the estimated revenue growth and operating efficiencies. The cash interest option
of 7% is applied to the convertible note balance, which is expected to be converted into common equity at its 3-year maturity; and
|
|
•
|
the assumption that New ZeroFox will grow organically, not have any material divestitures or make any other material changes in
its business or operations.
|
170
ZeroFox management believes its revenue projections are reasonable
because they are based on the combined company’s historical financial data, third party market data, and data inputs from multiple internal ZeroFox and IDX personnel. ZeroFox’s historical revenue growth rate over the preceding four years
approximates 75%; while IDX’s revenue, excluding the impact of revenue from the OPM contract, has grown at a compound rate of approximately 50%.
Actual pro forma combined revenue of $153 million for fiscal year
2022 exceeded the projected revenue of $150 million. Actual pro forma combined gross profit and free cash flow were $54 million and ($16 million), respectively, versus projected gross profit and free cash flow of $58 million and ($12 million),
respectively. Actual pro forma combined revenue for the three months ended April 30, 2022 was $41 million. Actual pro forma combined gross profit and free cash flow were $16 million and ($10 million), respectively. Additionally, as of the date
of this proxy statement/prospectus, the combined company’s operating expenses were slightly higher than projected as a result of higher general and administrative expenses related to the timing of the Business Combination and public company
readiness, increased research, development and threat intelligence activities and interest expense from additional borrowings under our debt facilities. We expect that the trends in these operating results, as well as rising expenses and
compensation levels, will continue through fiscal year 2023.
Management of ZeroFox selected a five-year period for the Projections
because such period would allow the combined company to fully integrate operations to capture cross-selling opportunities between the two customer bases, as well as to demonstrate a business model that does not depend on revenue and cash flow
from a single customer.
Interests of Certain Persons in the Business Combination
In considering the recommendation of the L&F Board to vote in
favor of the Business Combination, shareholders should be aware that, aside from their interests as shareholders, our Sponsor and our directors, officers and advisors and the Target Companies’ current owners have interests in the Business
Combination that are different from, or in addition to, those of our other shareholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the Business Combination, and in recommending to
our shareholders that they approve the Business Combination. Shareholders should take these interests into account in deciding whether to approve the Business Combination. These interests include, among other things:
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the fact that Sponsor and L&F’s directors and officers have agreed not to redeem any Class A Ordinary Shares held by them in
connection with a shareholder vote to approve the Business Combination and the Sponsor Holders are obligated to vote in favor of the Business Combination;
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the fact that our Sponsor has irrevocably waived the anti-dilution adjustments set forth in L&F’s organizational documents,
or any other anti-dilution or similar adjustment rights to which the Sponsor may otherwise be entitled related to or arising from the Business Combination;
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the fact that the Sponsor Holders paid an aggregate amount of $25,000 for the Founder Shares, which will convert into 4,312,500
shares of New ZeroFox Common Stock in accordance with the terms of L&F’s organizational documents and such securities will have a significantly higher value at the time of the Business Combination;
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the fact that our Sponsor paid $5,450,000 for 5,450,000 L&F Private Placement Warrants, each of which is exercisable
commencing on the later of 12 months from the closing of the L&F IPO and 30 days following the Closing for one Class A Ordinary Share at $11.50 per share; if we do not consummate an initial business combination by August 24, 2022,
then the proceeds from the sale of the L&F Private Placement Warrants will be part of the liquidating distribution to the Public Shareholders and the warrants held by our Sponsor will be worthless;
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the fact that the L&F Initial Shareholders, including the Sponsor (and certain of L&F’s officers and directors who are
members of the Sponsor), have invested in L&F an aggregate of $5,475,000, comprised of the $25,000 purchase price for 4,312,500 Founder Shares and the $5,450,000 purchase price for 5,450,000 L&F Private Placement Warrants.
Subsequent to the initial purchase of the Founder Shares by the Sponsor, the Sponsor transferred 20,000 Founder Shares to Mr. Albert Goldstein and 50,000 Founder Shares to Senator Joseph Lieberman at a nominal purchase price of $0.004
per Founder Share prior to the closing of the L&F IPO and 39,733 Founder Shares to Mr. Kurt Summers shortly after his being appointed to the L&F Board in December 2021 for no cash consideration.
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Assuming a trading price of $10.09 per Class A Ordinary Share and approximately
$0.35 per L&F Public Warrant (based upon the respective closing prices of the Class A Ordinary Shares and the L&F Public Warrants on the NYSE American on June 28, 2022), the 4,312,500 Founder Shares and 5,450,000 Private Placement
Warrants would have an implied aggregate market value of $45,420,625. Even if the trading price of the shares of New ZeroFox Common Stock were as low as $1.27 per share, the aggregate market value of the Founder Shares alone (without taking
into account the value of the L&F Private Placement Warrants) would be approximately equal to the initial investment in L&F by the L&F Initial Shareholders. As a result, the L&F Initial Shareholders are likely to be able to
make a substantial profit on their investment in L&F at a time when shares of New ZeroFox Common Stock have lost significant value. On the other hand, if L&F liquidates without completing a business combination before August 24, 2022,
the Initial Shareholders will lose their entire investment in L&F;
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the fact that the Sponsor and L&F’s officers and directors will benefit from the completion of a business combination and
may be incentivized to complete an acquisition of a less favorable target company or on terms less favorable to shareholders rather than liquidate;
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the fact that the L&F Initial Shareholders including the Sponsor (and the L&F’s officers and directors who are members
of the Sponsor) can earn a positive rate of return on their investment, even if other L&F shareholders experience a negative rate of return in New ZeroFox;
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the fact that the L&F Initial Shareholders and L&F’s other current officers and directors have agreed to waive their
rights to liquidating distributions from the Trust Account with respect to any L&F Ordinary Shares (other than Public Shares) held by them if L&F fails to complete an initial business combination by August 24, 2022;
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the fact that, at the option of the Sponsor, any amounts outstanding under any loan made by the Sponsor or any of its affiliates
to L&F in an aggregate amount of up to $1,500,000 may be converted into L&F Private Placement Warrants in connection with the consummation of the Business Combination;
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the fact that the Sponsor and L&F’s officers and directors will lose their entire investment in L&F and will not be
reimbursed for any loans extended, fees due or out-of-pocket expenses if an initial business combination is not consummated by August 24, 2022. As of the date of this proxy statement/prospectus there are no loans extended, fees due or
outstanding out-of-pocket expenses for which the Sponsor and L&F’s officers and directors are awaiting reimbursement;
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the fact that if the Trust Account is liquidated, including in the event L&F is unable to complete an initial business
combination within the required time period, Sponsor has agreed to indemnify L&F to ensure that the proceeds in the Trust Account are not reduced below $10.15 per L&F public share, or such lesser per public share amount as is in
the Trust Account on the liquidation date, by the claims of prospective target businesses with which L&F has entered into an acquisition agreement or claims of any third party for services rendered or products sold to L&F, but
only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;
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the fact that L&F may be entitled to distribute or pay over funds held by L&F outside the Trust Account to Sponsor or
any of its affiliates prior to the Closing;
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the fact that (i) L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity
affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam Gerchen, our chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the
chairman of the L&F Board) and an affiliate of Corbin Capital Partners, LP, a significant security holder of L&F, have executed and delivered Common Equity Subscription Agreements for an aggregate amount of $10,000,000,
(ii) L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) and an affiliate of Corbin Capital Partners, LP, a significant security
holder of L&F, have executed and delivered Convertible Notes Subscription Agreements for an aggregate principal
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amount of $30,000,000, and (iii) Adam Gerchen (our chief executive officer and
director of L&F) is a limited partner in funds managed by Monarch Capital, and that Monarch Capital has executed and delivered a Convertible Notes Subscription Agreement for an aggregate principal amount of $120,000,000;
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L&F has agreed to pay Jefferies, L&F’s co-PIPE placement agent and financial advisor, and sole underwriter in the
L&F IPO: (i) a cash fee for their services in connection with the L&F IPO in an aggregate amount equal to 5.5% of the gross proceeds of the L&F IPO, with 2.0% of the gross proceeds being paid to the underwriters at the time
the L&F IPO was completed and 3.5% of the gross proceeds (i.e., the deferred underwriting fee) being payable, and conditioned, upon consummating an initial business combination; the aggregate underwriting fee is fixed at 5.5% of the
gross proceeds from the L&F IPO and will not be adjusted based on the number of shares that are redeemed in connection with the Business Combination; the deferred underwriting fee of $6,037,500 represents approximately 17.6% and
35.2% of the aggregate proceeds from the L&F IPO, net of redemptions, in the no redemption, and 50% redemption scenarios (after giving effect to the Extension Amendment Redemptions), respectively; (ii) a placement agency fee as a
percentage of the aggregate gross proceeds received or to be received from one or more commitments for financing the Business Combination from sources other than any affiliates of ZeroFox, IDX or L&F, and split with Stifel (defined
below); and (iii) financial advisory fees as a fixed amount related to capital markets financial advice and assistance in connection with the Business Combination, as applicable, upon completion of the Business Combination;
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the fact that Stifel, co-PIPE placement agent for the Common Equity PIPE Financing and a creditor of ZeroFox, will be entitled
to receive a placement agency fee as a percentage of the aggregate gross proceeds received or to be received from one or more commitments for financing the Business Combination from sources other than any affiliates of ZeroFox, IDX or
L&F, and split with Jefferies, upon completion of the Business Combination;
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the fact that (i) James C. Foster, Peter Barris, Corey Mulloy, Samskriti King, and Todd Headley, current directors of ZeroFox,
(ii) Thomas F. Kelly and Sean Cunningham, current directors of IDX and (iii) Adam Gerchen, current officer of the Sponsor, are each expected to be directors, and James C. Foster is expected to be chief executive officer, of New ZeroFox
after the consummation of the Business Combination. As such, in the future each of the aforementioned will receive any cash fees, stock options, stock awards or other remuneration that New ZeroFox’s board of directors determines to pay
them and any applicable compensation as described under the section titled “Executive and Director Compensation”; and
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the fact that the Sponsor Group will have paid an aggregate of approximately $7,975,000 for its investment in New ZeroFox,
including the investments of L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam
Gerchen, our chief executive officer and a director of L&F) and JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board) in the Common Equity PIPE Financing, as summarized in the table
below, and, following the consummation of the Business Combination, the aggregate value of the Sponsor Group’s investment will be approximately $47,943,125, based upon the respective closing prices of the Class A Ordinary Shares and
the L&F Public Warrants on the NYSE American on June 28, 2022.
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The L&F Board concluded that the potentially disparate interests
would be mitigated because (i) these interests were disclosed in the prospectus for L&F's IPO and are disclosed in this proxy statement/prospectus, (ii) most of these disparate interests would exist with respect to a business combination by
L&F with any other target business or businesses, and (iii) the Sponsor Group will hold equity interests in New ZeroFox with value that, after the Closing, will be based on the future performance of New ZeroFox Common Stock. In addition,
L&F's independent directors reviewed and considered these interests during their evaluation of the Business Combination and in unanimously approving, as members of the L&F Board, the Business Combination Agreement and the related
agreements and the transactions contemplated thereby, including the Business Combination.
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Based on its review of the forgoing considerations, the L&F
Board concluded that the potentially negative factors associated with the Business Combination were outweighed by the potential benefits that it expects the L&F shareholders will receive as a result of the Business Combination. The L&F
Board realized that there can be no assurance about future results, including results considered or expected as disclosed in the foregoing reasons.
Sponsor Group Beneficial Ownership of L&F Prior to Closing
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Securities held by
Sponsor Group
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Sponsor Cost at L&F’s
Initial Public Offering
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Class A Ordinary Shares
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—
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—
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Founder Shares
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4,312,500
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$25,000
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L&F Private Placement Warrants
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5,450,000
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$5,450,000
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Total
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$5,475,000
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Sponsor Group Beneficial Ownership of New ZeroFox
Following the Closing(1)
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Securities held by
Sponsor Group at
Closing
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Value per
Security
as of
June 28,
2022
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Sponsor
Group Cost
at Closing
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Total Value
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New ZeroFox Common Stock Issued Pursuant to the Common
Equity PIPE Financing
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250,000
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$10.09
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$2,500,000
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$2,522,500
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New ZeroFox Common Stock Issued to Holders of Founder
Shares
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4,312,500(2)
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$10.09
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—
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$43,513,125
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New ZeroFox Private Placement Warrants
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5,450,000
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$0.35(3)
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—
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$1,907,500
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Total
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$2,500,000
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$47,943,125
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(1)
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Does not include New ZeroFox Common Stock issuable upon conversion of the Notes that are convertible at an initial conversion
price of $11.50 per share.
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(2)
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Includes 1,293,750 shares of New ZeroFox Common Stock which will be subject to an earnout, whereby such shares will be
forfeited unless certain volume-weighted average share price thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the
Closing. See “Proposal No. 2 — Business Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” for more information related to
the Sponsor Support Letter Agreement.
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(3)
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Approximately $0.35 based on the closing price of the L&F Public Warrants on June 28, 2022, which was $0.3498.
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At any time prior to the Shareholder Meeting, during a period when
they are not then aware of any material nonpublic information regarding L&F or our securities, L&F’s Initial Shareholders, the Target Companies and/or their respective affiliates may purchase shares and/or warrants from investors, or
they may enter into transactions with such investors and others to provide them with incentives to acquire shares of L&F Ordinary Shares. In such transactions, the purchase price for the Class A Ordinary Shares will not exceed the
redemption price. In addition, the persons described above will waive redemption rights, if any, with respect to the Class A Ordinary Shares they acquire in such transactions. However, any Class A Ordinary Shares acquired by the persons
described above would not be voted in connection with the Business Combination Proposal.
The purpose of such share purchases and other transactions would be
to increase the likelihood that the conditions to the consummation of the Business Combination are satisfied or to provide additional equity financing. This may result in the completion of our Business Combination that may not otherwise have
been possible. While the exact nature of any such incentives has not been determined as of the date of this proxy statement/prospectus, they might include, without limitation, arrangements to protect such investorsor holders against potential
loss in value of their shares, including the granting of put options.
Entering into any such incentive arrangements may have a depressive
effect on the Class A Ordinary Shares. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares he
owns, either prior to or immediately after the Shareholder Meeting.
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As of the date of this proxy statement/prospectus, there have been
no such discussions and no agreements to such effect have been entered into with any such investor or holder. L&F will file a Current Report on Form 8-K prior to the Shareholder Meeting to disclose any arrangements entered into or
significant purchases made by any of the aforementioned persons. Any such report will include (i) the amount of Class A Ordinary Shares purchased and the purchase price; (ii) the purpose of such purchases; (iii) the impact of such purchases on
the likelihood that the Business Combination transaction will be approved; (iv) the identities or characteristics of security holders who sold shares if not purchased in the open market or the nature of the sellers; and (v) the number of Class
A Ordinary Shares for which L&F has received redemption requests.
The existence of financial and personal interests of our directors
and officers may result in conflicts of interest, including a conflict between what may be in the best interests of New ZeroFox and its shareholders and what may be best for a director’s personal interests when determining to recommend that
Public Shareholders vote for the proposals. See the sections titled “Risk Factors,” “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination”, “Proposal No.
2 -The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Beneficial Ownership of Securities” for more information and other risks.
Conflicts of Interest and Waiver of Corporate Opportunity Doctrine
Under Cayman Islands law, directors and officers of a Cayman Islands
company owe certain duties to the company, including, but not limited to, the following fiduciary duties:
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duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole;
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duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose;
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directors should not improperly fetter the exercise of future discretion;
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duty to exercise powers fairly as between different classes of shareholders;
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duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal
interests; and
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duty to exercise independent judgment.
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In addition to the above, directors also owe a duty of care which is
not fiduciary in nature. This duty has been defined as a requirement to act as a reasonably diligent person having both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as
are carried out by that director in relation to the company and the general knowledge skill and experience of that director.
As set out above, directors have a duty not to put themselves in a
position of conflict and this includes a duty not to engage in self-dealing, or to otherwise benefit as a result of their position. However, in some instances what would otherwise be a breach of this duty can be forgiven or authorized in
advance by the shareholders provided that there is full disclosure by the directors. This can be done by way of permission granted in the Existing Governing Documents or alternatively by shareholder approval at general meetings. As detailed
below, our Existing Governing Documents provide such permission through a waiver of the corporate opportunities doctrine. The Existing Governing Documents provide that (a) we renounce any interest or expectancy in, or in being offered an
opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for our directors and officers, on the one hand, and us, on the other and (b) our directors and officers shall have no duty to communicate
or offer any such corporate opportunity to us and shall not be liable to us for breach of any fiduciary duty as a member, director and/or officer solely by reason of the fact that such party pursues or acquires such corporate opportunity for
itself, himself or herself, directs such corporate opportunity to another person, or does not communicate information regarding such corporate opportunity to us. We do not believe that the fiduciary duties or contractual obligations of our
officers or directors will materially affect our ability to complete the Business Combination.
While the Existing Governing Documents included the waiver of
corporate opportunities as described in the preceding paragraph, our compliance with such provision did not affect or otherwise limit L&F’s search for an acquisition target. Given the large target universe considered by L&F’s management
team, which included initial
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contact with more than 120 companies and non-disclosure agreements with approximately
15 companies, the L&F Board does not believe that the other fiduciary duties or contractual obligations of L&F’s officers and directors materially affected L&F’s ability to source a potential business combination. Please see “—
Background to the Business Combination” for more information about L&F’s search for targets in the potential business combination.
In addition to those interests of certain persons in the Business
Combination listed above, investors should also be aware of the following other conflicts of interest:
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Our Sponsor, officers or directors may have a conflict of interest with respect to evaluating a business combination and
financing arrangements as we may obtain loans from the Sponsor or an affiliate of the Sponsor (including Victory Park Capital Advisors, LLC) or any of our officers or directors to finance transaction costs in connection with the
Business Combination. In particular, affiliate funds associated with Victory Park Capital Advisors, LLC, including (a) L&F Acquisition Holdings Fund, LLC, (b) Corbin ERISA Opportunity Fund, (c) JCH Investments LLC, and (d) GCP-OI I,
LLC are participants in the Common Equity PIPE Financing and Convertible Notes Financing. L&F Acquisition Holdings Fund, LLC is affiliated with Richard Levy, a director of L&F. Corbin ERISA Opportunity Fund is an affiliate of
Corbin Capital Partners, LP and such entity is an equityholder of our Sponsor. JCH Investments LLC is an entity affiliated with Jeffrey C. Hammes, chairman of the L&F Board. GCP-OI I, LLC is an entity affiliated with L&F’s CEO,
Adam Gerchen.
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Additionally, L&F’s CEO, Adam Gerchen, has a passive and immaterial interest in funds affiliated with Monarch Alternative
Capital LP, a participant in the Convertible Notes Financing. For more information on the affiliate financing arrangements in connection with the Business Combination please see “Certain Relationships
and Related Party Transactions - L&F Related Party Transactions.”
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None of us, our Sponsor, nor any of our officers or directors are
affiliated with either ZeroFox or IDX prior to the consummation of the Business Combination. The L&F Board concluded that the potentially disparate interests would be mitigated because (i) these interests were disclosed in the prospectus
for L&F's IPO and are included in this proxy statement/prospectus, (ii) most of these disparate interests would exist with respect to a business combination by L&F with any other target business or businesses, and (iii) the Sponsor
Group will hold equity interests in New ZeroFox with value that, after the Closing, will be based on the future performance of New ZeroFox Common Stock. In addition, L&F's independent directors reviewed and considered these interests during
their evaluation of the Business Combination and in unanimously approving, as members of the L&F Board, the Business Combination Agreement and the related agreements and the transactions contemplated thereby, including the Business
Combination.
For more information about the factors the L&F Board considered
in evaluating and recommending the Business Combination to the L&F shareholders, see “— The L&F Board's Reasons for the Approval of the Business Combination” and “— Interests of Certain Persons in the Business Combination.”
Certain Other Interests in the Business Combination
In addition to the interests of L&F’s directors and officers in
the Business Combination, shareholders should be aware that Jefferies has financial interests that are different from, or in addition to, the interests of our shareholders.
Jefferies was the sole underwriter in the L&F IPO, and, upon
consummation of the Business Combination, Jefferies is entitled to $6,037,500 of deferred underwriting commission. Jefferies has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event L&F
does not complete an initial business combination within 18 months of the closing of the L&F IPO (as such date may be extended by approval of the L&F shareholders). Accordingly, if the Business Combination, or any other initial business
combination, is not consummated by that time and L&F is therefore required to be liquidated, the underwriter of the L&F IPO, will not receive any of the deferred underwriting commission and such funds will be returned to L&F’s
Public Shareholders upon its liquidation.
As described further below, Jefferies is also providing certain
services in connection with the Business Combination and will receive compensation in connection therewith. Jefferies’ receipt of the deferred
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underwriting commission of $6,037,500 is not dependent on its provision of such
services but instead is only conditioned on the completion of an initial business combination within 18 months of the closing of the L&F IPO (as such date may be extended by approval of the L&F shareholders).
Furthermore, Jefferies and Stifel were engaged by L&F as
co-placement agents with respect to the Common Equity PIPE Financing and Convertible Notes Financing and solely as relating to Jefferies, as one of L&F’s financial advisors. L&F decided to retain each of Jefferies and Stifel as
co-placement agents for the Common Equity PIPE Financing and Convertible Notes Financing based primarily on each of Jefferies’ and Stifel’s extensive knowledge, strong market position and positive reputation in equity capital and convertible
notes markets and its experienced and capable investment banking team. Similarly, L&F decided to retain Jefferies as its lead financial advisor based primarily on its leading investment banking franchise with a strong track record of
advising on complex, transformational transactions. In connection with Jefferies’ and Stifel’s services as co-placement agents, Jefferies and Stifel’s collective placement fee is equal to 3.0% of the aggregate gross proceeds received or to be
received from the sale of securities through the Common Equity PIPE Financing or the Convertible Note Financing. The sale of an aggregate of $50,000,000 of securities pursuant to the Common Equity Subscription Agreements and Convertible Notes
Subscription Agreements to affiliates of L&F, Zerofox and IDX is not subject to the 3.0% placement fee.
In addition, under the terms of each of Jefferies’ engagements,
L&F agreed to reimburse Jefferies for its reasonable out-of-pocket expenses, including the fees and disbursements of its outside attorneys, and to indemnify Jefferies and certain related parties against liabilities, including liabilities
under federal securities laws, in each case, in connection with, as a result of, or relating to its respective engagements.
Jefferies therefore has an interest in L&F completing a business
combination that will result in the payment of the deferred underwriting commission to Jefferies as the underwriter of the L&F IPO and the payment of financial advisory and placement agent fees, which total $12,412,500. In considering
approval of the Business Combination, our shareholders should consider the different roles of Jefferies in light of the deferred underwriting commission Jefferies is entitled to receive if the Business Combination is consummated within
18 months of the closing of the L&F IPO (or such later date as may be approved by L&F’s shareholders).
Satisfaction of 80% Test
It is a requirement under the Existing Governing Documents and NYSE
American rules that we complete one or more business combinations having an aggregate fair market value of at least 80% of the value of the assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on
the interest earned on the Trust Account) at the time of our signing a definitive agreement in connection with our initial business combination.
As of the date of the execution of the Business Combination
Agreement, the balance of funds in the Trust Account was approximately $175,100,000 and L&F had $6,037,500 of deferred underwriting commissions plus taxes payable on the income earned on the Trust Account. In reaching its conclusion that
the Business Combination meets the 80% test, the L&F Board looked at the Target Companies’ pre-money equity value of approximately $1.2 billion. In determining whether the pre-money equity value represents the fair market value of Target
Companies, the L&F Board considered all of the factors described in the section titled “Proposal No. 2 — The Business Combination Proposal — The L&F Board’s Reasons for the Approval of the Business
Combination,” and the fact that the purchase price for the Target Companies was the result of an arm’s length negotiation. As a result, the L&F Board concluded that the fair market value of the businesses acquired was significantly
in excess of 80% of the assets held in the Trust Account. In light of the financial background and experience of the members of our management team and the L&F Board, the L&F Board believes that the members of our management team and
the board of directors are qualified to determine whether the Business Combination meets the 80% test. The L&F Board did not seek or obtain an opinion of an outside fairness or valuation advisor as to whether the 80% test has been met.
Anticipated Accounting Treatment of the Business Combination
The anticipated accounting treatment for the Business Combination may
be different under the varying redemption assumptions with a combining entity being an accounting acquirer in one scenario and an accounting acquiree in another scenario.
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Scenario 1, No Redemption Scenario
With respect to the Business Combination, under a no redemption
scenario, ZeroFox will be treated as the accounting acquirer and L&F and IDX will be treated as acquired companies for accounting purposes. This determination is primarily based on the facts that subsequent to the Business Combination:
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ZeroFox shareholders will have a majority of the voting power of New ZeroFox;
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ZeroFox will designate a majority of the governing body of New ZeroFox;
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ZeroFox’s senior management will comprise all of the senior management of New ZeroFox; and
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•
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the largest single shareholder of the combined company will be a legacy owner of ZeroFox.
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As a result of ZeroFox being considered the accounting acquirer in
the Business Combination, the business combination between ZeroFox and L&F represents a reverse merger and will be accounted for as a reverse recapitalization in accordance with U.S. GAAP. Accordingly, for accounting purposes, the business
combination between ZeroFox and L&F will be treated as the equivalent of ZeroFox issuing shares for the net assets of L&F, accompanied by a recapitalization. The net assets of ZeroFox will be stated at historical cost. No goodwill or
other intangible assets will be recorded.
As ZeroFox is determined to be the accounting acquirer in the
Business Combination, the acquisition of IDX will be considered a business combination under ASC 805, Business Combinations, and will be accounted for using the acquisition method of accounting. The
consideration transferred to effect the acquisition will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration transferred over the fair values of assets
acquired and liabilities assumed will be recorded as goodwill.
Scenario 2, Maximum Redemption Scenario
With respect to the Business Combination, under a maximum redemption
scenario, L&F will be treated as the accounting acquirer and ZeroFox and IDX as acquired companies for accounting purposes.
Upon consummation of the Business Combination, ZeroFox is considered
a variable interest entity and L&F will be considered the primary beneficiary as its ownership will provide the power to direct the activities that most significantly impact ZeroFox’s performance and the obligation to absorb the losses
and/or receive the benefits of ZeroFox that could potentially be significant to ZeroFox.
We assessed the possibility that IDX could be the accounting acquirer
upon consummation of the Business Combination. IDX is considered a business under ASC 805, Business Combinations. IDX is not considered the accounting acquirer in the Business Combination based on evaluation of the following factors:
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IDX shareholders will not have the largest voting interest in New ZeroFox;
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•
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IDX will not comprise all of the ongoing operations of New ZeroFox;
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•
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IDX will not designate a majority of the governing body of New ZeroFox;
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•
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IDX senior management will not have a substantive role in the senior management of New ZeroFox; and
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•
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the largest single owner of the combined company will not be a legacy owner of IDX.
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L&F’s acquisitions of ZeroFox and IDX will be considered business
combinations under ASC 805, Business Combinations, and will be accounted for using the acquisition method of accounting. The consideration transferred will be allocated to the assets acquired and
liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration transferred to effect the acquisitions over the fair values of assets acquired and liabilities assumed will be recorded as goodwill.
Exchange Listing
The L&F Public Units (each consisting of one Class A Ordinary
Share and one-half of one L&F Public Warrant), Class A Ordinary Shares and L&F Public Warrants (each to purchase one Class A Ordinary Share) are currently traded on the NYSE American under the symbols “LNFA.U”,” “LNFA” and “LNFA WS.” At
the
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closing of the Business Combination, the L&F Public Units will separate into
their component Class A Ordinary Shares and L&F Public Warrants so that the units will no longer trade separately under “LNFA.U.” L&F intends to apply for listing, to be effective at the time of the Business Combination, of the New
ZeroFox Common Stock and the New ZeroFox Public Warrants on Nasdaq under the proposed symbols “ZFOX” and “ZFOXW.”
Potential Purchases of Public Shares and/or Warrants
At any time prior to the Shareholder Meeting, during a period when
they are not then aware of any material nonpublic information regarding L&F or our securities, L&F’s Initial Shareholders, the Target Companies and/or their respective affiliates may purchase shares and/or warrants from investors, or
they may enter into transactions with such investors and others to provide them with incentives to acquire shares of L&F Ordinary Shares. In such transactions, the purchase price for the Class A Ordinary Shares will not exceed the
redemption price. In addition, the persons described above will waive redemption rights, if any, with respect to the Class A Ordinary Shares they acquire in such transactions. However, any Class A Ordinary Shares acquired by the persons
described above would not be voted in connection with the Business Combination Proposal.
The purpose of such share purchases and other transactions would be
to increase the likelihood that the conditions to the consummation of the Business Combination are satisfied or to provide additional equity financing. This may result in the completion of our Business Combination that may not otherwise have
been possible. While the exact nature of any such incentives has not been determined as of the date of this proxy statement/prospectus, they might include, without limitation, arrangements to protect such investors or holders against potential
loss in value of their shares, including the granting of put options.
Entering into any such incentive arrangements may have a depressive
effect on the Class A Ordinary Shares. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares he
owns, either prior to or immediately after the Shareholder Meeting.
As of the date of this proxy statement/prospectus, there have been no
such discussions and no agreements to such effect have been entered into with any such investor or holder. L&F will file a Current Report on Form 8-K prior to the Shareholder Meeting to disclose any arrangements entered into or significant
purchases made by any of the aforementioned persons. Any such report will include (i) the amount of Class A Ordinary Shares purchased and the purchase price; (ii) the purpose of such purchases; (iii) the impact of such purchases on the
likelihood that the Business Combination transaction will be approved; (iv) the identities or characteristics of security holders who sold shares if not purchased in the open market or the nature of the sellers; and (v) the number of Class A
Ordinary Shares for which L&F has received redemption requests.
The existence of financial and personal interests of our directors
and officers may result in conflicts of interest, including a conflict between what may be in the best interests of New ZeroFox and its shareholders and what may be best for a director’s personal interests when determining to recommend that
Public Shareholders vote for the proposals. See the sections titled “Risk Factors,” “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination”, “Proposal No.
2 -The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Beneficial Ownership of Securities” for more information and other risks.
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Sources and Uses of Funds for the Business Combination
The following table summarizes the sources and uses for funding the
Business Combination, assuming (i) none of L&F’s Class A Ordinary Shares held by the Public Shareholders are redeemed in connection with the Business Combination and (ii) all of the outstanding Class A Ordinary Shares are redeemed in
connection with the Business Combination. Where actual amounts are not known or knowable, the figures below represent L&F’s good faith estimate of such amounts. For more information, see “Unaudited Pro
Forma Condensed Combined Financial Information.”
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(U.S. dollars in millions)
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Assuming
No
Redemptions(1)
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Assuming
Maximum
Redemptions(2)
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Sources
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Cash and investments held in Trust Account(3)
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$35
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$35
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Issuance to ZeroFox and IDX Shareholders(4)
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$1,111
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$1,111
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Convertible Notes
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$150
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$150
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PIPE Investment
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$20
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$20
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Total Sources
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$1,316
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$1,316
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Uses
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ZeroFox and IDX Shareholders equity consideration(4)
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$1,111
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$1,111
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Cash Consideration to IDX Shareholders(5)
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$50
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$50
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Fees and Expenses
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$32
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$32
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Redemptions by Public Shareholders
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$—
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$35
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Cash to Balance Sheet
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$123
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$88
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Total Uses
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$1,316
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$1,316
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(1)
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Assumes that no Public Shareholder exercises redemption rights with respect to its Class A Ordinary Shares for a pro rata portion
of the Trust Account.
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(2)
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Assumes that all 3,425,689 Class A Ordinary Shares held by the Public Shareholders are redeemed for an aggregate payment of
approximately $34,786,000 (based on the estimated per share redemption price of approximately $10.15 per share) from the Trust Account. As the proceeds (without taking into account offering expenses) from the Common Equity PIPE
Financing and the Convertible Notes Financing are expected to satisfy the Available Closing Acquiror Cash Condition, the maximum redemption scenario reflects the redemption of 100% of the Class A Ordinary Shares held by the Public
Shareholders.
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(3)
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Cash held in the Trust Account as of May 4, 2022 (after giving effect to the Extension Amendment Redemptions).
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(4)
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Assumes that (A) 83,222,734 shares of New ZeroFox Common Stock are issued to the holders of ZeroFox Common Stock in connection
with the Business Combination based on a per share consideration of 0.2866 of a share of New ZeroFox Common Stock, (B) 27,905,045 shares of New ZeroFox Common Stock are issued to the holders of IDX Capital Stock in connection with the
Business Combination based on a per share consideration of 0.6177 of a share of New ZeroFox Common Stock, (C) all outstanding ZeroFox warrants and IDX warrants will be exercised immediately prior to the Closing, and (D) all outstanding
vested and unvested ZeroFox options and IDX options are converted into New ZeroFox Options exercisable for shares of New ZeroFox Common Stock.
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(5)
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This amount is subject to a working capital adjustment. Includes amounts to be used to discharge certain IDX indebtedness and
transaction expenses (which otherwise would reduce cash consideration).
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Board and Management of New ZeroFox Following the Business Combination
Following the Closing, the New ZeroFox Board of directors will
consist of nine (8) directors, who will be divided into three (3) classes, which directors will include five (5) directors designated by ZeroFox, two (2) directors designated by IDX, and one (1) independent director designated by the Sponsor.
Additionally, the current ZeroFox management team will move to New ZeroFox in their current roles and titles.
Name; Headquarters of New ZeroFox
Concurrently with the Domestication and immediately prior to the
Closing, L&F will file a certificate of incorporation with the Secretary of State of Delaware under the name ZeroFox Holdings, Inc. and New ZeroFox will continue to operate under the ZeroFox tradename. New ZeroFox’s headquarters will remain
ZeroFox’s current headquarters at 1834 S. Charles Street, Baltimore, MD 21230.
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Redemption Rights
Pursuant to the Existing Governing Documents, holders of Class A
Ordinary Shares may seek to redeem their shares for cash, regardless of whether they vote for or against, or whether they abstain from voting on, the Business Combination Proposal. Any shareholder holding Class A Ordinary Shares may demand that
L&F redeem such shares for a full pro rata portion of the Trust Account (which, for illustrative purposes, was approximately $10.16 per share as of May 27, 2022, the record date for the meeting), calculated as of two business days prior to
the anticipated consummation of the Business Combination. If a holder properly seeks redemption as described in this section and the Business Combination is consummated, L&F will redeem these shares for a pro rata portion of funds deposited
in the Trust Account and the holder will no longer own these shares following the Business Combination.
As a holder of Class A Ordinary Shares, you will be entitled to
receive cash for any Class A Ordinary Shares to be redeemed only if you:
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(i)
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hold Class A Ordinary Shares;
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(ii)
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submit a written request to Continental, L&F’s transfer agent, in which you (i) request that L&F redeem all or a portion
of your Class A Ordinary Shares for cash, and (ii) identify yourself as the beneficial holder of the Class A Ordinary Shares and provide your legal name, phone number and address; and
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(iii)
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deliver your Class A Ordinary Shares to Continental, L&F’s transfer agent, physically or electronically through DTC.
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Holders must complete the procedures for electing
to redeem their Class A Ordinary Shares in the manner described above prior to 5:00 p.m., Eastern Time, on , 2022 (two business days before the Shareholder Meeting) in order for their shares to be redeemed.
The redemption rights include the requirement that a holder must
identify itself in writing as a beneficial holder and provide its legal name, phone number and address to Continental in order to validly redeem its shares. If the Business Combination is not consummated, the Class A Ordinary Shares will be
returned to the respective holder, broker or bank.
If you hold the shares in “street name,” you will have to coordinate
with your broker to have your shares certificated or delivered electronically. Shares of L&F that have not been tendered (either physically or electronically) in accordance with these procedures will not be redeemed for cash. There is a
nominal cost associated with this tendering process and the act of certificating the shares or delivering them through DTC’s DWAC system. The Transfer Agent will typically charge the tendering broker $80 and it would be up to the broker whether
or not to pass this cost on to the redeeming shareholder. In the event the proposed Business Combination is not consummated this may result in an additional cost to shareholders for the return of their shares.
Any request for redemption, once made by a holder of Class A Ordinary
Shares, may not be withdrawn following the Redemption Deadline, unless the L&F Board determines (in its sole discretion) to permit such redemption request (which it may do in whole or in part).
Any corrected or changed written exercise of redemption rights must
be received by Continental, L&F’s transfer agent, at least two business days prior to the Shareholder Meeting. No request for redemption will be honored unless the holder’s Class A Ordinary Shares have been delivered (either physically or
electronically) to Continental, L&F’s transfer agent, prior to 5:00 p.m., Eastern Time, on , 2022 (two business days before the Shareholder Meeting).
Notwithstanding the foregoing, a Public Shareholder, together with
any affiliate of such Public Shareholder or any other person with whom such Public Shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from redeeming its Class A Ordinary
Shares with respect to more than an aggregate of 15% of the outstanding Class A Ordinary Shares, without our prior consent. Accordingly, if a Public Shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the
outstanding Class A Ordinary Shares, then any such shares in excess of that 15% limit would not be redeemed for cash, without our prior consent.
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If the Business Combination is not approved or completed for any
reason, then the Public Shareholders who elected to exercise their redemption rights will not be entitled to redeem their shares for a full pro rata portion of the Trust Account, as applicable. In such case, L&F will promptly return any
shares delivered by Public Shareholders.
The closing price of Class A Ordinary Shares on May 27, 2022, the
record date for the Shareholder Meeting, was $10.07 per share. The cash held in the Trust Account on such date was approximately $34,806,051 (net of taxes payable) (approximately $10.16 per Class A Ordinary Share). Prior to exercising
redemption rights, shareholders should verify the market price of Class A Ordinary Shares as they may receive higher proceeds from the sale of their ordinary shares in the public market than from exercising their redemption rights if the market
price per share is higher than the redemption price. L&F cannot assure its shareholders that they will be able to sell their Class A Ordinary Shares in the open market, even if the market price per share is higher than the redemption price
stated above, as there may not be sufficient liquidity in its securities when its shareholders wish to sell their shares.
If a holder of Class A Ordinary Shares exercises his, her or its
redemption rights, then he, she or it will be exchanging his, her or its Class A Ordinary Shares for cash and will no longer own those shares. You will be entitled to receive cash for these shares only if you properly demand redemption by
delivering your stock certificate (either physically or electronically) to L&F’s transfer agent prior to the vote at the Shareholder Meeting, and the Business Combination is consummated.
For a discussion of the material U.S. federal income tax
considerations for shareholders with respect to the exercise of these redemption rights, see “Certain Material United States Federal Income Tax Considerations.” The consequences of a redemption to any
particular shareholder will depend on that shareholder’s particular facts and circumstances. Accordingly, you are urged to consult your tax advisor to determine your tax consequences from the exercise of your redemption rights, including the
applicability and effect of U.S. federal, state, local and non-U.S. income and other tax laws in light of your particular circumstances.
Vote Required for Approval
The Business Combination Proposal is conditioned on the approval of
each of the Condition Precedent Proposals at the Shareholder Meeting.
The approval of the Business Combination Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no
effect on the approval of the Business Combination Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Business Combination Proposal. As of the date hereof, the L&F Initial Shareholders own approximately 55.7% of the issued and outstanding
L&F Ordinary Shares and have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting — Potential Purchases of Public Shares and/or
Warrants.” As a result, the L&F Initial Shareholders own sufficient shares to approve the Business Combination Proposal; however, the Business Combination Proposal will only be presented to shareholders for a vote if the Articles
Amendment Proposal is approved.
Resolution
The full text of the resolution to be voted upon is as follows:
“RESOLVED, as an ordinary
resolution, that L&F’s entry into the Business Combination Agreement, dated as of December 17, 2021 (as amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”),
by and among L&F, L&F Acquisition Holdings, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware
corporation and direct, wholly-owned subsidiary of L&F Holdings (“ZF Merger Sub”), IDX Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“IDX Merger Sub”), IDX Forward Merger Sub, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F
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Holdings (“IDX Forward Merger Sub”), ZeroFox,
Inc., a Delaware corporation (“ZeroFox”), and ID Experts Holdings, Inc., a Delaware corporation (“IDX”), a copy of which is attached to the proxy
statement/prospectus as Annex A, pursuant to which, among other things, following the de-registration of L&F as an exempted company in the Cayman Islands and the transfer by way of continuation and domestication of L&F as a corporation
in the State of Delaware (i) ZF Merger Sub will merge with and into ZeroFox (the “ZF Merger”), with ZeroFox being the surviving entity in the ZF Merger and continuing (immediately following the ZF Merger)
as a direct, wholly-owned subsidiary of L&F Holdings, (ii) immediately following the ZF Merger, IDX Merger Sub will merge with and into IDX (the “IDX Merger”), with IDX being the surviving entity in
the IDX Merger (referred to herein as “Transitional IDX Entity”) and continuing (immediately following the IDX Merger) as a direct, wholly-owned subsidiary of L&F Holdings, and (iii) immediately
following the IDX Merger, Transitional IDX Entity will merge with and into IDX Forward Merger Sub (the “IDX Forward Merger”), with IDX Forward Merger Sub being the surviving entity in the IDX Forward
Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned subsidiary of L&F Holdings, and the transactions contemplated thereby (collectively, the “Business Combination”),
be approved, ratified and confirmed in all respects.
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR”
THE APPROVAL OF THE BUSINESS COMBINATION PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the sections titled “Proposal No. 2 - The Business Combination Proposal
— Interests of Certain Persons in the Business Combination”, “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Risk Factors” for a further discussion of these considerations.
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Overview
As discussed in this proxy statement/prospectus, L&F is asking
its shareholders to approve the Domestication Proposal. Under the Business Combination Agreement, the approval of the Domestication Proposal is also a condition to the consummation of the Business Combination.
As a condition to closing the Business Combination, the L&F Board
has unanimously approved, and L&F shareholders are being asked to consider and vote upon a proposal to approve, a change of L&F’s jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and registering by way
of continuation and domesticating as a corporation incorporated under the laws of the State of Delaware. To effect the Domestication, subject to approval of the Domestication Proposal by the shareholders, L&F will file an application to
deregister with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and file a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of
Delaware, under which L&F will be domesticated and continue as a Delaware corporation.
In connection with the Domestication, on the Closing Date prior to
the ZF Effective Time and the IDX Effective Time, among other things, (i) each issued and outstanding L&F Ordinary Share will be converted automatically, on a one-for-one basis, into a share of New ZeroFox Common Stock; (ii) each issued and
outstanding whole warrant exercisable for one Class A Ordinary Share will be converted automatically into a warrant exercisable for one share of New ZeroFox Common Stock at an exercise price of $11.50 per share on the terms and conditions set
forth in the Warrant Agreement; and (iii) each issued and outstanding L&F Public Unit that has not been previously separated into the underlying Class A Ordinary Share and underlying one-half of one L&F Public Warrant upon the request
of the holder thereof will be cancelled and will entitle the holder thereof to one share of New ZeroFox Common Stock and one-half of one New ZeroFox Public Warrant.
The Domestication Proposal, if approved, will approve a change of
L&F’s jurisdiction of incorporation from the Cayman Islands to the State of Delaware. Accordingly, while L&F is currently incorporated as an exempted company under the Cayman Islands Companies Act, upon the Domestication, New ZeroFox
will be governed by the DGCL. We encourage shareholders to carefully consult the information on the Proposed Governing Documents set out under “Comparison of Corporate Governance and Shareholder Rights.”
The Proposed Certificate of Incorporation and Proposed Bylaws differ in certain material respects from the Existing Governing Documents and we encourage shareholders to carefully consult the information set out below under “Advisory Governing Documents Proposals,” the Existing Governing Documents of L&F and the Proposed Certificate of Incorporation and Proposed Bylaws of New ZeroFox, attached hereto as Annex B and Annex C,
respectively.
Reasons for the Domestication
The L&F Board believes that there are significant advantages to
us that will arise as a result of a change of our domicile to Delaware. Further, the L&F Board believes that any direct benefit that the DGCL provides to a corporation also indirectly benefits its shareholders, who are the owners of the
corporation. The board of directors believes that there are several reasons why a reincorporation in Delaware is in the best interests of L&F and its shareholders. As explained in more detail below, these reasons can be summarized as
follows:
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Prominence, Predictability, and Flexibility of Delaware Law. For many years Delaware
has followed a policy of encouraging incorporation in its state and, in furtherance of that policy, has been a leader in adopting, construing, and implementing comprehensive, flexible corporate laws responsive to the legal and business
needs of corporations organized under its laws. Many corporations have chosen Delaware initially as a state of incorporation or have subsequently changed corporate domicile to Delaware. Because of Delaware’s prominence as the state of
incorporation for many major corporations, both the legislature and courts in Delaware have demonstrated the ability and a willingness to act quickly and effectively to meet changing business needs. The DGCL is frequently revised and
updated to accommodate changing legal and business needs and is more comprehensive, widely used and interpreted than other state corporate laws. This favorable corporate and regulatory environment is attractive to businesses such as
ours.
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•
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Well-Established Principles of Corporate Governance. There is substantial judicial
precedent in the Delaware courts as to the legal principles applicable to measures that may be taken by a corporation
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and to the conduct of a company’s board of directors, such as under the business
judgment rule and other standards. Because the judicial system is based largely on legal precedents, the abundance of Delaware case law provides clarity and predictability to many areas of corporate law. We believe such clarity would be
advantageous to New ZeroFox, and its board of directors and management in making corporate decisions and taking corporate actions with greater assurance as to the validity and consequences of those decisions and actions. Further, investors and
securities professionals are generally more familiar with Delaware corporations, and the laws governing such corporations, increasing their level of comfort with Delaware corporations relative to other jurisdictions. The Delaware courts have
developed considerable expertise in dealing with corporate issues, and a substantial body of case law has developed construing Delaware law and establishing public policies with respect to corporate legal affairs. Moreover, Delaware’s vast body
of law on the fiduciary duties of directors provides appropriate protection for New ZeroFox’s shareholders from possible abuses by directors and officers.
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•
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Increased Ability to Attract and Retain Qualified Directors. Deregistration from the
Cayman Islands and registration by way of continuation in Delaware is attractive to directors, officers, and shareholders alike. New ZeroFox’s incorporation in Delaware may make New ZeroFox more attractive to future candidates for the
New ZeroFox Board, because many such candidates are already familiar with Delaware corporate law from their past business experience. To date, we have not experienced difficulty in retaining directors or officers, but directors of
public companies are exposed to significant potential liability. Thus, candidates’ familiarity and comfort with Delaware laws — especially those relating to director indemnification (as discussed below) — draw such qualified candidates
to Delaware corporations. The L&F Board therefore believes that providing the benefits afforded directors by Delaware law will enable New ZeroFox to compete more effectively with other public companies in the recruitment of talented
and experienced directors and officers.
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The frequency of claims and litigation pursued against directors and
officers has greatly expanded the risks facing directors and officers of corporations in carrying out their respective duties. The amount of time and money required to respond to such claims and to defend such litigation can be substantial.
While both Cayman and Delaware law permit a corporation to include a provision in its governing documents to reduce or eliminate the monetary liability of directors for breaches of fiduciary duty in certain circumstances, we believe that, in
general, Delaware law is more developed and provides more guidance than Cayman law on matters regarding a company’s ability to limit director liability. As a result, we believe that the corporate environment afforded by Delaware will enable the
surviving corporation to compete more effectively with other public companies in attracting and retaining new directors.
Expected Accounting Treatment of the Domestication
There will be no accounting effect or change in the carrying amount
of the consolidated assets and liabilities of L&F as a result of the Domestication. The business, capitalization, assets and liabilities and financial statements of New ZeroFox immediately following the Domestication will be the same as
those of L&F immediately prior to the Domestication.
Vote Required for Approval
The Domestication Proposal is conditioned on the approval of each of
the Condition Precedent Proposals at the Shareholder Meeting.
The approval of the Domestication Proposal requires a special
resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to
vote thereon at the Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have
no effect on the approval of the Domestication Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Domestication Proposal. As of the date hereof, the L&F Initial Shareholders own approximately 55.7% of the issued and outstanding L&F
Ordinary Shares and have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under
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“Shareholder Meeting — Potential Purchases of
Public Shares and/or Warrants.” As a result, in addition to the L&F Initial Shareholders, approval of the Domestication Proposal will require the affirmative vote of at least 846,293 L&F Ordinary Shares held by Public
Shareholders (or approximately 24.7% of the issued and outstanding Class A Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes; the L&F Initial Shareholders own sufficient shares to
approve the Domestication Proposal if only such shares as are required to establish a quorum represented at the Shareholder Meeting and cast votes.
Resolution
The full text of the resolution to be voted upon is as follows:
“RESOLVED, as a special
resolution, that L&F be transferred by way of continuation to Delaware pursuant to Part XII of the Companies Act (As Revised) of the Cayman Islands and Section 388 of the General Corporation Law of the State of Delaware and, immediately
upon being de-registered in the Cayman Islands, L&F be continued and domesticated as a corporation under the laws of the State of Delaware and, conditional upon, and with effect from, the registration of L&F as a corporation in the
State of Delaware, the name of L&F be changed from “L&F Acquisition Corp.” to “ZeroFox Holdings, Inc.””
Recommendation of the Board
THE L&F BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE
“FOR” THE APPROVAL OF THE DOMESTICATION PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the sections titled “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the
Business Combination”, “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Risk
Factors” for a further discussion of these considerations.
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Overview
As discussed in this proxy statement/prospectus, L&F is asking
its shareholders to approve the Governing Documents Proposal. Under the Business Combination Agreement, the approval of the Governing Documents Proposal is also a condition to the consummation of the Business Combination.
Reasons for the Amendments
L&F shareholders are being asked to adopt the Proposed
Certificate of Incorporation and Proposed Bylaws, in the forms attached hereto as Annex B and Annex C, respectively, which, in the judgment of the L&F Board, are necessary to adequately address the needs of New ZeroFox following the
Domestication and the consummation of the Business Combination. Each of the Proposed Certificate of Incorporation and Proposed Bylaws was negotiated as part of the proposed Business Combination and related transactions. The L&F Board’s
specific reasons for each of the Advisory Governing Documents Proposals are set forth below in the section titled “Proposal No. 5(A)-(G) — The Advisory Governing Documents Proposals.”
For a summary of the key differences between the Existing Governing
Documents under Cayman Islands law and the Proposed Certificate of Incorporation and Proposed Bylaws under the DGCL, please see “Comparison of Corporate Governance and Shareholder Rights.”
Vote Required for Approval
The Governing Documents Proposal is conditioned on the approval of
each of the Condition Precedent Proposals at the Shareholder Meeting. The approval of the Governing Documents Proposal requires a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of
the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting. Abstentions will be considered present for the purposes of
establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on the approval of the Governing Documents Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Governing Documents Proposal. As of the date hereof, the L&F Initial Shareholders own approximately 55.7% of the issued and outstanding
L&F Ordinary Shares and have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting — Potential Purchases of Public Shares and/or
Warrants.” As a result, in addition to the L&F Initial Shareholders, approval of the Governing Documents Proposal will require the affirmative vote of at least 846,293 L&F Ordinary Shares held by Public Shareholders (or
approximately 24.7% of the issued and outstanding Class A Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes; the L&F Initial Shareholders own sufficient shares to approve the Governing
Documents Proposal if only such shares as are required to establish a quorum are represented at the Shareholder Meeting and cast votes.
Resolution
The full text of the resolution to be voted upon is as follows:
“RESOLVED, as a special
resolution, that the amended and restated memorandum and articles of association of L&F Acquisition Corp. currently in effect be amended and restated by the deletion in their entirety and the substitution in their place of the proposed new
certificate of incorporation and proposed new bylaws (copies of each of which are attached to the proxy statement/prospectus as Annex B and Annex C, respectively), including, without limitation, the authorization of the change in authorized
share capital as indicated therein and the change of name to ‘‘ZeroFox Holdings, Inc.’’
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR”
THE APPROVAL OF THE GOVERNING DOCUMENTS PROPOSAL.
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The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the sections titled “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the
Business Combination”, “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Risk
Factors” for a further discussion of these considerations.
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Overview
L&F is requesting that our shareholders vote upon, on a
non-binding advisory basis, a proposal to approve certain governance provisions in the Proposed Certificate of Incorporation and Proposed Bylaws, which are separately being presented in accordance with SEC guidance to give shareholders the
opportunity to present their separate views on important corporate governance provisions. This separate vote is not otherwise required by Cayman Islands law separate and apart from the Governing Documents Proposal, but pursuant to SEC guidance,
L&F is required to submit these provisions to our shareholders separately for approval. However, the shareholder vote regarding these proposals are advisory votes, and are not binding on L&F or L&F’s Board (separate and apart from
the approval of the Governing Documents Proposal). Furthermore, the Business Combination is not conditioned on the separate approval of the Advisory Governing Documents Proposals (separate and apart from approval of the Governing Documents
Proposal). Accordingly, regardless of the outcome of the non-binding advisory vote on these proposals, L&F intends that the Proposed Certificate of Incorporation and Proposed Bylaws will take effect upon the Closing (assuming approval of
the Governing Documents Proposal). While the vote is non-binding, we highly value the opinions of our shareholders and we intend to consider the outcome of this advisory vote in connection with future decisions regarding our corporate
governance policies and practices.
Advisory Governing Documents Proposals
The following list sets forth a summary of the governance provisions
applicable to the Advisory Governing Documents Proposals. This summary is qualified by reference to the complete text of the Proposed Certificate of Incorporation and Proposed Bylaws, a copy of each of which is attached to this proxy
statement/prospectus as Annex B and Annex C, respectively. All shareholders are encouraged to read the Proposed Certificate of Incorporation and Proposed Bylaws in their entirety for a more complete description of their terms.
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Proposal No. 5(A): A proposal to increase authorized share capital of L&F from
(i) 500,000,000 Class A Ordinary Shares, par value $0.0001 per share, 50,000,000 Class B Ordinary Shares, par value $0.0001 per share, and 1,000,000 preference shares, par value $0.0001 per share, to (ii) 1,000,000,000 shares of New
ZeroFox Common Stock, par value $0.0001 per share, and 100,000,000 shares of New ZeroFox Preferred Stock, par value $0.0001 per share.
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Proposal No. 5(B): A proposal to authorize the New ZeroFox Board to issue any or all
shares of New ZeroFox Preferred Stock in one or more classes or series, with such terms and conditions as may be expressly determined by the New ZeroFox Board and as may be permitted by the DGCL.
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Proposal No. 5(C): A proposal to adopt Delaware as the exclusive forum for certain
shareholder litigation and the federal district courts of the United States of America as the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, unless New ZeroFox consents in
writing to the selection of an alternative forum.
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Proposal No. 5(D): A proposal to require that any action required or permitted to be
taken by the shareholders of New ZeroFox must be effected at a duly called annual or special meeting of shareholders of New ZeroFox and may not be effected by any consent in writing by such shareholders.
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Proposal No. 5(E): A proposal to require that, subject to the rights of holders of New
ZeroFox Preferred Stock, any director or the entire New ZeroFox Board may be removed from office at any time, but only for cause.
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Proposal No. 5(F): A proposal to approve the amendment provisions in the Proposed
Certificate of Incorporation and Proposed Bylaws, which set forth the voting standards by which shareholders of New ZeroFox may approve certain amendments to the Proposed Certificate of Incorporation and Proposed Bylaws, respectively.
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Proposal No. 5(G): A proposal to remove provisions in L&F’s current Existing
Governing Documents related to L&F’s status as a blank check company that will no longer apply upon the consummation of the Business Combination.
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Reasons for the Approval of the Advisory Governing Documents
Proposals
The Proposed Certificate of Incorporation and Proposed Bylaws were
each negotiated as part of the Business Combination Agreement. The Board’s reasons for proposing the Advisory Governing Documents Proposals are set forth below.
Advisory Governing Documents Proposal 5(A) — Changes in Share Capital
This amendment would increase the authorized share capital of L&F
from (i) 500,000,000 Class A Ordinary Shares, par value $0.0001 per share, 50,000,000 Class B Ordinary Shares, par value $0.0001 per share, and 1,000,000 preference shares, par value $0.0001 per share, to (ii) 1,000,000,000 shares of New
ZeroFox Common Stock, par value $0.0001 per share, and 100,000,000 shares of New ZeroFox Preferred Stock, par value $0.0001 per share.
As of the date of this proxy statement/prospectus, there are
3,425,689 Class A Ordinary Shares and 4,312,500 Class B Ordinary Shares issued and outstanding. In addition, as of the date of this proxy statement/prospectus, there are outstanding an aggregate of 16,213,430 L&F Warrants, comprised of
8,625,000 L&F Public Warrants and, 7,588,430 L&F Private Placement Warrants.
In connection with the Domestication, (i) each then issued and
outstanding Class A Ordinary Share and each Class B Ordinary Share of L&F will convert automatically by operation of law, on a one-for-one basis, into a share of New ZeroFox Common Stock and (ii) each then issued and outstanding whole
warrant of L&F exercisable for one Class A Ordinary Share will automatically convert into a whole warrant exercisable for one share of New ZeroFox Common Stock on the terms and conditions set forth in the Warrant Agreement. See “Proposal No. 3—The Domestication Proposal.”
In accordance with the terms and subject to the conditions of the
Business Combination Agreement, (i) at the ZF Effective Time, each outstanding share of ZeroFox Common Stock (including shares of common stock issued upon the mandatory conversion of shares of preferred stock) of ZeroFox, other than ZF
Dissenting Shares and ZF Cancelled Shares, will be automatically cancelled and converted into a right to receive a fraction of a share of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement on the basis of
a pre-money enterprise value of ZeroFox of $866,250,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as described further in this proxy statement/prospectus) and (ii) at the IDX Effective Time, each
outstanding share of IDX Common Stock and IDX Preferred Stock, other than IDX Dissenting Shares and IDX Cancelled Shares, will be automatically cancelled and converted into a right to receive (x) for common stock and series A-1 and series A-2
preferred stock, a fraction of a share of New ZeroFox Common Stock, (y) for common stock and series A-1 and series A-2 preferred stock, a portion of $50,000,000 in cash consideration (subject to certain adjustments for cash, working capital,
debt and transaction expenses, and net of liquidation preferences, as provided in the Business Combination Agreement), and (z) for series A-1, series A-2 and series B preferred stock, a liquidation preference amount of $0.361 per share, in each
case, in accordance with the Business Combination Agreement and on the basis of a pre-money enterprise value of IDX of $338,750,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as described in further
detail in this proxy statement/prospectus).
Accordingly, up to 158,304,877 shares of New ZeroFox Common Stock may
be issued in connection with the Business Combination, representing the maximum number of shares that may be issued to holders of shares, warrants and equity awards of the Target Companies, together with the shares issued or issuable to the
existing shareholders and warrant holders of L&F in connection with the Business Combination, shares to be issued in the Common Equity PIPE Financing and shares issuable upon conversion of the Notes. For further details, see “Proposal No. 2—The Business Combination Proposal.”
In order to ensure that New ZeroFox has sufficient authorized capital
for future issuances, the L&F Board has approved, subject to shareholder approval, that the Proposed Certificate of Incorporation of New ZeroFox change the authorized share capital of L&F from (i) 500,000,000 Class A Ordinary Shares,
par value $0.0001 per share, 50,000,000 Class B Ordinary Shares, par value $0.0001 per share, and 1,000,000 preference shares, par value $0.0001 per share, to (ii) 1,000,000,000 shares of New ZeroFox Common Stock, par value $0.0001 per share,
and 100,000,000 shares of New ZeroFox Preferred Stock, par value $0.0001 per share. This amendment provides for the increase necessary to consummate the Business Combination and also provides flexibility for future issuances of New ZeroFox
Common Stock, including for future acquisitions, capital raising transactions, stock dividends, issuances under the Incentive Equity Plan and for any other proper corporate purpose, if
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determined by the New ZeroFox Board to be in the best interests of New ZeroFox
without incurring the risk, delay and potential expense incident to obtaining shareholder approval for a particular issuance.
Advisory Governing Documents Proposal 5(B) — Authorization of the
Board to Issue New ZeroFox Preferred Stock
This amendment will authorize the New ZeroFox Board to issue any or
all shares of New ZeroFox Preferred Stock in one or more classes or series, with such terms and conditions as may be expressly determined by the New ZeroFox Board and as may be permitted by the DGCL. The L&F Board believes that these shares
of preferred stock will provide New ZeroFox with needed flexibility to issue shares of New ZeroFox Preferred Stock in the future in a timely manner and under circumstances the New ZeroFox Board considers favorable without incurring the risk,
delay and potential expense incident to obtaining shareholder approval for a particular issuance.
Issuing shares of preferred stock is a well-recognized and
commonly-employed financing tool that could be used by New ZeroFox, instead of common stock or debt, to raise capital for future acquisitions or other business purposes. Having the flexibility to issue the full range of securities, including
shares of common stock, preferred stock, debt and other securities, is crucial to ensuring that New ZeroFox can competitively finance future acquisitions and other business needs with the same tools employed by its competitors. The issuance of
New ZeroFox Preferred Stock may, depending on market conditions, provide New ZeroFox with a lower cost of capital than alternative means of financing, which, in turn, can positively affect earnings available to its common shareholders. In
addition, time-sensitive and constantly changing capital markets make it virtually impossible for a company to delay an offering in order to obtain shareholder approval of specific terms of a series of preferred stock. Obtaining shareholder
approval is a process that generally takes a minimum of six to eight weeks, as the required steps include setting a record date, preparing and delivering preliminary and final proxy materials, providing shareholders with time to review proxy
materials, soliciting proxies, holding a meeting, tabulating results and filing a charter amendment. Since interest rates may change dramatically over a six- to eight-week period, it would be highly unlikely for the terms of a preferred share
offering (particularly the dividend rate) to remain static over the period required to obtain shareholder approval.
Authorized but unissued shares of New ZeroFox Preferred Stock may
enable the New ZeroFox Board to render it more difficult or to discourage an attempt to obtain control of New ZeroFox and thereby protect the continuity of or entrench its management, which may adversely affect the market price of New ZeroFox
Common Stock. If, in the due exercise of its fiduciary duties, for example, the New ZeroFox Board was to determine that a takeover proposal was not in the best interests of New ZeroFox, such preferred stock could be issued by the Board without
shareholder approval in one or more private placements or other transactions that might prevent or render more difficult or make more costly the completion of any attempted takeover transaction by diluting voting or other rights of the proposed
acquirer or insurgent shareholder group, by creating a substantial voting bloc in institutional or other hands that might support the position of the New ZeroFox Board, by effecting an acquisition that might complicate or preclude the takeover,
or otherwise. Allowing the New ZeroFox Board to issue the authorized shares of New ZeroFox Preferred Stock without further approvals will enable New ZeroFox to have the flexibility to issue such preferred stock in the future for financing its
business, for acquiring other businesses, for forming strategic partnerships and alliances and for stock dividends and stock splits. New ZeroFox currently has no such plans, proposals, or arrangements, written or otherwise, to issue any of the
additional authorized shares of New ZeroFox Preferred Stock for such purposes.
Advisory Governing Documents Proposal 5(C) — Affirming the Court of
Chancery of the State of Delaware as Exclusive Forum for Certain Shareholder Litigation and the U.S. Federal District Courts as Exclusive Forum for Proceedings Arising Under the Securities Act
This amendment will provide that, unless otherwise consented to by
New ZeroFox in writing, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware) will, to the fullest
extent permitted by law, be the sole and exclusive forum for the following types of actions or proceedings: (i) any derivative action or proceeding brought on behalf of New ZeroFox; (ii) any action asserting a claim of breach of a duty
(including any fiduciary duty) owed by any current or former director, officer, shareholder, employee or agent of New ZeroFox to New ZeroFox or its shareholders; (iii) any action asserting a claim against New ZeroFox or any current or former
director, officer, shareholder, employee or agent of New ZeroFox relating to any provision of
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the DGCL or the Proposed Certificate of Incorporation or the Proposed Bylaws or as to
which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; and (iv) any action asserting a claim against New ZeroFox or any current or former director, officer, shareholder, employee or agent of New ZeroFox governed
by the internal affairs doctrine of the State of Delaware, in each such case unless the Court of Chancery (or such other state or federal court located within the State of Delaware, as applicable) has dismissed a prior action by the same
plaintiff asserting the same claims because such court lacked personal jurisdiction over an indispensable party named as a defendant therein. The amendment will further provide that, unless otherwise consented to by New ZeroFox in writing to
the selection of an alternative forum, the federal district courts of the United States will, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint against any person in connection with any
offering of New ZeroFox’s securities, asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in New ZeroFox’s securities will be deemed to have notice of and consented
to this provision.
Although the Proposed Certificate of Incorporation contains the
choice of forum provisions described above, it is possible that a court could rule that such provisions are inapplicable for a particular claim or action or that such provisions are unenforceable. For example, under the Securities Act, federal
courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. In
addition, the exclusive forum provisions described above do not apply to any actions brought under the Exchange Act.
We believe these provisions will benefit New ZeroFox by limiting
costly and time-consuming litigation in multiple forums regarding the same matter and by providing increased consistency in the application of applicable law. In addition, we believe that the Delaware courts are best suited to address disputes
involving Delaware corporate law given that the company intends to incorporate in Delaware (pending approval of the Domestication Proposal discussed above), Delaware law generally applies to such matters, and the Delaware courts have a
reputation for expertise in corporate law matters. Delaware offers a specialized Court of Chancery to address corporate law matters, with streamlined procedures and processes to accelerate the timeline of legal decisions. This accelerated
schedule can minimize the time, cost and uncertainty of litigation for all parties. The Court of Chancery has developed considerable expertise with respect to corporate law issues, as well as a substantial and influential body of case law
construing Delaware’s corporate law and long-standing precedent regarding corporate governance. This provides shareholders and New ZeroFox with more predictability regarding the outcome of intra-corporate disputes. In addition, this amendment
is intended to promote judicial fairness and avoid conflicting results, as well as make New ZeroFox’s defense of applicable claims less disruptive and more economically feasible, principally by avoiding multiple lawsuits in multiple
jurisdictions regarding the same matter and potentially duplicative discovery. At the same time, we believe that New ZeroFox should retain the ability to consent to an alternative forum on a case-by-case basis where New ZeroFox determines that
its interests and those of its shareholders are best served by permitting such a dispute to proceed in an alternative forum. However, these exclusive forum provisions may limit the ability of our shareholders to bring a claim in a judicial
forum that such shareholders find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and other employees.
Advisory Governing Documents Proposal 5(D) — Elimination of
Provision Permitting Shareholder Action by Unanimous Written Consent
L&F’s Existing Governing Documents permit shareholders to act by
unanimous written resolution or to vote in person or, where proxies are allowed, by proxy at a general meeting of shareholders. This amendment eliminates the provision that permits action by unanimous written resolution, and requires that any
action required or permitted to be taken by the shareholders of New ZeroFox must be effected at a duly called annual or special meeting of shareholders of New ZeroFox and may not be effected by any written consent by such shareholders. The
Company believes that requiring shareholder action at a meeting ensures that the pros and cons of any proposed shareholder action will be able to be debated and discussed. For example, providing shareholders with the power to act by written
consent would limit the New ZeroFox Board’s ability to inform shareholders of its views on the matter in question as well as depriving shareholders of the opportunity for a real-time discussion over the pros and cons of any such action. In
addition, action by unanimous written consent is generally impracticable for a public company.
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Advisory Governing Documents Proposal 5(E) — Requirement that, in
General, Directors may Only be Removed for Cause
L&F’s Existing Governing Documents provide that, prior to the
completion of an initial business combination, holders of a majority of the Class B Ordinary Shares may remove a member of the L&F Board for any reason. Pursuant to this amendment, subject to the rights of holders of preferred stock, any
director or the entire New ZeroFox Board may be removed from office at any time, but only for cause, and only by the affirmative vote of the holders of a majority of the issued and outstanding capital stock of New ZeroFox entitled to vote in
the election of directors, voting together as a single class.
The Proposed Certificate of Incorporation provides for a classified
board of directors, such that only one class of directors is to be elected each year with directors serving staggered three-year terms. Under the DGCL, unless a company’s certificate of incorporation provides otherwise, removal of a director
only for cause is automatic with a classified board. Consistent with this statutory default under the DGCL, the Proposed Certificate of Incorporation will require that directors may only be removed for cause. The company believes that such a
standard will, in conjunction with the classified nature of New ZeroFox’s Board, increase board continuity and the likelihood that experienced board members with familiarity of our business operations would serve on the New ZeroFox Board at any
given time. Requiring that directors may only be removed for cause may make it more difficult or expensive for a third party to acquire control of New ZeroFox without the approval of the New ZeroFox Board.
Advisory Governing Documents Proposal 5(F) — Amendments to the
Proposed Governing Documents
L&F’s Existing Governing Documents provide that certain
amendments may only be made pursuant to a special resolution under the Cayman Islands Companies Act, which would require the affirmative vote of the holders of at least a two-thirds (2/3) majority of the L&F Ordinary Shares who, being
present and entitled to vote on the amendment, vote on such amendment, or unanimous written resolution, including amendments to (i) change L&F’s name, (ii) alter or add to the articles of association, (iii) alter or add to the memorandum of
association with respect to any objects, powers or other matters specified therein, and (iv) reduce L&F’s share capital or any capital redemption reserve fund. The Proposed Certificate of Incorporation will allow for amendments by the
affirmative vote of holders of at least a majority of the total voting power of all the then outstanding shares of stock entitled to vote thereon, voting together as a single class; provided, that (i) holders of shares of each class of common
stock will have no voting power with respect to, and will not be entitled to vote on, any amendment to the Proposed Certificate of Incorporation that relates solely to the terms of any outstanding preferred stock if the holders of such
preferred stock are entitled to vote as a separate class thereon under the Proposed Certificate of Incorporation or under DGCL; and (ii) certain amendments will require the affirmative vote of the holders of two-thirds of the total voting power
of the outstanding shares of capital stock entitled to vote thereon, voting together as a single class, at a meeting of the shareholders called for that purpose. As set forth by the Proposed Certificate of Incorporation, such two-thirds votes
are required to amend provisions that relate to (i) the classified board structure, (ii) board composition, (iii) removal of directors, (iv) indemnification and exculpation, (v) cumulative voting rights, (vi) preferred stock, (vii) exclusive
forum provisions, (viii) provisions related to shareholder action and advance notice, (ix) corporate opportunities and (x) amendments provisions of the charter.
In addition, the Proposed Bylaws will allow for amendments with the
approval by the holders of a majority of the voting power of the shares present in person or by proxy at the meeting of shareholders and entitled to vote on the matter. Any amendment of certain provisions in the Proposed Bylaws will require
approval by holders of at least two-thirds of the voting power of the then-outstanding voting securities of New ZeroFox entitled to vote thereon, voting together as a single class, including, among others, provisions related to (i) meetings of
shareholders, (ii) the powers and composition of the board of directors, (iii) removal of directors, (iv) indemnification of directors and officers and (v) amendments to the Proposed Bylaws.
The company believes that the vote thresholds to amend the Proposed
Certificate of Incorporation and Proposed Bylaws contemplated by Proposal 5(F) are more appropriate for a Delaware-incorporated public operating company with sponsor investors and are typical of governance provisions commonly included in the
organizational documents of companies immediately following a transaction similar to the proposed Business Combination.
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Advisory Governing Documents Proposal 5(G) — Elimination of
Provisions Related to Our Status as a Blank Check Company
L&F’s Existing Governing Documents (as proposed to be amended by
the Articles Amendment Proposal) contain various provisions applicable only to blank check companies. This amendment eliminates certain provisions related to L&F’s status as a blank check company, which is desirable because these provisions
will serve no purpose following the Business Combination. For example, these proposed amendments remove the requirement to dissolve L&F and allows it to continue as a corporate entity with perpetual existence following consummation of the
Business Combination. Perpetual existence is the usual period of existence for corporations, and we believe it is the most appropriate period for New ZeroFox following the Business Combination. In addition, certain other provisions in L&F’s
Existing Governing Documents require that proceeds from the IPO be held in the Trust Account until a business combination or liquidation or merger has occurred. These provisions would cease to apply once the Business Combination is consummated.
Vote Required for Approval
Approval of each Advisory Governing Documents Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no
effect on the approval of the Advisory Governing Documents Proposals.
A vote to approve the Advisory Governing Documents Proposals is an
advisory vote, and, therefore, is not binding on L&F or L&F’s Board. Accordingly, regardless of the outcome of the non-binding advisory vote, we intend that the Proposed Certificate of Incorporation and Proposed Bylaws, in the forms set
forth on Annex B and Annex C, respectively, and containing the provisions noted above, will take effect at consummation of the Business Combination, assuming adoption of the Governing Documents Proposal. While the vote is non-binding, we highly
value the opinions of our shareholders and the New ZeroFox Board intends to consider the outcome of this advisory vote in connection with future decisions regarding New ZeroFox’s corporate governance policies and practices.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Advisory Governing Documents Proposals. As of the date hereof, the L&F Initial Shareholders own approximately 55.7% of the issued and
outstanding L&F Ordinary Shares and have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting—Potential Purchases of Public Shares
and/or Warrants”. As a result, the L&F Initial Shareholders own sufficient shares to approve the Advisory Governing Documents Proposals.
Resolutions
The full text of the resolutions to be voted upon are as follows:
“RESOLVED, as an ordinary
resolution, on an advisory non-binding basis, that the authorized share capital of L&F is increased from (i) 500,000,000 Class A Ordinary Shares, par value $0.0001 per share, 50,000,000 Class B Ordinary Shares, par value $0.0001 per share,
and 1,000,000 preference shares, par value $0.0001 per share, to (ii) 1,000,000,000 shares of ZeroFox Holdings, Inc. common stock, par value $0.0001 per share, and 100,000,000 shares of ZeroFox Holdings, Inc. preferred stock, par value $0.0001
per share.”
“RESOLVED, as an ordinary
resolution, on an advisory non-binding basis, that the ZeroFox Holdings, Inc. board is authorized to issue any or all shares of ZeroFox Holdings, Inc. preferred stock in one or more classes or series, with such terms and conditions as may be
expressly determined by the ZeroFox Holdings, Inc. board and as may be permitted by the Delaware General Corporation Law.”
“RESOLVED, as
an ordinary resolution, on an advisory non-binding basis, that the Court of Chancery of the State of Delaware will be the exclusive forum for certain shareholder litigation and the federal district courts of the United States of America will
be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, unless ZeroFox Holdings, Inc. consents in writing to the selection of an alternative forum.”
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“RESOLVED,
as an ordinary resolution, on an advisory non-binding basis, that any action required or permitted to be taken by the shareholders of ZeroFox Holdings, Inc. must be effected at a duly called annual or special meeting of shareholders of
ZeroFox Holdings, Inc. and may not be effected by any consent by such shareholders.”
“RESOLVED, as
an ordinary resolution, on an advisory non-binding basis, that, subject to the rights of holders of preferred stock of ZeroFox Holdings, Inc., any director or the entire ZeroFox Holdings, Inc. board may be removed from office at any time, but
only for cause, and only by the affirmative vote of the holders of a majority of the issued and outstanding capital stock of ZeroFox Holdings, Inc. entitled to vote in the election of directors, voting together as a single class.”
“RESOLVED, as
an ordinary resolution, on an advisory non-binding basis, that the proposed new certificate of incorporation may be amended by shareholders in accordance with the voting standards set forth in Article XI, Section 1 of the proposed new
certificate of incorporation and the proposed new bylaws may be amended by shareholders in accordance with the voting standards set forth in Article X of the proposed new bylaws.”
“RESOLVED, as
an ordinary resolution, on an advisory non-binding basis, that the removal of provisions in L&F’s existing amended and restated memorandum and articles of association related to its status as a blank check company that will no longer
apply upon the consummation of the Business Combination be approved.”
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR”
THE APPROVAL OF EACH OF THE ADVISORY GOVERNING DOCUMENTS PROPOSALS.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the sections titled “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the
Business Combination”, “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Risk
Factors” for a further discussion of these considerations.
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Overview
As discussed in this proxy statement/prospectus, L&F is asking
its shareholders to consider and vote upon a proposal to approve by ordinary resolution for the purposes of complying with the applicable provisions of NYSE American Company Guide Section 713(a)(ii), the issuance of shares of New ZeroFox Common
Stock in connection with the Business Combination, the Common Equity PIPE Financing and the Convertible Notes Financing (such proposal, the “Listing Proposal”).
Reasons for the Approval of the Listing Proposal
NYSE American Company Guide Section 713(a)(ii) requires a company
to obtain shareholder approval prior to the issuance in connection with a transaction involving the sale, issuance, or potential issuance by the issuer of common stock (or securities convertible into common stock) equal to 20% or more of
presently outstanding stock for less than the greater of book or market value of the stock. The New ZeroFox Common Stock being issued in connection with the Business Combination are being issued at an assumed value of $10.00 per share which
is below the $10.09 market value of the Public Shares as of June 28, 2022.
In the event that this proposal is not approved by L&F’s
shareholders, the Business Combination cannot be consummated. In the event that this proposal is approved by L&F’s shareholders, but the Business Combination Agreement is terminated (without the Business Combination being consummated) prior
to the issuance of shares of New ZeroFox Common Stock pursuant to the Business Combination Agreement, New ZeroFox will not issue such shares of New ZeroFox Common Stock.
Vote Required for Approval
The Listing Proposal is conditioned on the approval of each of the
Condition Precedent Proposals at the Shareholder Meeting.
The approval of the Listing Proposal requires an ordinary resolution
under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder
Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on the approval of the
Listing Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Listing Proposal. As of the date hereof, the L&F Initial Shareholders own approximately 55.7% of the issued and outstanding L&F Ordinary
Shares and have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting — Potential Purchases of Public Shares and/or Warrants.”
As a result, the L&F Initial Shareholders own sufficient shares to approve the Listing Proposal.
Resolution
The full text of the resolution to be voted upon is as follows:
“RESOLVED, as an ordinary
resolution, that for the purposes of complying with NYSE American Company Guide Section 713(a)(ii), the issuance of shares of ZeroFox Holdings, Inc. common stock in connection with the Business Combination, the Common Equity PIPE Financing and
the Convertible Notes Financing (as such terms are defined in the proxy statement/prospectus) be approved.”
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR”
THE APPROVAL OF THE LISTING PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to
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recommend that shareholders vote for the proposals. See the sections titled “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination”, “Proposal No. 2 - The Business Combination Proposal —
Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Risk Factors” for a further discussion of these considerations.
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Overview
We are asking our shareholders to approve by ordinary resolution the
ZeroFox Holdings, Inc. 2022 Incentive Equity Plan (the “Incentive Equity Plan”) and the material terms thereunder. The L&F Board approved the Incentive Equity Plan, prior to the Shareholder Meeting,
subject to shareholder approval at the Shareholder Meeting. The Incentive Equity Plan will become effective as of Closing, subject to approval by the L&F shareholders.
The Incentive Equity Plan is described in more detail below. A copy
of the Incentive Equity Plan is attached to this proxy statement/prospectus as Annex H.
The Incentive Equity Plan
The principal purpose of the Incentive Equity Plan is to enhance New
ZeroFox’s ability to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based and cash-based awards. Equity awards and equity-linked compensatory opportunities are intended to motivate high
levels of performance and align the interests of directors, employees and consultants with those of shareholders by giving directors, employees and consultants the perspective of an owner with an equity or equity-linked stake in New ZeroFox and
providing a means of recognizing their contributions to New ZeroFox’s success. The L&F Board believes that equity awards are necessary for New ZeroFox to remain competitive in its industry and are essential to recruiting and retaining
highly qualified employees.
Description of Material Features of the Incentive Equity Plan
This section summarizes certain material features of the Incentive
Equity Plan. The summary is qualified in its entirety by reference to the complete text of the Incentive Equity Plan.
Eligibility and Administration
Stock-based and cash-based awards (“Awards”)
under the Incentive Equity Plan may be granted to individuals who are then New ZeroFox employees, consultants or directors, or are employees or consultants of certain of its subsidiaries. Only employees of New ZeroFox or certain of its
subsidiaries may be granted incentive stock options (“ISOs”). Following the consummation of the Business Combination, New ZeroFox and its subsidiaries are expected to have approximately 600 employees, 25
consultants and 6 non-employee directors who will be eligible to receive Awards under the Incentive Equity Plan.
The Incentive Equity Plan will be administered by the New ZeroFox
Board, which may delegate its duties and responsibilities to one or more committees of its directors and/or executive officers (referred to collectively as the “administrator”), subject to the limitations
imposed under the Incentive Equity Plan, Section 16 of the Exchange Act, stock exchange rules and other applicable laws. The administrator will have the authority to take all actions and make all determinations under the Incentive Equity Plan,
to interpret the Incentive Equity Plan and award agreements and to adopt, amend and repeal rules for the administration of the Incentive Equity Plan as it deems advisable. The administrator will also have the authority to determine which
eligible service providers receive Awards, grant Awards and set the terms and conditions of all Awards under the Incentive Equity Plan, subject to the conditions and limitations in the Incentive Equity Plan.
Shares Available for Awards
Under the Incentive Equity Plan, the number of shares equal to ten
percent (10%) of the shares of New ZeroFox Common Stock issued and outstanding at the Effective Time will be initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation
rights (“SARs”), restricted stock awards, restricted stock unit awards, dividend equivalents and other stock or cash-based awards. The number of shares of New ZeroFox Common Stock initially reserved for
issuance or transfer pursuant to awards under the Incentive Equity Plan will be increased, on an annual basis on the first day of each calendar year beginning January 1, 2023 and ending on (and including) January 1, 2031, by a number of shares
of New ZeroFox Common Stock equal to the lesser of (i) the number of shares equal to five percent (5%) of the shares of New ZeroFox Common Stock issued and outstanding on the last day of the immediately
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preceding calendar year and (ii) such smaller number of shares of New ZeroFox Common
Stock as determined by the New ZeroFox Board; provided, however, that the maximum number of shares of New ZeroFox Common Stock that may be issued upon the exercise of ISOs shall not exceed ten percent (10%) of the shares of New ZeroFox Common
Stock issued and outstanding at the Effective Time.
The following counting provisions will be in effect for the share
reserve under the Incentive Equity Plan:
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to the extent that an Award or any of the 2013 ZeroFox, Inc. Equity Incentive Plan, the IDX 2016 Stock Option and Grant Plan,
and the IDX 2017 Equity Incentive Plan, in each case, as amended (collectively, the “Prior Plans”), expires, lapses or is terminated, or is exchanged for or settled in cash without the delivery of
shares, or is surrendered, repurchased or cancelled without having been fully exercised or forfeited, in any case in a manner that results in us: (i) acquiring shares covered by an Award or an award outstanding under any of the Prior
Plans (each, a “Prior Plan Award”) at a price not greater than the price paid by the Participant (taking into account certain equity restructurings), or (ii) not issuing any shares covered by the
Award or Prior Plan Award, then the unused shares covered by the Award or Prior Plan Award will be available for future grants under the Incentive Equity Plan;
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to the extent shares are tendered or withheld to satisfy the tax withholding obligation with respect to any Award or Prior Plan
Award, such shares will be available for future grants under the Incentive Equity Plan;
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to the extent shares are tendered or withheld in payment of the exercise or purchase price of an Award or a Prior Plan Award,
such shares will be available for future grants under the Incentive Equity Plan;
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to the extent shares subject to a SAR are not issued in connection with stock settlement of the SAR upon exercise of the SAR,
such shares will not be available for future grants under the Incentive Equity Plan;
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shares purchased on the open market with cash proceeds from the exercise of options shall not be available for future grants
under the Incentive Equity Plan;
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the payment of dividend equivalents in cash in conjunction with any outstanding Awards or Prior Plan Awards will not be counted
against the shares available for issuance under the Incentive Equity Plan;
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to the extent permitted by applicable law or any exchange rule, shares issued in assumption of, or in substitution for, any
outstanding awards of any entity acquired in any form of combination by New ZeroFox or any of its subsidiaries will not be counted against the shares available for issuance under the Incentive Equity Plan (and will not be available as
recycled shares under the rules above), except that if such assumed or substituted awards are incentive stock options, such awards shall count against the incentive stock option limit under the Incentive Equity Plan; and
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other than with respect to the Prior Plans, if New ZeroFox acquires or merges with another entity that has shares available
under an incentive equity plan, the shares available under such plan generally may be used for grants under the Incentive Equity Plan (within certain parameters) without reducing the shares available for grant under the Incentive Equity
Plan (but will not be available as recycled shares under the rules above).
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The Incentive Equity Plan also provides that the sum of any cash
compensation or other compensation, and the grant date fair value of all equity or equity-based awards, that may be granted to any individual for services as a non-employee director during any fiscal year may not exceed $750,000. (However, for
a non-employee director who also serves in another capacity, the $750,000 limit shall not apply to compensation earned in such other capacity.)
The closing price of the Class A Ordinary Shares on the NYSE
American on June 28, 2022, the most recent practicable date prior to the date of this proxy statement/prospectus, was $10.09 per share.
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Types of Awards
The Incentive Equity Plan provides that the administrator may grant
or issue stock options, restricted stock, restricted stock units, SARs, other stock- or cash-based Awards and dividend equivalents, or any combination thereof. Each Award will be set forth in a separate agreement with the person receiving the
Award and will indicate the type, terms and conditions of the Award.
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Non-Qualified Stock Options (“NSOs”) provide
for the right to purchase shares of New ZeroFox Common Stock at a specified price that may not be less than the fair market value of a share of New ZeroFox Common Stock on the date of grant (unless it is a substitute award and the
exercise price is determined in compliance with Section 409A of the Code) and may become exercisable (at the discretion of the administrator) in one or more installments after the grant date, subject to the participant’s continued
employment or service with New ZeroFox and/or subject to the satisfaction of corporate performance targets and individual performance targets established by the administrator. NSOs may be granted for any term specified by the
administrator that does not exceed ten years.
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Incentive Stock Options will be designed in a manner intended to comply with the
provisions of Section 422 of the Code, and will be subject to specified restrictions contained in the Code. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of New ZeroFox
Common Stock on the date of grant, may only be granted to employees, and must not be exercisable after a period of ten years measured from the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own)
at least 10% of the total combined voting power of all classes of New ZeroFox capital stock, the exercise price must be at least 110% of the fair market value of a share of New ZeroFox Common Stock on the date of grant and the ISO must
not be exercisable after a period of five years measured from the date of grant.
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Restricted Stock may be granted to any eligible individual and made subject to such
restrictions as may be determined by the administrator. Restricted stock, typically, may be forfeited for no consideration or repurchased by New ZeroFox at the original purchase price if the conditions or restrictions on vesting are not
met. In general, restricted stock may not be sold or otherwise transferred until restrictions are removed or expire. Except as otherwise provided in an award agreement, holders of restricted stock, unlike recipients of options, will
have the right to receive dividends paid to shareholders, if any, prior to the time when the restrictions lapse. However, dividends will not be released unless and until restrictions are removed or expire. If dividends are paid in stock
or other property, the stock or other property shall be subject to the same vesting restrictions as the restricted stock, except as otherwise provided in an award agreement.
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Restricted Stock Units may be awarded to any eligible individual, typically without
payment of consideration, but subject to vesting conditions based on continued employment or service or on performance criteria established by the administrator. Restricted stock units may not be sold, or otherwise transferred or
hypothecated. Stock underlying restricted stock units will not be issued until the restricted stock units have vested, and recipients of restricted stock units generally will have no voting or dividend rights prior to the time shares
are delivered in settlement of the restricted stock units. Restricted stock units may be structured to meet an exemption from Code Section 409A of the Code (with settlement during the “short-term deferral” period), or to meet the
requirements of Section 409A of the Code (with settlement deferred beyond vesting).
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Stock Appreciation Rights will provide for payments to the holder based upon increases
in the price of New ZeroFox Common Stock over a set exercise price. The exercise price of any SAR granted under the Incentive Equity Plan must be at least 100% of the fair market value of a share of New ZeroFox Common Stock on the date
of grant (unless it is a substitute award and the exercise price is determined in compliance with Code Section 409A of the Code). SARs under the Incentive Equity Plan will be settled in cash or shares of New ZeroFox Common Stock, or in
a combination of both, at the election of the administrator.
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Other Stock or Cash-Based Awards are Awards of cash, shares of New ZeroFox Common Stock
and other Awards valued wholly or partially by referring to, or otherwise based on, shares of New ZeroFox Common Stock. Other stock or cash-based awards may be granted to participants and may also be available as a payment form in the
settlement of other Awards, as standalone payments and as payment in lieu of base salary, bonus, fees or other cash compensation otherwise payable to any individual who
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is eligible to receive Awards. The administrator will determine the terms and
conditions of other stock or cash-based awards, which may include vesting conditions based on continued service, performance and/or other conditions. Any Award may be granted as a performance award, meaning that the Award will be subject to
vesting and/or payment based on the attainment of specified performance goals.
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Dividend Equivalents represent the right to receive the equivalent value of dividends
paid on shares of New ZeroFox Common Stock and may be granted in tandem with Awards other than stock options or SARs. Dividend equivalents are converted into cash or shares by such formula and at such time as determined by the
administrator, and if permitted by the administrator, may be paid on a deferred basis in a manner compliant with Code Section 409A. In addition, dividend equivalents with respect to an Award subject to vesting will be accumulated and
subject to vesting to the same extent as the related Award, and only paid if and to the extent the vesting conditions are satisfied.
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Certain Transactions
As determined by the administrator, in the event of any
non-reciprocal transaction between New ZeroFox and its shareholders, such as a stock dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash dividend or other large non-recurring cash dividend, that affects its
share price and/or outstanding shares, the administrator will equitably adjust each outstanding Award to reflect the action taken.
As determined by the administrator, in the event of any dividend or
other distribution (regardless of form), reorganization, merger, consolidation, combination, amalgamation, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of
New ZeroFox’s assets, or sale or exchange of New ZeroFox Common Stock or other securities, change in control, issuance of warrants or other rights to purchase New ZeroFox Common Stock or other securities, or other similar corporate transaction
or event, or unusual or nonrecurring transaction or event affecting New ZeroFox or its financial statements, or changes in laws or accounting principles, the administrator may take various actions to prevent dilution or enlargement of benefits
under the Award, facilitate the transaction or event, or give effect to change in the law or accounting principles as follows: (i) cancel the Award in exchange for the amount that would have been due upon exercise or settlement of the Award;
(ii) provide for vesting and exercisability of the Award; (iii) provide for assumption or substitution of the Award by a successor entity; (iv) make adjustments in the number and type of shares or other property subject to the Award or other
terms and conditions of the Award; (v) replace the Award with other rights or property; or (vi) provide that the Award will terminate and cannot vest, be exercised or become payable after the event.
In the event of a change in control (as defined in the Incentive
Equity Plan), to the extent that New ZeroFox or a successor entity does not assume an Award or substitute another substantially similar award for an outstanding Award, then all such Awards held by grantees who remain in New ZeroFox’s service
will become fully vested, and exercisable and/or payable (as applicable) in connection with the transaction, and all forfeiture, repurchase and other restrictions on the Awards shall lapse, in which case the Awards shall be cancelled upon
consummation of the change in control in exchange for the right to receive change in control consideration (if any amount is due) determined by the number of shares subject to each such Award and net of any exercise price, subject to the
requirements of Section 409A of the Code.
Repricing
The administrator may not reduce the exercise price per share of
outstanding options or SARs, or cancel outstanding options or SARs in exchange for cash, other Awards, or options or SARs with an exercise price lower than the original exercise price, without shareholder approval.
Plan Amendment and Termination; Duration of Awards under Plan
The administrator may amend, suspend or terminate the Incentive
Equity Plan at any time. However, New ZeroFox must obtain shareholder approval for such action to the extent required by applicable law, rule or regulation (including any applicable stock exchange rule). No amendments to the Incentive Equity
Plan that materially and adversely affect a participant’s rights under an outstanding Award may be made without participant consent (other than an increase in shares authorized under the Incentive Equity Plan), except as described above in the
section above entitled “Certain Transactions”. No ISOs may be granted pursuant to the Incentive Equity Plan after the tenth anniversary of the date the L&F Board approved the Incentive Equity Plan.
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Other types of Awards may not be granted after the tenth anniversary of the effective
date of the Incentive Equity Plan. Any Award that is outstanding on the termination date of the Incentive Equity Plan will remain in force according to the terms of the Incentive Equity Plan and the applicable award agreement.
Foreign Participants, Claw-back Provisions, Transferability and
Participant Payments
The administrator may modify Awards granted to participants who are
foreign nationals or employed outside the United States or establish subplans or procedures to address differences in laws, rules, regulations or customs of such foreign jurisdictions. All Awards (including any proceeds, gains or other economic
benefit received in connection with any Awards) will be subject to any company claw-back policy as set forth in such claw-back policy or the applicable award agreement. Except as the administrator may determine or provide in an award agreement,
Awards under the Incentive Equity Plan are generally non-transferrable, except by will or the laws of descent and distribution, or, subject to the administrator’s consent, pursuant to a domestic relations order, and are generally exercisable
only by the participant. With regard to tax withholding obligations arising in connection with Awards under the Incentive Equity Plan, and exercise price obligations arising in connection with the exercise of stock options under the Incentive
Equity Plan, the administrator may, in its discretion, accept cash, wire transfer or check, shares of common stock that meet specified conditions, a promissory note, a broker assisted cashless exercise, a net exercise, or any combination of the
foregoing.
Material U.S. Federal Income Tax Consequences
The following is a general summary under current law of the principal
United States federal income tax consequences related to Awards under the Incentive Equity Plan. This summary deals with the general federal income tax principles that apply and is provided only for general information. Some kinds of taxes,
such as state, local and foreign income taxes and federal employment taxes, are not discussed. This summary is not intended as tax advice to participants, who should consult their own tax advisors.
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Non-Qualified Stock Options. If an optionee is granted an NSO under the Incentive
Equity Plan, the optionee should not have taxable income on the grant of the option. Generally, the optionee should recognize ordinary income at the time of exercise in an amount equal to the fair market value of the shares acquired on
the date of exercise, less the exercise price paid for the shares. The optionee’s basis in the shares for purposes of determining gain or loss on a subsequent sale or disposition of such shares generally will be the fair market value of
the shares on the date the optionee exercises such option. Any subsequent gain or loss will be taxable as a long-term or short-term capital gain or loss. New ZeroFox or its subsidiaries or affiliates generally should be entitled to a
federal income tax deduction at the time and for the same amount as the optionee recognizes ordinary income.
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Incentive Stock Options. A participant will generally not recognize taxable income upon
grant or exercise of an ISO. However, the excess of the fair market value of the shares of our common stock received upon exercise over the option exercise price is an item of tax preference income potentially subject to the alternative
minimum tax. If stock acquired upon exercise of an ISO is held for a minimum of two years from the date of grant and one year from the date of exercise and otherwise satisfies the ISO requirements, the gain or loss (in an amount equal
to the difference between the fair market value on the date of disposition and the exercise price) upon disposition of the stock will be treated as a long-term capital gain or loss, and New ZeroFox will not be entitled to any deduction.
If the holding period requirements are not met, the ISO will be treated as a stock option that does not meet the requirements of the Code for ISOs and the participant will recognize ordinary income at the time of the disposition equal
to the excess of the fair market value of the shares at the time of exercise over the exercise price (or if less, the amount realized in the disposition over the exercise price), with any remaining gain or loss being treated as capital
gain or capital loss. New ZeroFox or its or affiliates generally are not entitled to a federal income tax deduction upon either the exercise of an ISO or upon disposition of the shares acquired pursuant to such exercise, except to the
extent that the participant recognizes ordinary income on disposition of the shares.
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Other Awards. The current federal income tax consequences of other Awards authorized
under the Incentive Equity Plan generally follow certain basic patterns: SARs are taxed and deductible in substantially the same manner as NSOs; nontransferable restricted stock subject to a substantial risk of forfeiture results in
income recognition equal to the excess of the fair market value over the price paid,
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if any, only at the time the restrictions lapse (unless the recipient elects to
accelerate income recognition as of the date of grant through an election under Section 83(b) of the Code, in which case ordinary income is recognized on the date of grant in an amount equal to the excess of the fair market value of the shares
on the date of grant over the price paid, if any); restricted stock units, dividend equivalents and other stock- or cash-based awards are generally subject to tax at the time of payment. New ZeroFox or its subsidiaries or affiliates generally
should be entitled to a federal income tax deduction at the time and for the same amount as the participant recognizes ordinary income.
Limitation on the Employer’s Compensation Deduction
Section 162(m) of the Code limits the deduction New ZeroFox may take
for otherwise deductible compensation payable to certain of our executive officers to the extent the compensation paid to such an officer for the year exceeds $1,000,000.
Section 409A of the Code
Certain types of Awards under the Incentive Equity Plan may
constitute, or provide for, a deferral of compensation subject to Section 409A of the Code. Unless certain requirements set forth in Section 409A of the Code are complied with, holders of such Awards may be taxed earlier than would otherwise be
the case (e.g., at the time of vesting instead of the time of payment) and may be subject to an additional 20% penalty tax (and, potentially, certain interest, penalties and additional state taxes). To the extent applicable, the Incentive
Equity Plan and Awards granted under the Incentive Equity Plan are intended to be structured and interpreted in a manner intended to either comply with or be exempt from Section 409A of the Code and the Department of Treasury Regulations and
other interpretive guidance that may be issued under Section 409A of the Code.
Plan Benefits
The benefits or amounts that may be received by or allocated to
participants under the Incentive Equity Plan will be determined at the discretion of the administrator and are not currently determinable. The value of future Awards granted under the Incentive Equity Plan will depend on a number of factors,
including the fair market value of New ZeroFox Common Stock on future dates, the exercise decisions made by the participants and the extent to which any applicable service requirements or performance goals necessary for vesting or payment are
achieved.
Vote Required for Approval
The Incentive Equity Plan Proposal is conditioned on the approval of
each of the Condition Precedent Proposals at the Shareholder Meeting.
The approval of the Incentive Equity Plan Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no
effect on the approval of the Incentive Equity Plan Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Incentive Equity Plan Proposal. As of the date hereof, the L&F Initial Shareholders own approximately 55.7% of the issued and outstanding
L&F Ordinary Shares and have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting—Potential Purchases of Public Shares and/or
Warrants.” As a result, the L&F Initial Shareholders own sufficient shares to approve the Incentive Equity Plan Proposal.
Resolution
The full text of the resolution to be passed is as follows:
“RESOLVED, as an ordinary
resolution, that L&F’s adoption of the ZeroFox Holdings, Inc. 2022 Incentive Equity Plan be approved, ratified and confirmed in all respects.”
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Recommendation of the L&F Board
THE L&F BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE
APPROVAL OF THE INCENTIVE EQUITY PLAN PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the sections titled “Proposal No. 2 - The Business Combination Proposal
— Interests of Certain Persons in the Business Combination”, “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Risk Factors” for a further discussion of these considerations.
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Overview
We are asking our shareholders to approve by ordinary resolution and
adopt the ZeroFox Holdings, Inc. 2022 Employee Stock Purchase Plan (the “ESPP”) and the material terms thereunder. The L&F Board approved the ESPP, prior to the Shareholder Meeting, subject to
shareholder approval at the Shareholder Meeting. The ESPP will become effective as of Closing, subject to approval by the L&F shareholders.
The ESPP is described in more detail below. A copy of the ESPP is
attached to this proxy statement/prospectus as Annex I.
The ESPP
The ESPP is designed to allow eligible employees of New ZeroFox and
its subsidiaries to purchase shares of New ZeroFox Common Stock with their accumulated payroll deductions. The ESPP is intended to qualify under Section 423 of the Code. The material terms of the ESPP are summarized below. The purpose of the
ESPP is to assist such employees in acquiring a stock ownership interest in New ZeroFox, to help such employees provide for their future security and to encourage such employees to remain in the employment of New ZeroFox. The L&F Board
believes that the ESPP is necessary for New ZeroFox to remain competitive in its industry and is essential to recruiting and retaining the highly qualified employees who New ZeroFox needs to meet its goals.
Description of the Material Features of the ESPP
This section summarizes certain material features of the ESPP. The
summary is qualified in its entirety by reference to the complete text of the ESPP.
Administration
Unless otherwise determined by the New ZeroFox Board, the
compensation committee of the New ZeroFox Board, or another committee or subcommittee of the New ZeroFox Board to which the New ZeroFox Board delegates administrative authority, will administer and will have authority to interpret the terms of
the ESPP and determine eligibility of participants. The administrator may designate certain New ZeroFox subsidiaries as participating subsidiaries in the ESPP and may change these designations from time to time.
Shares Available for Awards
Under the ESPP, the number of shares equal to two percent (2%) of the
shares of New ZeroFox Common Stock issued and outstanding at the Effective Time will be initially reserved for issuance under the ESPP. The number of shares of New ZeroFox Common Stock initially reserved for issuance under the ESPP will be
increased annually on the first day of each calendar year beginning January 1, 2023 and ending (and including) January 1, 2031, in an amount equal to the lesser of (i) one percent (1%) of the shares of New ZeroFox Common Stock issued and
outstanding on the last day of the immediately preceding calendar year, and (ii) such number of shares of New ZeroFox Common Stock as determined by the New ZeroFox Board; provided, however, no more than 25,000,000 shares of New ZeroFox Common
Stock may be issued under the ESPP. If any right granted under the ESPP terminates for any reason without being exercised, the shares not purchased under such right shall again become available for issuance under the Plan.
The closing price of the Class A Ordinary Shares on the NYSE
American on June 28, 2022, the most recent practicable date prior to the date of this proxy statement/prospectus, was $10.09 per share.
Eligibility
Employees eligible to participate in the ESPP for a given offering
period generally include employees who are employed by New ZeroFox or one of its designated subsidiaries on the first day of the offering period, or the enrollment date. To the extent provided in an offering document, New ZeroFox employees
(and, if applicable, any employees of its designated subsidiaries) who are highly compensated employees, who have not satisfied a minimum service requirement (not in excess of two years) imposed by the administrator, who customarily work less
than five months in a calendar year, who are customarily scheduled to work less than 20 hours per week or who are citizens or residents of foreign countries where the grant of a right to purchase shares under the ESPP
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would be prohibited or the grant would cause the ESPP to violate the requirements of
Section 423 of the Code, in each case, will not be eligible to participate in the ESPP. Finally, an employee who owns (or is deemed to own through attribution) 5% or more of the combined voting power or value of all classes of stock of ZeroFox
or of one of its subsidiaries will not be allowed to participate in the ESPP. Following the consummation of the Business Combination, New ZeroFox is expected to have approximately 600 employees who will be eligible to receive awards under the
ESPP. Consultants and non-employee directors are not eligible to participate in the ESPP.
Participation
Employees will enroll under the ESPP by completing a payroll
deduction form permitting the deduction from their compensation of at least 1% of their compensation but not more than 15% of their compensation (unless otherwise determined by the administrator). Such payroll deductions shall be expressed as a
whole number percentage, and the accumulated deductions will be applied to the purchase of shares on each purchase date.
Offering
Under the ESPP, participants are offered the option to purchase
shares at a discount during a series of successive offering periods, the duration and timing of which will be determined by the ESPP administrator. However, in no event may an offering period be longer than 27 months in length.
The option purchase price will be designated by the administrator in
the offering document, and it shall not be less than the lower of 85% of the closing trading price per share of ZeroFox Common Stock on the first trading date of an offering period in which a participant is enrolled or 85% of the closing
trading price per share on the purchase date.
Unless a participant has previously canceled his or her participation
in the ESPP before the purchase date, the participant will be deemed to have exercised his or her option in full as of each purchase date. Upon exercise, the participant will purchase the number of whole shares that his or her accumulated
payroll deductions will buy at the option purchase price, subject to ESPP terms and the Code purchase limit of $25,000 per calendar year.
A participant may cancel his or her payroll deduction authorization
at any time prior to the end of the offering period and withdraw from the ESPP for the offering period, subject to any advance notice requirements established by the administrator. Upon cancellation, the participant will receive a refund of the
participant’s account balance in cash without interest. A participant may also decrease (but not increase) his or her payroll deduction authorization during any offering period. If a participant wants to increase or decrease the rate of payroll
withholding for the next offering period, he or she may do so by making a new election before the offering period for which such change is to be effective.
A participant may not assign, transfer, pledge or otherwise dispose
of (other than by will or the laws of descent and distribution) payroll deductions credited to a participant’s account or any rights to exercise an option or to receive shares under the ESPP, and during a participant’s lifetime, options in the
ESPP generally shall be exercisable only by such participant. Any such attempt at assignment, transfer, pledge or other disposition will not be given effect.
Certain Transactions
In the event of certain transactions or events affecting New ZeroFox
Common Stock, such as any stock dividend or other distribution, change in control, reorganization, merger, consolidation or other corporate transaction, the ESPP administrator may make equitable adjustments to the ESPP and outstanding rights to
prevent dilution or enlargement of benefits. In addition, in the event of the foregoing transactions or events or certain significant transactions, including a change in control or changes in laws or accounting principles, the plan
administrator may provide for (i) either the replacement of outstanding rights with other rights or property or termination of outstanding rights in exchange for cash, (ii) the assumption or substitution of outstanding rights by the successor
or survivor corporation or parent or subsidiary thereof, (iii) the adjustment in the number and type of shares of stock or other property subject to outstanding rights or in the terms and conditions of outstanding or future rights, (iv) the use
of participants’ accumulated payroll deductions to purchase stock on a new purchase date prior to the next scheduled purchase date and termination of any rights under ongoing offering periods, or (v) the termination of all outstanding rights
without exercise thereof.
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Amendment and Termination
The administrator may amend, suspend or terminate the ESPP at any
time. However, the New ZeroFox Board may not amend the ESPP without obtaining shareholder approval if the amendment would (i) increase the number or change the type of shares issuable under the ESPP, (ii) change the ESPP in a manner considered
to result in adoption of a new plan under Section 423 of the Code, or (iii) cause the ESPP to lose its qualified status under Section 423 of the Code.
Foreign Participants, Claw-Back Provisions, Transferability
The administrator may provide special terms, establish supplements
to, or amendments, restatements or alternative versions of, the ESPP, subject to the share limits described above, in order to facilitate grants of awards subject to the laws and/or stock exchange rules of countries outside of the United
States. Such special terms may not be more favorable than the terms of rights granted under the ESPP to employees who are residents of the United States.
The ESPP does not provide for clawback of shares obtained under the
ESPP.
A participant may not transfer rights granted under the ESPP other
than by will or the laws of descent and distribution, and rights granted under the ESPP are, during the lifetime of the participant, generally exercisable only by the participant.
Material U.S. Federal Income Tax Consequences
The following is a general summary under current law of the principal
United States federal income tax consequences related to the purchase of shares under the ESPP. This summary deals with the general federal income tax principles that apply and is provided only for general information. Some kinds of taxes, such
as state, local and foreign income taxes and federal employment taxes, are not discussed. This summary is not intended as tax advice to participants, who should consult their own tax advisors.
The ESPP, and the right of participants to make purchases thereunder,
is intended to qualify under the provisions of Section 423 of the Code. Under the applicable Code provisions, no income will be recognized by a participant until the sale or other disposition of the shares purchased under the ESPP. This means
that an eligible employee will not recognize taxable income on the date the employee is granted an option under the ESPP. In addition, the employee will not recognize taxable income upon the purchase of shares. Upon such sale or disposition,
the participant generally will be subject to tax in an amount that depends upon the length of time such shares are held by the participant prior to disposing of them. If the shares are sold or disposed of more than two years from the date of
grant and more than one year from the date of purchase, or if the participant dies while holding the shares, the participant (or his or her estate) will recognize ordinary income measured as the lesser of (i) the excess of the fair market value
of the shares at the time of such sale or disposition (or death) over the purchase price or (ii) an amount equal to the applicable discount from the fair market value of the shares as of the date of grant. Any additional gain will be treated as
long-term capital gain. If the shares are held for the holding periods described above but are sold for a price that is less than the purchase price, there is no ordinary income and the participating employee has a long-term capital loss for
the difference between the sale price and the purchase price.
If the shares are sold or otherwise disposed of before the expiration
of the holding periods described above, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price and New ZeroFox will be
entitled to a tax deduction for compensation expense in the amount of ordinary income recognized by the employee. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on how
long the shares were held following the date they were purchased by the participant prior to disposing of them. If the shares are sold or otherwise disposed of before the expiration of the holding periods described above but are sold for a
price that is less than the purchase price, the participant will recognize ordinary income equal to the excess of the fair market value of the shares on the date of purchase over the purchase price (and New ZeroFox will be entitled to a
corresponding deduction), but the participant generally will be able to report a capital loss equal to the difference between the sales price of the shares and the fair market value of the shares on the date of purchase.
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Section 409A of the Code
Section 409A of the Code does not apply to the ESPP, to the extent it
meets the requirements of Section 423 of the Code as intended.
New Plan Benefits
Because participation in the ESPP is voluntary and benefits under the
ESPP depend on the employees’ enrollment and contribution elections and the fair market value of the shares of New ZeroFox Common Stock on various future dates, the benefits or amounts that will be received by or allocated to any individual or
group of individuals under the ESPP in the future are not determinable.
Vote Required for Approval
The Employee Stock Purchase Plan Proposal is conditioned on the
approval of each of the Condition Precedent Proposals at the Shareholder Meeting.
The approval of the Employee Stock Purchase Plan Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no
effect on the approval of the Employee Stock Purchase Plan Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Employee Stock Purchase Plan Proposal. As of the date hereof, the L&F Initial Shareholders own approximately 55.7% of the issued and
outstanding L&F Ordinary Shares and have not purchased any Public Shares, but may do so at any time , subject to certain requirements discussed under “Shareholder Meeting—Potential Purchases of Public
Shares and/or Warrants.” As a result, the L&F Initial Shareholders own sufficient shares to approve the Employee Stock Purchase Plan Proposal.
Resolution
The full text of the resolution to be passed is as follows:
“RESOLVED, as an ordinary
resolution, that L&F’s adoption of the ZeroFox Holdings, Inc. 2022 Employee Stock Purchase Plan be approved, ratified and confirmed in all respects.”
Recommendation of the L&F Board
THE L&F BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE
APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the sections titled “Proposal No. 2 - The Business Combination Proposal
— Interests of Certain Persons in the Business Combination”, “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Risk Factors” for a further discussion of these considerations.
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Overview
L&F is asking holders of its Class B Ordinary Shares to consider
and vote upon a proposal, assuming the Business Combination Proposal, the Domestication Proposal and the Governing Documents Proposals are approved, to elect eight directors, effective upon the Closing, to serve staggered three-year terms on
the New ZeroFox Board as set forth in the Proposed Certificate of Incorporation, and until their successors have been duly elected and qualified, or until their earlier death, resignation, retirement or removal (“Director Election Proposal”).
Director Nominees
As contemplated by the Business Combination Agreement, the New
ZeroFox Board following consummation of the transaction will consist of eight directors:
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James C. Foster from ZeroFox as Chairman;
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(ii)
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four directors that are existing board members of ZeroFox designated by ZeroFox;
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(iii)
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Thomas F. Kelly from IDX;
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(iv)
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one director that is an existing board member of IDX designated by IDX; and
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(v)
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one independent director nominee designated by the Sponsor.
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Accordingly, the L&F Board has nominated each of James C. Foster
(ZeroFox), Peter Barris (ZeroFox), Corey Mulloy (ZeroFox), Samskriti King (ZeroFox), Todd Headley (ZeroFox), Thomas F. Kelly (IDX), Sean Cunningham (IDX), and Adam Gerchen (Sponsor) to serve as our directors upon the consummation of the
Business Combination, with James C. Foster to serve as the Chairman of the New ZeroFox Board, in each case, in accordance with the terms and subject to the conditions of the Proposed Certificate of Incorporation and Proposed Bylaws. For more
information on the experience of each of these director nominees, please see the section titled “Management of the Company Following the Business Combination” of this proxy statement/prospectus.
Under the Proposed Certificate of Incorporation and Proposed Bylaws,
we will have a classified board of directors following the Business Combination, with three directors in Class I (with Peter Barris, Corey Mulloy and Sean Cunningham, each to initially serve for a term expiring at the first annual meeting of
shareholders following the Closing), two directors in Class II (with Samskriti King and Thomas F. Kelly, each to initially serve for a term expiring at the second annual meeting of shareholders following the Closing) and three directors in
Class III (with James C. Foster, Todd Headley, and Adam Gerchen, each to initially serve for a term expiring at the third annual meeting of shareholders following the Closing). At each such annual meeting and each succeeding annual meeting,
directors shall be elected for a term of three years.
Vote Required for Approval
The Director Election Proposal is conditioned on the approval of each
of the Condition Precedent Proposals at the Shareholder Meeting.
The approval of the Director Election Proposal requires an ordinary
resolution under the Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at
the Shareholder Meeting. Under the terms of the Existing Governing Documents, only the holders of Class B Ordinary Shares are entitled to vote on the election of directors to the L&F Board. Therefore, only holders of Class B Ordinary Shares
will vote on the election of directors at the Shareholder Meeting. Pursuant to the Sponsor Support Letter Agreement, the L&F Initial Shareholders have agreed to vote their Class B Ordinary Shares in favor of the Director Election Proposal.
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Resolution
The full text of the resolution to be voted upon is as follows:
“RESOLVED, as an ordinary
resolution, that the persons named below be elected to serve on the ZeroFox Holdings, Inc. board of directors upon the consummation of the Business Combination to serve initial terms as provided in the proposed new certificate of
incorporation.”
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Name of Director
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Class of Directorship
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Peter Barris
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Corey M. Mulloy
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Sean Cunningham
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I
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Samskriti King
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II
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Thomas F. Kelly
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II
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James C. Foster
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III
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Todd Headley
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III
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Adam Gerchen
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III
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Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR”
EACH OF THE DIRECTOR NOMINEES.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the sections titled “Proposal No. 2 - The Business Combination Proposal
— Interests of Certain Persons in the Business Combination”, “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Risk Factors” for a further discussion of these considerations.
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The Adjournment Proposal asks shareholders to approve the adjournment
of the Shareholder Meeting to a later date or dates if necessary to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Shareholder Meeting, there are insufficient L&F Ordinary Shares
represented (either in person or by proxy) to constitute a quorum necessary to conduct business at the Shareholder Meeting or to approve any of the Proposals presented to shareholders.
Consequences if the Adjournment Proposal is Not Approved
If the Adjournment Proposal is presented to the Shareholder Meeting
and is not approved by the shareholders, the Board may not be able to adjourn the Shareholder Meeting to a later date or dates, if necessary or appropriate, to permit further solicitation of proxies in the event that there are insufficient
votes for, or otherwise in connection with, the approval of the Articles Amendment Proposal or any of the Condition Precedent Proposals. In such events, the Business Combination would not be completed.
Vote Required for Approval
The Adjournment Proposal is not conditioned on any other proposal.
The approval of the Adjournment Proposal requires an ordinary
resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the
Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on the
approval of the Adjournment Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Adjournment Proposal. As of the date hereof, the L&F Initial Shareholders own approximately 55.7% of the issued and outstanding L&F
Ordinary Shares and have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting — Potential Purchases of Public Shares and/or Warrants.”
As a result, the L&F Initial Shareholders own sufficient shares to approve the Adjournment Proposal.
Resolution
The full text of the resolution to be voted upon is as follows:
“RESOLVED, as an ordinary
resolution, that the adjournment of the Shareholder Meeting to a later date or dates if necessary, to permit further solicitation and votes of proxies if, based upon the tabulated votes at the time of the Shareholder Meeting, there are
insufficient L&F ordinary shares represented (either in person or by proxy) to constitute a quorum necessary to conduct business at the Shareholder Meeting or to approve the Articles Amendment Proposal, the Business Combination Proposal,
the Domestication Proposal, the Governing Documents Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal or the Director Election Proposal be
approved, ratified and confirmed in all respects.”
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE
APPROVAL OF THE ADJOURNMENT PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what, he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the sections titled “Proposal No. 2 - The Business Combination Proposal
— Interests of Certain Persons in the Business Combination”, “Proposal No. 2 - The Business Combination Proposal — Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Risk Factors” for a further discussion of these considerations.
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The following is a discussion of certain material U.S. federal income
tax considerations generally applicable to holders of our Public Shares or public warrants (“our securities”) (other than our Sponsor or any of its affiliates) of the (i) exercise of redemption rights, (ii) Domestication and (iii) ownership and
disposition of shares of New ZeroFox Common Stock and New ZeroFox Public Warrants (together, the “New ZeroFox securities”) after the Business Combination. This section applies only to investors that hold our securities, and that will hold their
New ZeroFox securities, as capital assets for U.S. federal income tax purposes (generally, property held for investment). This discussion does not address all aspects of U.S. federal income taxation that may be relevant to particular holders in
light of their particular circumstances or status including:
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financial institutions or financial services entities;
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broker-dealers;
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S corporations;
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taxpayers that are subject to the mark-to-market accounting rules;
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tax-exempt entities;
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governments or agencies or instrumentalities thereof;
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tax-qualified retirement plans;
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insurance companies;
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regulated investment companies or real estate investment trusts;
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expatriates or former long-term residents or citizens of the United States;
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persons that directly or constructively own five percent or more of our voting shares or five percent or more of the total value
of all classes of our shares or that will, following the Business Combination, directly or constructively own five percent or more of all New ZeroFox voting shares or five percent or more of the total value of all classes of New ZeroFox
shares (except as specifically addressed below);
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persons that acquired our securities pursuant to an exercise of employee share options, in connection with employee share
incentive plans or otherwise as compensation;
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persons that hold our securities or who will hold New ZeroFox securities as part of a straddle, constructive sale, hedging,
conversion, synthetic security or other integrated or similar transaction;
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persons subject to the alternative minimum tax;
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persons whose functional currency is not the U.S. dollar;
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controlled foreign corporations;
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corporations that accumulate earnings to avoid U.S. federal income tax;
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“qualified foreign pension funds” (within the meaning of Section 897(l)(2) of the Code) and entities whose interests are held by
qualified foreign pension funds;
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persons that purchase shares of New ZeroFox Common Stock as part of the PIPE Financing;
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accrual method taxpayers that file applicable financial statements as described in Section 451(b) of the Code;
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foreign corporations with respect to which there are one or more United States shareholders within the meaning of Treasury
Regulation Section 1.367(b)-3(b)(1)(ii); or
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passive foreign investment companies or their shareholders.
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This discussion is based on current U.S. federal income tax laws as
in effect on the date hereof, which is subject to change, possibly on a retroactive basis, which may affect the U.S. federal income tax consequences described herein. Furthermore, this discussion does not address any aspect of U.S. federal
non-income tax laws, such as gift, estate or Medicare net investment income tax laws, or state, local or non-U.S. laws. In addition, this discussion does not address any tax consequences to investors that directly or indirectly hold equity
interests in
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ZeroFox or IDX prior to the Business Combination, including holders of our securities
that also hold, directly or indirectly, equity interests in ZeroFox or IDX. With respect to the consequences of holding New ZeroFox securities, this discussion is limited to our holders that acquire New ZeroFox securities in connection with the
Business Combination or that acquire shares of New ZeroFox Common Stock as a result of the exercise of New ZeroFox Public Warrants received in connection with the Business Combination. L&F has not sought, and neither L&F nor New ZeroFox
intends to seek, a ruling from the U.S. Internal Revenue Service (“IRS”) as to any U.S. federal income tax considerations described herein. The IRS may disagree with the discussion herein, and its determination may be upheld by a court.
Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements in this discussion.
This discussion does not consider the U.S. federal income tax
treatment of entities or arrangements treated as partnerships or other pass-through entities (including branches) for U.S. federal income tax purposes (any such entity or arrangement, a “Flow-Through Entity”) or investors that hold our
securities or New ZeroFox securities through Flow-Through Entities. If a Flow-Through Entity is the beneficial owner of our securities, or will be the beneficial owner of New ZeroFox securities, the U.S. federal income tax treatment of an
investor holding our securities or New ZeroFox securities through a Flow-Through Entity generally will depend on the status of such investor and the activities of such investor and such Flow-Through Entity.
If you hold our securities, or will hold New ZeroFox securities,
through a Flow-Through Entity, we urge you to consult your tax advisor.
THE FOLLOWING IS FOR INFORMATIONAL PURPOSES ONLY.
EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE DOMESTICATION, AN EXERCISE OF REDEMPTION RIGHTS, AND THE OWNERSHIP AND DISPOSITION OF NEW ZEROFOX SECURITIES, INCLUDING THE EFFECTS
OF U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX LAWS.
For purposes of this discussion, because any unit consisting of one
Class A Ordinary Share and one half of one warrant (with a whole warrant representing the right to acquire one Class A Ordinary Share) is separable at the option of the holder, L&F is treating any Class A Ordinary Share and one half of one
warrant to acquire one Class A Ordinary Share held by a holder in the form of a single unit as separate instruments and is assuming that the unit itself will not be treated as an integrated instrument. Accordingly, the cancellation or
separation of the units in connection with the consummation of the Domestication or in connection with the exercise of redemption rights generally should not be a taxable event for U.S. federal income tax purposes. This position is not free
from doubt, and no assurance can be given that the IRS would not assert, or that a court would not sustain, a contrary position.
U.S. Holders
As used herein, a “U.S. Holder” is a beneficial owner of our
securities or New ZeroFox securities, as applicable, and is, for U.S. federal income tax purposes:
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an individual citizen or resident of the United States;
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a corporation (or other entity that is treated as a corporation for U.S. federal income tax purposes) that is created or
organized (or treated as created or organized) in or under the laws of the United States or any state thereof or the District of Columbia;
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an estate the income of which is subject to U.S. federal income tax regardless of its source; or
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a trust if (i) a U.S. court can exercise primary supervision over the administration of such trust and one or more United States
persons (within the meaning of the Code) have the authority to control all substantial decisions of the trust or (ii) it has a valid election in place to be treated as a United States person.
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PFIC Status of L&F
Because L&F is a blank check company with no current active
business, and based upon the composition of its income and assets, L&F takes the position that it was a PFIC for its most recent taxable year ended on December 31, 2021 and will be a PFIC for its current taxable year which ends as a
result of the Domestication. The following discussion, and the U.S. federal income tax considerations described herein, are subject to the PFIC rules under “— PFIC Considerations” below.
Effects to U.S. Holders of Exercising Redemption
Rights
Subject to the PFIC rules under “— PFIC Considerations” below, the U.S. federal income tax consequences to a U.S. Holder of Public Shares that exercises its Redemption rights to receive cash from the trust account in exchange for all or a portion of
its Public Shares will depend on whether the Redemption qualifies as a sale of the Public Shares redeemed under Section 302 of the Code or is treated as a distribution under Section 301 of the Code. If the Redemption qualifies as a sale of
such U.S. Holder’s Public Shares, such U.S. Holder will generally be required to recognize gain or loss in an amount equal to the difference, if any, between the amount of cash received and the tax basis of the Public Shares redeemed. Such
gain or loss should be treated as capital gain or loss if such shares were held as a capital asset on the date of the Redemption (subject to the effects of the PFIC rules on the Redemption, which are described below under “— PFIC Considerations”). Any such capital gain or loss generally will be long-term capital gain or loss if the U.S. Holder’s holding period for such Public Shares exceeds one year at the time of the
Redemption. A U.S. Holder’s tax basis in such U.S. Holder’s Public Shares generally will equal the cost of such shares.
The Redemption generally will qualify as a sale of such Public Shares
if the Redemption either (i) is “substantially disproportionate” with respect to the redeeming U.S. Holder, (ii) results in a “complete redemption” of such U.S. Holder’s interest in L&F or (iii) is “not essentially equivalent to a dividend”
with respect to such U.S. Holder. These tests are explained more fully below.
For purposes of such tests, a U.S. Holder takes into account not only
Public Shares directly owned by such U.S. Holder, but also Public Shares that are constructively owned by such U.S. Holder. A redeeming U.S. Holder may constructively own, in addition to Public Shares owned directly, Public Shares owned by
certain related individuals and entities in which such U.S. Holder has an interest or that have an interest in such U.S. Holder, as well as any Public Shares such U.S. Holder has a right to acquire by exercise of an option, which would
generally include Public Shares which could be acquired pursuant to the exercise of the public warrants.
The Redemption generally will be “substantially disproportionate”
with respect to a redeeming U.S. Holder if the percentage of L&F’s outstanding voting shares that such U.S. Holder directly or constructively owns immediately after the Redemption is less than 80 percent of the percentage of L&F’s
outstanding voting shares that such U.S. Holder directly or constructively owned immediately before the Redemption, and such U.S. Holder immediately after the Redemption actually and constructively owns less than 50 percent of the total
combined voting power of L&F. There will be a complete redemption of such U.S. Holder’s interest if either (i) all of the Public Shares directly or constructively owned by such U.S. Holder are redeemed or (ii) all of the Public Shares
directly owned by such U.S. Holder are redeemed and such U.S. Holder is eligible to waive, and effectively waives in accordance with specific rules, the attribution of the Public Shares owned by certain family members and such U.S. Holder does
not constructively own any other Public Shares. The Redemption will not be essentially equivalent to a dividend if it results in a “meaningful reduction” of such U.S. Holder’s proportionate interest in L&F. Whether the Redemption will
result in a “meaningful reduction” in such U.S. Holder’s proportionate interest will depend on the particular facts and circumstances applicable to it. The IRS has indicated in a published ruling that even a small reduction in the proportionate
interest of a small minority shareholder in a publicly held corporation that exercises no control over corporate affairs may constitute such a “meaningful reduction.”
If none of the above tests is satisfied, the Redemption will be
treated as a distribution with respect to the Public Shares under Section 302 of the Code, in which case the U.S. Holder will be treated as receiving a corporate distribution. Such distribution generally will constitute a dividend for U.S.
federal income tax purposes to the extent paid from current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such dividends will be taxable to a corporate U.S. Holder at regular rates and will not
be eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations. On the basis that L&F takes the position that it is classified as a PFIC (as
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discussed above under “— PFIC Status of
L&F” and below under “— PFIC Considerations”), such dividends will be taxable to an individual U.S. Holder at regular rates and will not be eligible for the reduced
rates of taxation on certain dividends received from a “qualified foreign corporation” (moreover, as a Cayman Islands exempted company, L&F should not be a “qualified foreign corporation” for purposes of such dividend treatment).
Distributions in excess of current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. Holder’s adjusted tax basis in such U.S. Holder’s Public Shares.
Any remaining excess will be treated as gain realized on the sale or other disposition of such U.S. Holder’s Public Shares. After the application of those rules, any remaining tax basis of the U.S. Holder in the redeemed Public Shares will be
added to the U.S. Holder’s adjusted tax basis in its remaining Public Shares, or, if it has none, to the U.S. Holder’s adjusted tax basis in its public warrants or possibly in other shares constructively owned by it.
ALL U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS AS TO THE TAX CONSEQUENCES TO THEM OF A REDEMPTION OF ALL OR A PORTION OF THEIR PUBLIC SHARES PURSUANT TO AN EXERCISE OF REDEMPTION RIGHTS.
Effects of the Domestication on U.S. Holders
The discussion under this heading “Effects
of the Domestication on U.S. Holders” constitutes the opinion of Kirkland & Ellis LLP, United States tax counsel to L&F, insofar as it discusses the material U.S. federal income tax considerations applicable to U.S. Holders of
L&F Public Shares as a result of the Domestication, based on, and subject to, customary assumptions, qualifications and limitations, and the assumptions, qualifications and limitations herein and in the opinion included as Exhibit 8.1
hereto, as well as representations of L&F.
The U.S. federal income tax consequences of the Domestication will
depend primarily upon whether the Domestication qualifies as a “reorganization” within the meaning of Section 368 of the Code.
Under Section 368(a)(1)(F) of the Code, a reorganization is a “mere
change in identity, form, or place of organization of one corporation, however effected” (an “F Reorganization”). Pursuant to the Domestication, we will change our jurisdiction of incorporation by deregistering as an exempted company in the
Cayman Islands and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware.
The Domestication generally should constitute an F Reorganization.
However, L&F has not requested, and does not intend to request, a ruling from the IRS as to the U.S. federal income tax consequences of the Domestication. Consequently, no assurance can be given that the IRS will not assert, or that a court
would not sustain, a contrary position. Accordingly, each U.S. Holder of our securities is urged to consult its tax advisor with respect to the particular tax consequence of the Domestication to such U.S. Holder.
Assuming the Domestication qualifies as an F Reorganization, U.S.
Holders of our securities should not recognize gain or loss for U.S. federal income tax purposes on the Domestication, except as provided under “— Effects of Section 367(b) to U.S. Holders” below and “— PFIC Considerations” below, and the Domestication should be treated for U.S. federal income tax purposes as if L&F (i) transferred all of its assets and liabilities to a Delaware corporation (“L&F
Delaware”) in exchange for all L&F Delaware public shares and public warrants and then (ii) distributed such L&F Delaware public shares and public warrants to the shareholders and warrant holders, respectively, of L&F in liquidation
of L&F. The taxable year of L&F should be deemed to end on the date of the Domestication.
If the Domestication qualifies as an F Reorganization, subject to the
PFIC rules under “— PFIC Considerations” below, (i) a U.S. Holder’s tax basis in each L&F Delaware public share and each L&F Delaware public warrant received in the Domestication should be the
same as its tax basis in the L&F public share or L&F public warrant, as applicable, surrendered in exchange therefor, increased by any amount included in the income of such U.S. Holder under Section 367(b) of the Code (as discussed
below) and (ii) the holding period for each L&F Delaware public share and each L&F Delaware public warrant should include such U.S. Holder’s holding period for the L&F public share or L&F public warrant, as applicable,
surrendered in exchange therefor.
If the Domestication fails to qualify as an F Reorganization, subject
to the PFIC rules under “— PFIC Considerations” below, a U.S. Holder may recognize gain or loss with respect to its L&F public share or L&F public warrant in an amount equal to the difference,
if any, between (a) the fair market value of the corresponding L&F Delaware public share or L&F Delaware public warrant, as applicable, received in the
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Domestication and (b) the U.S. Holder’s adjusted tax basis in its L&F public
share or L&F public warrant, as applicable, surrendered in exchange therefor. In such event, the U.S. Holder’s basis in its L&F Delaware public share or L&F Delaware public warrant would be equal to the fair market value of such
L&F Delaware public share or such L&F Delaware public warrant on the date of the Domestication, and the U.S. Holder’s holding period for its L&F Delaware public share or L&F Delaware public warrant would begin on the day
following the date of the Domestication.
Because the Domestication will occur after the Redemption, U.S.
Holders exercising Redemption rights will not be subject to the potential tax consequences of the Domestication with respect to any Public Shares redeemed in the Redemption.
Mergers
The discussion under this heading “Mergers” constitutes the opinion
of Kirkland & Ellis LLP, United States tax counsel to L&F, insofar as it discusses the material U.S. federal income tax considerations of the Mergers for U.S. Holders of L&F Public Shares who receive shares of New ZeroFox Common
Stock pursuant to the Domestication, based on, and subject to, customary assumptions, qualifications and limitations, and the assumptions, qualifications and limitations herein and in the opinion included as Exhibit 8.1 to the registration
statement of which this proxy statement/prospectus forms a part as well as representations of L&F. U.S. Holders of L&F Public Shares who receive shares of New ZeroFox Common Stock pursuant to the Domestication should not recognize gain
or loss for U.S. federal income tax purposes as a result of the Mergers. This conclusion is based on the fact that such U.S. Holders will not exchange their shares of New ZeroFox Common Stock in the Mergers and, accordingly, the Mergers should
not be a realization event for such U.S. Holders for U.S. federal income tax purposes.
Effects of Section 367(b) to U.S. Holders
Section 367(b) of the Code applies to certain transactions involving
foreign corporations, including an inbound domestication of a foreign corporation in an F Reorganization. Section 367(b) of the Code imposes U.S. federal income tax on certain U.S. persons in connection with transactions that would otherwise
qualify as a “reorganization” within the meaning of Section 368 of the Code. Section 367(b) of the Code will generally apply to U.S. Holders on the date of the Domestication. Because the Domestication will occur after the Redemption, U.S.
Holders exercising Redemption rights will not be subject to the potential tax consequences of Section 367(b) of the Code as a result of the Domestication with respect to any Public Shares redeemed in the Redemption.
A. U.S. Holders That Hold 10 Percent or More of L&F
A U.S. Holder that on the date of the Domestication beneficially owns
(directly or constructively) 10% or more of the total combined voting power of all classes of our stock entitled to vote or 10% or more of the total value of all classes of our stock (a “U.S. Shareholder”) must include in income as a dividend
the “all earnings and profits amount” (within the meaning of Treasury Regulations under Section 367(b) of the Code) attributable to the Public Shares it directly owns. A U.S. Holder’s ownership of public warrants will be taken into account in
determining whether such U.S. Holder is a U.S. Shareholder. Complex attribution rules apply in determining whether a U.S. Holder is a U.S. Shareholder and all U.S. Holders are urged to consult their tax advisors with respect to these
attribution rules.
A U.S. Shareholder’s “all earnings and profits amount” with respect
to its Public Shares is the net positive earnings and profits of L&F (as determined under Treasury Regulations under Section 367 of the Code) attributable to such Public Shares (as determined under Treasury Regulations under Section 367 of
the Code) through the date of the Domestication but without regard to any gain that would be realized on a sale or exchange of such Public Shares. Treasury Regulations under Section 367 of the Code provide that earnings and profits amount
attributable to a shareholder’s stock is determined according to the principles of Section 1248 of the Code and the Treasury Regulations thereunder. In general, Section 1248 of the Code and the Treasury Regulations thereunder provide that the
amount of earnings and profits attributable to a “block of stock” (as defined in Treasury Regulations under Section 1248 of the Code) in a foreign corporation is the ratably allocated portion of the foreign corporation’s earnings and profits
generated during the period the shareholder held the block of stock.
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L&F does not expect to have significant cumulative earnings
and profits through the date of the Domestication. If L&F’s cumulative earnings and profits through the date of the Domestication are less than or equal to zero, then a U.S. Holder should not be required to include in gross income an “all
earnings and profits amount” with respect to its Public Shares. If L&F’s cumulative net earnings and profits are greater than zero through the date of the Domestication, a U.S. Shareholder would be required to include its “all earnings
and profits amount” in income as a deemed dividend under Treasury Regulations under Section 367(b) of the Code as a result of the Domestication. Such dividend will be taxable to an individual U.S. Holder at regular rates and will not be
eligible for the reduced rates of taxation on certain dividends received from a “qualified foreign corporation” (moreover, as a Cayman Islands exempted company, L&F should not be a “qualified foreign corporation” for purposes of such
dividend treatment). Any such U.S. Holder that is a corporation may, under certain circumstances, effectively be exempt from taxation on a portion or all of the deemed dividend pursuant to Section 245A of the Code (commonly referred to as the
participation exemption); however, because L&F takes the position that it is classified as a PFIC, the participation exemption likely will not apply for any corporate U.S. Holders. Such U.S. Holders that are C corporations should consult
their own tax advisors as to the applicability of Section 245A of the Code in their particular circumstances.
B. U.S. Holders That Own Less Than 10 Percent of L&F
A U.S. Holder that, on the date of the Domestication, beneficially
owns (actually and constructively) Public Shares with a fair market value of $50,000 or more, but is not a U.S. Shareholder, will recognize gain (but not loss) with respect to the Domestication or, in the alternative, may elect to recognize the
“all earnings and profits amount” attributable to such U.S. Holder as described below.
Unless a U.S. Holder makes the election described below, such U.S.
Holder generally must recognize gain (but not loss) with respect to shares of New ZeroFox Common Stock received in the Domestication in an amount equal to the excess of the fair market value of such shares of New ZeroFox Common Stock over the
U.S. Holder’s adjusted tax basis in the Public Shares deemed surrendered in exchange therefor.
In lieu of recognizing any gain as described in the preceding
paragraph, a U.S. Holder may elect to include in income the “all earnings and profits amount” attributable to its Public Shares under Section 367(b) of the Code.
There are, however, strict conditions for making this election. This
election must comply with applicable Treasury Regulations and generally must include, among other things, a “section 367(b) notice” in accordance with Section 367(b) of the Code and the Treasury Regulations thereunder, which includes, among
other things:
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(i)
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a statement that the Domestication is a “section 367(b) exchange” (within the meaning of the applicable Treasury Regulations);
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(ii)
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a complete description of the Domestication;
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(iii)
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a description of any stock, securities or other consideration transferred or received in the Domestication;
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(iv)
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a statement that describes any amount (or amounts) required, under the Treasury Regulations under Section 367(b), to be taken
into account as income or loss or as an adjustment to basis, earnings and profits, or other tax attributes as a result of the Domestication;
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(v)
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a statement that (A) the U.S. Holder is making the election and (B) includes (1) a copy of the information that the U.S. Holder
received from L&F (or New ZeroFox) establishing and substantiating the U.S. Holder’s “all earnings and profits amount” with respect to the U.S. Holder’s Public Shares and (2) a representation that the U.S. Holder has notified
L&F (or New ZeroFox) that the U.S. Holder is making the election; and
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(vi)
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certain other information required to be furnished with the U.S. Holder’s tax return or otherwise furnished pursuant to the Code
or the Treasury Regulations.
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In addition, the “section 367(b) notice” must be attached to such
electing U.S. Holder’s timely filed U.S. federal income tax return for the taxable period in which the Domestication occurs, and such electing
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U.S. Holder must send notice of the election to L&F (or New ZeroFox) no later
than the date such “section 367(b) notice” and tax return is filed. In connection with this election, we intend to provide each U.S. Holder eligible to make such an election with information regarding L&F’s earnings and profits upon written
request.
L&F does not expect to have significant cumulative earnings and
profits through the date of the Domestication. However, as noted above, if it were determined that L&F had positive earnings and profits through the date of the Domestication, a U.S. Holder that makes the election described herein could
have an “all earnings and profits amount” with respect to its Public Shares, and thus could be required to include that amount in income as a deemed dividend under applicable Treasury Regulations as a result of the Domestication. Such dividend
would be subject to the same tax consequences as described above under “— U.S. Holders That Hold 10 Percent or More of L&F.”
EACH U.S. HOLDER IS URGED TO CONSULT ITS TAX
ADVISOR REGARDING THE CONSEQUENCES TO IT OF MAKING THE ELECTION DESCRIBED HEREIN AND THE APPROPRIATE FILING REQUIREMENTS WITH RESPECT TO SUCH ELECTION.
C. U.S. Holders that Own Public Shares with a Fair Market Value of
Less Than $50,000
A U.S. Holder that, on the date of the Domestication, beneficially
owns (actually and constructively) Public Shares with a fair market value of less than $50,000, and is not a U.S. Shareholder, generally should not be required to recognize any gain or loss under Section 367(b) of the Code in connection with
the Domestication, and generally should not be required to include any part of the “all earnings and profits amount” in income.
D. Tax Consequences for U.S. Holders of Public Warrants
Subject to the considerations described above relating to a U.S.
Holder’s ownership of public warrants being taken into account in determining whether such U.S. Holder is a U.S. Shareholder for purposes of Section 367(b) of the Code, and the PFIC considerations described under “— PFIC Considerations” below, a U.S. Holder of public warrants should not be subject to U.S. federal income tax with respect to the exchange of L&F public warrants for L&F Delaware public warrants in the Domestication.
ALL U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE EFFECT OF SECTION 367(b) OF THE CODE TO THEIR PARTICULAR CIRCUMSTANCES.
PFIC Considerations
In addition to the discussion under “— Effects of Section 367(b) to U.S. Holders” above, the Redemption and the Domestication, as relevant, could be a taxable event to U.S. Holders under the PFIC provisions of the Code.
A. Definition of a PFIC
A foreign (i.e., non-U.S.) corporation will be classified as a
PFIC for U.S. federal income tax purposes if either (i) at least 75% of its gross income in a taxable year, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by
value, is passive income or (ii) at least 50% of its assets in a taxable year (ordinarily, but subject to exceptions, determined based on fair market value and averaged quarterly over the year), including its pro rata share of the assets of
any corporation in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than rents or
royalties derived from the active conduct of a trade or business) and gains from the disposition of assets giving rise to passive income. For purposes of these rules, which apply to L&F prior to the Redemption and the Domestication,
interest income earned by L&F would be considered passive income and cash held by L&F would generally be considered a passive asset.
B. Effects of PFIC Rules on the Redemption and the Domestication
As discussed above, L&F takes the position that it is
classified as a PFIC for U.S. federal income tax purposes.
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Section 1291(f) of the Code requires that, to the extent
provided in Treasury Regulations, a United States person that disposes of stock of a PFIC recognizes gain notwithstanding any other provision of the Code. No final Treasury Regulations are currently in effect under Section 1291(f) of the
Code. However, proposed Treasury Regulations under Section 1291(f) of the Code have been promulgated with a retroactive effective date. If finalized in their current form, because L&F takes the position that it is classified as a PFIC,
those proposed Treasury Regulations may require gain recognition to U.S. Holders of Public Shares or public warrants upon the Redemption or the Domestication, as relevant if the U.S. Holder had not timely made (i) a QEF Election (as described
below) for the first taxable year in which the U.S. Holder owned such Public Shares or in which L&F was a PFIC, whichever is later, or (ii) a mark-to-market election (as described below) with respect to such Public Shares. Generally,
neither election is available with respect to the public warrants. The tax on any such recognized gain would be imposed based on a complex set of computational rules.
Under these rules:
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the U.S. Holder’s gain will be allocated ratably over the U.S. Holder’s holding period for such U.S. Holder’s Public Shares or
public warrants;
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the amount of gain allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain, or to the period in
the U.S. Holder’s holding period before the first day of the first taxable year in which L&F was a PFIC, will be taxed as ordinary income;
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the amount of gain allocated to other taxable years (or portions thereof) of the U.S. Holder and included in such U.S. Holder’s
holding period would be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and
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an additional tax equal to the interest charge generally applicable to underpayments of tax will be imposed on the U.S. Holder
in respect of the tax attributable to each such other taxable year described in the immediately preceding clause of such U.S. Holder.
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To the extent the Redemption is treated as a sale or exchange for
any U.S. Holders of Public Shares exercising their Redemption rights (as discussed above “—Effects to U.S. Holders of Exercising Redemption Rights” above), because L&F takes
the position that it is classified as a PFIC, any such U.S. Holders that have not made a timely QEF Election or a mark-to-market election (both as defined and described below) may be subject to taxation (in accordance with the PFIC rules
described above) on the Redemption to the extent their Public Shares have a fair market value in excess of their tax basis therein. An Electing Shareholder (as defined below) generally would not be subject to the adverse PFIC rules discussed
above with respect to its Public Shares but rather would include annually in gross income its pro rata share of the ordinary earnings and net capital gain of L&F, whether or not such amounts are actually distributed to such shareholders
in any taxable year.
In addition, the proposed Treasury Regulations provide coordinating
rules with Section 367(b) of the Code, whereby, if the gain recognition rule of the proposed Treasury Regulations under Section 1291(f) of the Code applies to a disposition of PFIC stock that results from a transfer with respect to which
Section 367(b) of the Code requires the shareholder to recognize gain or include an amount in income as discussed under “— Effects of Section 367(b) to U.S. Holders” above, the gain realized on the
transfer is taxable under the PFIC rules discussed above, and the excess, if any, of the amount to be included in income under Section 367(b) of the Code over the gain realized under Section 1291 of the Code is taxable as provided under Section
367(b) of the Code.
It is difficult to predict whether, in what form and with what
effective date, final Treasury Regulations under Section 1291(f) of the Code will be adopted. Therefore, because L&F takes the position that it is classified as a PFIC, U.S. Holders of Public Shares that have not made a timely QEF
Election or a mark-to-market election (both as defined and described below) and U.S. Holders of public warrants may, pursuant to the proposed Treasury Regulations, be subject to taxation on the Domestication to the extent their Public Shares
or public warrants have a fair market value in excess of their tax basis therein. An Electing Shareholder (as defined below) generally would not be subject to the adverse PFIC rules discussed above with respect to its Public Shares but rather
would include annually in gross income its pro rata share of the ordinary earnings and net capital gain of L&F, whether or not such amounts are actually distributed to such shareholders in any taxable year.
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C. QEF Election and Mark-to-Market Election
The impact of the PFIC rules on a U.S. Holder of Public Shares
would depend on whether the U.S. Holder makes a timely and effective election to treat L&F as a “qualified electing fund” under Section 1295 of the Code for the taxable year that is the first year in the U.S. Holder’s holding period of
Public Shares during which L&F qualified as a PFIC (a “QEF Election”). The QEF Election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF
election by attaching a completed IRS Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), including the information provided in a “PFIC Annual Information Statement,” to a timely filed U.S.
federal income tax return for the tax year to which the election relates. Retroactive QEF Elections generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent of
the IRS. If applicable, U.S. Holders should consult their tax advisors regarding the availability and tax consequences of a retroactive QEF Election under their particular circumstances. A U.S. Holder’s ability to make a QEF Election with
respect to L&F is contingent upon, among other things, the provision by L&F of a “PFIC Annual Information Statement” to such U.S. Holder. Upon written request, we will endeavor to provide to a U.S. Holder such information as the IRS
may require, including a PFIC Annual Information Statement, in order to enable the U.S. Holder to make and maintain a QEF Election. There is no assurance, however, that we would timely provide such required information. A U.S. Holder that
makes a QEF Election may be referred to as an “Electing Shareholder” and a U.S. Holder that does not make a QEF Election may be referred to as a “Non-Electing Shareholder.” A QEF Election is not available with respect to public warrants. An
Electing Shareholder generally would not be subject to the adverse PFIC rules discussed above with respect to their Public Shares. As a result, such a U.S. Holder should not recognize gain or loss as a result of the Redemption or
Domestication, as relevant, except to the extent described under “— Effects of Section 367(b) to U.S. Holders” above.
The impact of the PFIC rules on a U.S. Holder of Public Shares may
also depend on whether the U.S. Holder has made an election under Section 1296 of the Code. U.S. Holders that hold (directly or constructively) stock of a foreign corporation that is classified as a PFIC may annually elect to mark such stock to
its market value if such stock is regularly traded on an established exchange (a “mark-to-market election”). No assurance can be given that the Public Shares are considered to be regularly traded for purposes of the mark-to-market election or
whether the other requirements of this election are satisfied. If such an election is available and has been made, such U.S. Holders will generally not be subject to the special taxation rules of Section 1291 of the Code discussed herein.
However, if the mark-to-market election is made by a Non-Electing Shareholder after the beginning of the holding period for the PFIC stock, then the Section 1291 rules will apply to certain dispositions of, distributions on and other amounts
taxable with respect to Public Shares. A mark-to-market election is not available with respect to public warrants.
ALL U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE CONSEQUENCES TO THEM OF THE PFIC RULES, INCLUDING, WITHOUT LIMITATION WHETHER A QEF ELECTION, A MARK-TO-MARKET ELECTION OR ANY OTHER ELECTION IS AVAILABLE AND THE CONSEQUENCES TO THEM OF ANY SUCH ELECTION.
Distributions on Shares of New ZeroFox Common
Stock
A U.S. Holder generally will be required to include in gross income
as dividends the amount of any cash distribution paid with respect to shares of New ZeroFox Common Stock, to the extent the distribution is paid out of New ZeroFox’s current or accumulated earnings and profits (as determined under U.S. federal
income tax principles). Distributions in excess of current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. Holder’s adjusted tax basis in its shares
of New ZeroFox Common Stock. Any remaining excess will be treated as gain realized on the sale or other disposition of the shares of New ZeroFox Common Stock and will be treated as described under “— Sale,
Exchange or Other Taxable Disposition of Shares of New ZeroFox Common Stock and New ZeroFox Public Warrants” below.
Dividends that New ZeroFox pays to a U.S. Holder that is a taxable
corporation generally will qualify for the dividends received deduction if the requisite holding period is satisfied. With certain exceptions (including,
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but not limited to, dividends treated as investment income for purposes of investment
interest deduction limitations), and provided certain holding period requirements are met, dividends that New ZeroFox pays to a non-corporate U.S. Holder may be taxed as “qualified dividend income” at the preferential tax rate accorded to
long-term capital gains.
Sale, Exchange or Other Taxable Disposition of
Shares of New ZeroFox Common Stock and New ZeroFox Public Warrants
Upon a sale, exchange or other taxable disposition of shares of New
ZeroFox Common Stock or New ZeroFox Public Warrants which, in general, would include a redemption of shares of New ZeroFox Common Stock or New ZeroFox Public Warrants that is treated as a sale of such securities as described above and below, a
U.S. Holder generally will recognize capital gain or loss. Any such capital gain or loss generally will be long-term capital gain or loss if the U.S. Holder’s holding period for the shares of New ZeroFox Common Stock or New ZeroFox Public
Warrants so disposed of exceeds one year. Long-term capital gains recognized by non-corporate U.S. Holders will be eligible to be taxed at reduced rates. The deductibility of capital losses is subject to limitations.
Generally, the amount of such gain or loss recognized by a U.S.
Holder will be an amount equal to the difference between (i) the sum of the amount of cash and the fair market value of any property received in such disposition and (ii) the U.S. Holder’s adjusted tax basis in its shares of New ZeroFox Common
Stock or New ZeroFox Public Warrants so disposed of. See “— Effects of the Domestication on U.S. Holders” above for discussion of a U.S. Holder’s adjusted tax basis in its New ZeroFox securities
following the Domestication. See “— Exercise, Lapse or Redemption of New ZeroFox Public Warrants” below for a discussion regarding a U.S. Holder’s tax basis in shares of New ZeroFox Common Stock acquired
pursuant to the exercise of a New ZeroFox Public Warrant.
Exercise, Lapse or Redemption of New ZeroFox
Public Warrants
Except as discussed below with respect to the cashless exercise of a
New ZeroFox Public Warrant, a U.S. Holder generally will not recognize taxable gain or loss as a result of the acquisition of shares of New ZeroFox Common Stock upon exercise of a New ZeroFox Public Warrant for cash. The U.S. Holder’s tax basis
in the share of New ZeroFox Common Stock received upon exercise of a New ZeroFox Public Warrant generally will be an amount equal to the sum of the U.S. Holder’s tax basis in the New ZeroFox Public Warrant, and the exercise price of such New
ZeroFox Public Warrant. It is unclear whether a U.S. Holder’s holding period for the shares of New ZeroFox Common Stock received upon exercise of the New ZeroFox Public Warrant will commence on the date of exercise of the New ZeroFox Public
Warrant or the day following the date of exercise of the New ZeroFox Public Warrant; in either case, the holding period will not include the period during which the U.S. Holder held the New ZeroFox Public Warrant. If a New ZeroFox Public
Warrant is allowed to lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such U.S. Holder’s adjusted tax basis in the New ZeroFox Public Warrant. See “— Effects of the
Domestication on U.S. Holders” above for a discussion of a U.S. Holder’s adjusted tax basis in its New ZeroFox Public Warrant following the Domestication.
The tax consequences of a cashless exercise of a New ZeroFox Public
Warrant are not clear under current tax law. A cashless exercise may not be taxable, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either
situation, a U.S. Holder’s tax basis in the shares of New ZeroFox Common Stock received generally should equal the U.S. Holder’s tax basis in the New ZeroFox Public Warrants. If the cashless exercise was not a realization event, it is unclear
whether a U.S. Holder’s holding period for the shares of New ZeroFox Common Stock would be treated as commencing on the date of exercise of the New ZeroFox Public Warrant or the day following the date of exercise of the New ZeroFox Public
Warrant. If the cashless exercise were treated as a recapitalization, the holding period of the shares of New ZeroFox Common Stock received would include the holding period of the New ZeroFox Public Warrants that were exercised.
It is also possible that a cashless exercise may be treated in part
as a taxable exchange in which gain or loss would be recognized. In such event, a U.S. Holder may be deemed to have surrendered a number of New ZeroFox Public Warrants having a value equal to the exercise price for the total number of New
ZeroFox Public Warrants to be exercised. The U.S. Holder would recognize capital gain or loss in an amount equal to the difference between the fair market value of the New ZeroFox Public Warrants deemed surrendered and the
221
U.S. Holder’s tax basis in the New ZeroFox Public Warrants deemed surrendered. In
this case, a U.S. Holder’s tax basis in the shares of New ZeroFox Common Stock received would equal the sum of the U.S. Holder’s tax basis in the New ZeroFox Public Warrants exercised, and the exercise price of such New ZeroFox Public Warrants.
It is unclear whether a U.S. Holder’s holding period for the shares of New ZeroFox Common Stock would commence on the date of exercise of the New ZeroFox Public Warrants or the day following the date of exercise of the New ZeroFox Public
Warrants; in either case, the holding period would not include the period during which the U.S. Holder held the New ZeroFox Public Warrants.
Due to the absence of authority on the U.S. federal income tax
treatment of a cashless exercise, including when a U.S. Holder’s holding period would commence with respect to the shares of New ZeroFox Common Stock received, there can be no assurance as to which, if any, of the alternative tax consequences
described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their tax advisors regarding the tax consequences of a cashless exercise.
The U.S. federal income tax consequences of exercising a New ZeroFox
Public Warrant after New ZeroFox gives notice of an intention to redeem New ZeroFox Public Warrants, as described in “Description of Securities — Warrants — New ZeroFox Public Warrants,” are unclear
under current law. In the case of a cashless exercise, the exercise may be treated either as if New ZeroFox redeemed such New ZeroFox Public Warrant for shares of New ZeroFox Common Stock or as an exercise of the New ZeroFox Public Warrant. If
the cashless exercise of New ZeroFox Public Warrants for shares of New ZeroFox Common Stock is treated as a redemption, then such redemption generally should be treated as a tax-deferred recapitalization for U.S. federal income tax purposes, in
which case a U.S. Holder should not recognize any gain or loss on such redemption, and accordingly, a U.S. Holder’s tax basis in the shares of New ZeroFox Common Stock received should equal the U.S. Holder’s tax basis in the New ZeroFox Public
Warrants treated as redeemed and the holding period of the shares of New ZeroFox Common Stock should include the holding period of the New ZeroFox Public Warrants. Alternatively, if the cashless exercise of a New ZeroFox Public Warrant is
treated as such, the U.S. federal income tax consequences generally should be as described above in the second and third paragraphs under the heading “— Exercise, Lapse or Redemption of New ZeroFox Public
Warrants.” In the case of an exercise of a New ZeroFox Public Warrant for cash, the U.S. federal income tax treatment generally should be as described above in the first paragraph under the heading “—
Exercise, Lapse or Redemption of New ZeroFox Public Warrants.” Due to the lack of clarity under current law regarding the treatment described in this paragraph, there can be no assurance as to which, if any, of the alternative tax
consequences described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their tax advisors regarding the tax consequences of exercising a New ZeroFox Public Warrant occurring after New ZeroFox gives
notice of an intention to redeem New ZeroFox Public Warrants as described above.
If New ZeroFox redeems New ZeroFox Public Warrants for cash or if New
ZeroFox purchases New ZeroFox Public Warrants in an open market transaction, such redemption or purchase generally will be treated as a taxable disposition to the U.S. Holder, taxed as described above under “—
Sale, Exchange or Other Taxable Disposition of Shares of New ZeroFox Common Stock and New ZeroFox Public Warrants.”
Possible Constructive Distributions
The terms of each New ZeroFox Public Warrant provide for an
adjustment to the exercise price of the New ZeroFox Public Warrant or an increase in the shares of New ZeroFox Common Stock issuable on exercise in certain circumstances discussed in “Description of Securities
— Warrants — New ZeroFox Public Warrants.” An adjustment which has the effect of preventing dilution generally is not taxable. The U.S. Holders of the New ZeroFox Public Warrants would, however, be treated as receiving a constructive
distribution from New ZeroFox if, for example, the adjustment increases the U.S. Holder’s proportionate interest in New ZeroFox’ assets or earnings and profits (e.g., through a decrease to the exercise price or an increase in the number of
shares of New ZeroFox Common Stock that would be obtained upon exercise) as a result of a distribution of cash or other property to the U.S. Holders of shares of New ZeroFox Common Stock which is taxable to them as described under “— Distributions on Shares of New ZeroFox Common Stock” above. For example, U.S. Holders of New ZeroFox Public Warrants would generally be treated as receiving a constructive distribution from New ZeroFox
where the exercise price of the New ZeroFox Public Warrants is reduced in connection with the payment of certain dividends as described in “Description of Securities — Warrants — New ZeroFox Public Warrants.” Such constructive distribution
received by a U.S. Holder would be subject to U.S. federal income tax in the same manner as if the U.S. Holders of the New ZeroFox Public Warrant received a cash distribution from New ZeroFox equal to the fair market value of such increased
interest. The rules governing constructive distributions as a result of certain adjustments with respect to a New ZeroFox Public Warrant
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are complex, and U.S. Holders are urged to consult their tax advisors on the tax
consequences of any such constructive distribution with respect to a New ZeroFox Public Warrant.
Non-U.S. Holders
As used herein, a “non-U.S. Holder” is a beneficial owner (other than
a Flow-Through Entity) of our securities or New ZeroFox securities, as applicable, that is not a U.S. Holder.
The following describes U.S. federal income tax considerations
relating to the (i) exercise of redemption rights, (ii) Domestication, and (iii) ownership and disposition of New ZeroFox securities by a non-U.S. Holder after the Business Combination.
Effects of Exercising Redemption Rights to
Non-U.S. Holders
The characterization for U.S. federal income tax purposes of the
Redemption generally will correspond to the U.S. federal income tax characterization of the Redemption with respect to U.S. Holders, as described above. However, notwithstanding such characterization, any redeemed non-U.S. Holder generally will
not be subject to U.S. federal income tax on any gain recognized or dividends received as a result of the Redemption unless the gain or dividends is effectively connected with such non-U.S. Holder’s conduct of a trade or business within the
United States (and if an income tax treaty applies, is attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. Holder).
Effects of the Domestication on Non-U.S. Holders
L&F does not expect the Domestication to result in any U.S.
federal income tax consequences to non-U.S. Holders of Public Shares or public warrants.
Distributions on Shares of New ZeroFox Common Stock
In general, any distributions made to a non-U.S. Holder with respect
to shares of New ZeroFox Common Stock, to the extent paid out of New ZeroFox’ current or accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute dividends for U.S. federal income tax purposes
and, provided such dividends are not effectively connected with such non-U.S. Holder’s conduct of a trade or business within the United States, will be subject to withholding tax from the gross amount of the dividend at a rate of 30%, unless
such non-U.S. Holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides proper certification of its eligibility for such reduced rate (usually on an IRS Form W-8BEN or W-8BEN-E, as applicable).
Any distribution not constituting a dividend will be treated first as reducing (but not below zero) the non-U.S. Holder’s adjusted tax basis in its shares of New ZeroFox Common Stock and then, to the extent such distribution exceeds the
non-U.S. Holder’s adjusted tax basis, as gain realized from the sale or other disposition of such shares of New ZeroFox Common Stock, which will be treated as described under “— Sale, Exchange or Other Taxable
Disposition of Shares of New ZeroFox Common Stock and New ZeroFox Public Warrants.” Dividends paid by New ZeroFox to a non-U.S. Holder that are effectively connected with such non-U.S. Holder’s conduct of a trade or business within the
United States (and if an income tax treaty applies, are attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. Holder) will generally not be subject to U.S. withholding tax, provided such non-U.S. Holder
complies with certain certification and disclosure requirements (usually by providing an IRS Form W-8ECI). Instead, such dividends will generally be subject to U.S. federal income tax, net of certain deductions, at the same graduated individual
or corporate rates applicable to U.S. Holders. If the non-U.S. Holder is a corporation, dividends that are effectively connected income may also be subject to a “branch profits tax” at a rate of 30% (or such lower rate as may be specified by an
applicable income tax treaty).
223
Sale, Exchange or Other Taxable Disposition of Shares of New ZeroFox
Common Stock and New ZeroFox Public Warrants
A non-U.S. Holder will generally not be subject to U.S. federal
income tax on gain realized on a sale, exchange or other taxable disposition of shares of New ZeroFox Common Stock or New ZeroFox Public Warrants unless:
|
(i)
|
such non-U.S. Holder is an individual that was present in the United States for 183 days or more in the taxable year of such
disposition (subject to certain exceptions as a result of the COVID-19 pandemic) and certain other requirements are met, in which case any gain realized will generally be subject to a flat 30% U.S. federal income tax;
|
|
(ii)
|
the gain is effectively connected with a trade or business of such non-U.S. Holder in the United States (and if an income tax
treaty applies, is attributable to a U.S. permanent establishment or fixed base maintained by such non-U.S. Holder), in which case such gain will be subject to U.S. federal income tax, net of certain deductions, at the same graduated
individual or corporate rates applicable to U.S. Holders, and, if the non-U.S. Holder is a corporation, an additional “branch profits tax” may also apply; or
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|
(iii)
|
New ZeroFox is or has been a “U.S. real property holding corporation” at any time during the shorter of the five-year period
preceding such disposition and such non-U.S. Holder’s holding period.
|
If paragraph (iii) above applies to a non-U.S. Holder, subject to
certain exceptions in the case of interests that are regularly traded on an established securities market, gain recognized by such non-U.S. Holder on the sale, exchange or other taxable disposition of shares of New ZeroFox Common Stock or New
ZeroFox Public Warrants will be subject to tax at generally applicable U.S. federal income tax rates. In addition, a buyer of shares of New ZeroFox Common Stock or New ZeroFox Public Warrants from a non-U.S. Holder may be required to withhold
U.S. federal income tax at a rate of 15% of the amount realized upon such disposition. New ZeroFox will be classified as a “U.S. 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, as determined for U.S. federal income tax purposes. We do not expect New ZeroFox to be
classified as a “U.S. real property holding corporation” following the Business Combination. However, such determination is factual in nature and subject to change and no assurance can be provided as to whether New ZeroFox will be a U.S. real
property holding corporation following the Business Combination or at any future time.
Exercise, Lapse or Redemption of New ZeroFox
Public Warrants
The U.S. federal income tax treatment of a non-U.S. Holder’s exercise
of a New ZeroFox Public Warrant, or the lapse of a New ZeroFox Public Warrant held by a non-U.S. Holder, generally will correspond to the U.S. federal income tax treatment of the exercise or lapse of a warrant held by a U.S. Holder, as
described above under “— U.S. Holders — Exercise, Lapse or Redemption of New ZeroFox Public Warrants,” although to the extent a cashless exercise results in a taxable exchange, the consequences would be
similar to those described above under “— Sale, Exchange or Other Taxable Disposition of Shares of New ZeroFox Common Stock and New ZeroFox Public Warrants.” If New ZeroFox redeems New ZeroFox Public
Warrants for cash or if it purchases New ZeroFox Public Warrants in an open market transaction, such redemption or purchase generally will be treated as a disposition to the non- U.S. Holder, the consequences of which would be similar to those
described above under “— Sale, Exchange or Other Taxable Disposition of Shares of New ZeroFox Common Stock and New ZeroFox Public Warrants.”
Possible Constructive Distributions
The terms of each New ZeroFox Public Warrant provide for an
adjustment to the exercise price of the New ZeroFox Public Warrant or an increase in the shares of New ZeroFox Common Stock issuable on exercise in certain circumstances discussed in “Description of Securities
— Warrants — New ZeroFox Public Warrants.” As described above under “— U.S. Holders — Possible Constructive Distributions,” certain adjustments with respect to the New ZeroFox Public Warrants
can give rise to a constructive distribution. Any constructive distribution received by a non-U.S. Holder would be subject to U.S. federal income tax (including any applicable withholding) in the same manner as if such non-U.S. holder received
a cash distribution from New ZeroFox
224
equal to the fair market value of such increased interest. If withholding applies to
any constructive distribution received by a non-U.S. Holder, it is possible that the tax would be withheld from any amount paid to or held on behalf of the non- U.S. Holder by the applicable withholding agent. The rules governing constructive
distributions as a result of certain adjustments with respect to a New ZeroFox Public Warrant are complex, and non-U.S. Holders are urged to consult their tax advisors on the tax consequences of any such constructive distribution with respect
to a New ZeroFox Public Warrant.
Information Reporting Requirements and Backup
Withholding
Information returns will be filed with the IRS in connection with
payments of distributions on and the proceeds from a sale or other disposition of shares of New ZeroFox Common Stock. A non-U.S. Holder may have to comply with certification procedures to establish that it is not a United States person for U.S.
federal income tax purposes or otherwise establish an exemption in order to avoid information reporting and backup withholding requirements or to claim a reduced rate of withholding under an applicable income tax treaty. The amount of any
backup withholding from a payment to a non-U.S. Holder will be allowed as a credit against such non-U.S. Holder’s U.S. federal income tax liability and may entitle such non-U.S. Holder to a refund, provided that the required information is
furnished by such non-U.S. Holder to the IRS in a timely manner.
Foreign Account Tax Compliance Act
Sections 1471 through 1474 of the Code and the Treasury Regulations
and administrative guidance promulgated thereunder (“FATCA”) generally impose withholding at a rate of 30% in certain circumstances on dividends in respect of, and (subject to the proposed Treasury Regulations discussed below) gross proceeds
from the sale or other disposition of, securities (including New ZeroFox securities) which are held by or through certain foreign financial institutions (including investment funds), unless any such institution (i) enters into, and complies
with, an agreement with the IRS to report, on an annual basis, information with respect to interests in, and accounts maintained by, the institution that are owned by certain U.S. persons and by certain non-U.S. entities that are wholly or
partially owned by U.S. persons and to withhold on certain payments, or (ii) if required under an intergovernmental agreement between the United States and an applicable foreign country, reports such information to its local tax authority,
which will exchange such information with the U.S. authorities. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Accordingly, the entity through which New ZeroFox
securities are held will affect the determination of whether such withholding is required. Similarly, dividends in respect of New ZeroFox securities held by an investor that is a non-financial non-U.S. entity that does not qualify under certain
exceptions will generally be subject to withholding at a rate of 30%, unless such entity either (i) certifies to the applicable withholding agent that such entity does not have any “substantial United States owners” or (ii) provides certain
information regarding the entity’s “substantial United States owners,” which will in turn be provided to the U.S. Department of Treasury.
Under the applicable Treasury Regulations and administrative
guidance, withholding under FATCA will generally apply to payments of dividends in respect of New ZeroFox securities. While withholding under FATCA generally would also apply to payments of gross proceeds from the sale or other disposition of
securities (including New ZeroFox securities), proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury
Regulations are issued. All holders should consult their tax advisors regarding the possible implications of FATCA on their investment in New ZeroFox securities.
225
Defined terms included below shall have the same
meaning as terms defined and included elsewhere in this proxy statement/prospectus.
The following unaudited pro forma condensed combined financial
statements are provided to aid you in your analysis of the financial aspects of the Business Combination involving L&F, ZeroFox, and IDX, the consummation of the Common Equity PIPE Investment Financing and the Convertible Notes Financing,
and adjustments for other material events (“Adjustments for Material Events”), which are collectively referred to as the “Transactions.” For purposes of these unaudited pro forma condensed combined financial statements, the entity surviving the
Business Combination is referred to as “New ZeroFox.”
The unaudited pro forma condensed combined financial statements are
based on L&F’s historical financial statements and ZeroFox’s and IDX’s historical consolidated financial statements, as adjusted to give effect to the Transactions. The historical financial statements of L&F and IDX were prepared based
on a December 31 fiscal year-end and the historical financial statements of ZeroFox were prepared based on a January 31 fiscal year-end. Following the consummation of the Business Combination, New ZeroFox will have a January 31 fiscal year-end.
The historical balance sheets presented in the unaudited pro forma
condensed combined financial statements reflect balances as of April 30, 2022 for ZeroFox and March 31, 2022 for L&F and IDX. The unaudited pro forma condensed combined balance sheet gives pro forma effect to the Transactions as if they had
been consummated on April 30, 2022.
The historical statements of operations presented in the unaudited
pro forma condensed combined financial statements reflect ZeroFox’s activity for the three months ended April 30, 2022 and the year ended January 31, 2022. The historical statements of operations presented in the unaudited pro forma condensed
combined financial statements reflect L&F’s and IDX’s activity for the three months ended March 31, 2022 and the twelve month period ending December 31, 2021. The unaudited pro forma condensed combined statements of operations give pro
forma effect to the Transactions as if they had been consummated on February 1, 2021.
The unaudited pro forma condensed combined financial statements have
been derived from the historical financial statements and should be read in conjunction with:
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•
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the historical unaudited condensed financial statements of L&F as of and for the three months ended March 31, 2022, and the
related notes included elsewhere in this proxy statement/prospectus;
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|
•
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the historical audited financial statements of L&F as of and for the year ended December 31, 2021 and the related notes
included elsewhere in this proxy statement/prospectus;
|
|
•
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the historical unaudited condensed consolidated financial statements of ZeroFox as of and for the three months ended April 30,
2022 and the related notes included elsewhere in this proxy statement/prospectus;
|
|
•
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the historical audited consolidated financial statements of ZeroFox as of and for the year ended January 31, 2022 and the
related notes included elsewhere in this proxy statement/ prospectus;
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|
•
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the historical unaudited condensed financial statements of IDX as of and for the three months ended March 31, 2022, and the
related notes included elsewhere in this proxy statement/prospectus;
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|
•
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the historical audited consolidated financial statements of IDX as of and for the year ended December 31, 2021 and the related
notes included elsewhere in this proxy statement/ prospectus;
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|
•
|
the accompanying notes to the unaudited pro forma condensed combined financial statements;
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|
•
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the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results
of Operations of L&F,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox,” “Management’s Discussion
and Analysis of Financial Condition and Results of Operations of IDX,” and other financial information relating to L&F, ZeroFox, and IDX included elsewhere in this proxy statement/prospectus.
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226
The unaudited pro forma condensed combined financial statements
present two redemption scenarios as follows:
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•
|
Assuming No Redemptions (Scenario 1): This presentation assumes that no Public
Shareholders exercise their right to redeem their Class A Ordinary Shares for their pro rata share of the Trust Account and thus the full amount held in the Trust Account as of immediately prior to the Closing is available for the
post-Business Combination company; and
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|
•
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Assuming Maximum Redemptions (Scenario 2): This presentation assumes that all Public
Shareholders exercise their rights to redeem their Class A Ordinary Shares for their pro rata share of the Trust Account and thus none of the amount held in the Trust Account as of immediately prior to the Closing is available for the
Business Combination. Scenario 2 assumes all 3,425,689 issued and outstanding Class A Ordinary Shares are redeemed by the Public Shareholders. It is a condition to the parties’ obligations to close under the Business Combination
Agreement that the aggregate net cash proceeds from the Trust Account (after deducting any amounts paid to Public Shareholders that exercise their redemption rights in connection with the Business Combination), together with the net
cash proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing, be equal to no less than $170.0 million. As the cash proceeds (without taking into account offering expenses, as agreed by the parties) from the
Common Equity PIPE Financing and the Convertible Notes Financing are expected to satisfy this requirement, the maximum redemption scenario assumes that all 3,425,689 Class A Ordinary Shares are redeemed. The unaudited pro forma
financial information also has been prepared on the basis that L&F’s shareholders approve the Articles Amendment Proposal.
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The presentation of pro forma financial statements is dependent upon
which entity in the Business Combination is considered the accounting acquirer. A combining entity can be considered an accounting acquirer in one scenario and an accounting acquiree in another.
Scenario 1
Assuming no Redemptions, the Business Combination will be accounted
for as a reverse recapitalization in accordance with U.S. GAAP, with ZeroFox as the accounting acquirer and L&F and IDX as the accounting acquirees. Accordingly, for accounting purposes, the Business Combination will be treated as the
equivalent of ZeroFox issuing stock for the net assets of L&F, accompanied by a recapitalization. The net assets of L&F will be stated at historical cost, with no goodwill or other intangible assets recorded.
Under Scenario 1, ZeroFox has been determined to be the accounting
acquirer based on evaluation of the following factors:
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•
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ZeroFox shareholders will have a majority of the voting power of New ZeroFox;
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•
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ZeroFox will designate a majority of the governing body of New ZeroFox;
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|
•
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ZeroFox senior management will comprise all of the senior management of New ZeroFox; and
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•
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the largest single shareholder of the combined company will be a legacy owner of ZeroFox.
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As ZeroFox is determined to be the accounting acquirer in the
Business Combination, the acquisition of IDX will be considered a business combination under ASC 805, Business Combinations, and will be accounted for using the acquisition method of accounting. The
consideration transferred to acquire IDX will be allocated to the assets acquired and liabilities assumed based on the estimated acquisition-date fair values. The excess of consideration transferred to effect the acquisition over the fair
values of assets acquired and liabilities assumed will be recorded as goodwill. Transaction costs will be expensed as if the Business Combination had occurred on February 1, 2021.
Scenario 2
Assuming maximum Redemptions, the Business Combination will be
accounted for in accordance with the acquisition method of accounting under the provisions of ASC 805, Business Combinations, with L&F as the accounting acquirer and ZeroFox and IDX as the
accounting acquirees.
Upon consummation of the Business Combination, ZeroFox is considered
a variable interest entity as the equity at risk for ZeroFox is not sufficient to fund expected future cash flow needs, including funding future
227
projected losses, and servicing existing debt obligations. L&F will hold a
variable interest in ZeroFox as it will own 100% of ZeroFox’s equity. L&F will be considered the primary beneficiary as its ownership will provide the power to direct the activities that most significantly impact ZeroFox’s performance and
the obligation to absorb the losses and/or receive the benefits of ZeroFox that could potentially be significant to ZeroFox. L&F will be treated as the accounting acquirer.
IDX is considered a business under ASC
805, Business Combinations. IDX is not considered the accounting acquirer in the Business Combination based on evaluation of the following factors:
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•
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IDX shareholders will not have the largest voting interest in New ZeroFox;
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•
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IDX will not comprise all of the ongoing operations of New ZeroFox;
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•
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IDX will not designate a majority of the governing body of New ZeroFox;
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•
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IDX senior management will not have a substantive role in the senior management of New ZeroFox; and
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•
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the largest single owner of the combined company will not be a legacy owner of IDX;
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L&F is determined to be the accounting acquirer as it will be
ZeroFox’s primary beneficiary and it will own 100% of IDX’s equity. L&F’s acquisitions of ZeroFox and IDX will be considered business combinations under ASC 805, Business Combinations, and will be
accounted for using the acquisition method of accounting. The consideration transferred will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration
transferred to effect the acquisitions over the fair values of assets acquired and liabilities assumed will be recorded as goodwill. Transaction costs will be expensed as if the Business Combination had occurred on January 1, 2021.
The unaudited pro forma condensed combined financial statements are
provided for illustrative purposes only and are not necessarily indicative of what the actual results of operations and financial position would have been had the Transactions taken place on the dates indicated, nor are they indicative of the
future consolidated results of operations or financial position of the combined company.
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SCENARIO 1
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF APRIL 30, 2022
(in thousands, except share amounts)
See accompanying notes to the unaudited pro forma condensed combined financial statements.
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Historical
March 31,
2022
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Historical
April 30,
2022
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Historical
March 31,
2022
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Transaction Accounting Adjustments
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L&F
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ZF
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IDX
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Adjustments
Related to
IDX
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Additional
Pro Forma
Adjustments
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Pro Forma
Balance Sheet
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Total current liabilities
|
| |
4,583
|
| |
46,386
|
| |
25,337
|
| |
(5,569)
|
| |
|
| |
(12,369)
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| |
|
| |
58,368
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|
Deferred underwriting fee payable
|
| |
6,038
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
(6,038)
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| |
5(J)
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| |
—
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|
Deferred revenue-net of current portion
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| |
—
|
| |
6,806
|
| |
2,472
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
9,278
|
|
Accrued liabilities, long-term
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| |
—
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| |
—
|
| |
759
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| |
—
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| |
|
| |
—
|
| |
|
| |
759
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|
Long term debt-rnet of current portion
|
| |
—
|
| |
52,359
|
| |
7,487
|
| |
(7,487)
|
| |
5(aa)
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| |
(14,416)
|
| |
5(E)
|
| |
1,911
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(36,032)
|
| |
5(E)
|
| |
|
|
Convertible debt
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
149,806
|
| |
5(G)
|
| |
149,806
|
|
Warrants
|
| |
9,913
|
| |
11,891
|
| |
—
|
| |
—
|
| |
|
| |
(4,826)
|
| |
5(F)
|
| |
9,913
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(4,510)
|
| |
5(P)
|
| |
|
|
|
| | | | | | | | | |
|
| |
(2,555)
|
| |
5(Q)
|
| | |||||
|
Total liabilities
|
| |
20,534
|
| |
117,442
|
| |
36,055
|
| |
(13,056)
|
| |
|
| |
69,060
|
| |
|
| |
230,035
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
230
|
|
| |
Historical
March 31,
2022
|
| |
Historical
April 30,
2022
|
| |
Historical
March 31,
2022
|
| |
Transaction Accounting Adjustments
|
| |
|
|||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additional
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Balance Sheet
|
|
ZeroFox redeemable convertible preferred stock
|
| |
—
|
| |
132,229
|
| |
—
|
| |
—
|
| |
|
| |
3,300
|
| |
5(F)
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(135,529)
|
| |
5(K)
|
| |
|
|
IDX redeemable convertible preferred stock
|
| |
—
|
| |
—
|
| |
65,166
|
| |
(65,166)
|
| |
5(cc)
|
| |
—
|
| |
|
| |
—
|
|
Total redeemable convertible preferred stock
|
| |
—
|
| |
132,229
|
| |
65,166
|
| |
(65,166)
|
| |
|
| |
(132,229)
|
| |
|
| |
—
|
|
L&F Class A ordinary shares subject to possible
redemption (pre-Domestication)
|
| |
175,088
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
(140,379)
|
| |
5(A)
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(34,709)
|
| |
5(L)
|
| |
|
|
L&F Class A ordinary shares subject to possible
redemption (Domesticated)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
34,709
|
| |
5(L)
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(34,709)
|
| |
5(N)
|
| |
|
|
Stockholders' equity (deficit):
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
L&F Class A ordinary shares (pre-Domestication)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
L&F Class B ordinary shares (pre-Domestication)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
L&F Class A ordinary shares (Domesticated)
|
| |
—
|
| |
—
|
| |
—
|
| |
3
|
| |
5(aa)
|
| |
8
|
| |
5(O)
|
| |
11
|
|
ZeroFox common stock
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
IDX common stock
|
| |
—
|
| |
—
|
| |
1
|
| |
(4)
|
| |
5(aa)
|
| |
—
|
| |
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
3
|
| |
5(cc)
|
| |
|
| |
|
| |
|
|
Additional paid-in capital
|
| |
—
|
| |
4,327
|
| |
8
|
| |
213,165
|
| |
5(aa)
|
| |
(9,038)
|
| |
5(C)
|
| |
441,714
|
|
|
| |
|
| |
|
| |
|
| |
(510)
|
| |
5(bb)
|
| |
1,526
|
| |
5(F)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
65,163
|
| |
5(cc)
|
| |
15,000
|
| |
5(H)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
10
|
| |
5(dd)
|
| |
(10,007)
|
| |
5(I)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
135,529
|
| |
5(K)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
5,000
|
| |
5(M)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
34,709
|
| |
5(N)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(20,233)
|
| |
5(O)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
4,510
|
| |
5(P)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2,555
|
| |
5(Q)
|
| |
|
|
Accumulated deficit
|
| |
(20,225)
|
| |
(167,023)
|
| |
(70,493)
|
| |
70,503
|
| |
5(aa)
|
| |
(3,177)
|
| |
5(E)
|
| |
(170,200)
|
|
|
| |
|
| |
|
| |
|
| |
(10)
|
| |
5(dd)
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
20,225
|
| |
5(O)
|
| |
|
|
Accumulated other comprehensive loss
|
| |
—
|
| |
(147)
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(147)
|
|
Total stockholders' equity (deficit)
|
| |
(20,225)
|
| |
(162,843)
|
| |
(70,484)
|
| |
348,323
|
| |
|
| |
176,607
|
| |
|
| |
271,378
|
|
Total liabilities, redeemable convertible preferred stock,
L&F Class A redeemable stock, and stockholders' equity (deficit)
|
| |
$175,397
|
| |
$86,828
|
| |
$30,737
|
| |
$270,101
|
| |
|
| |
$(61,650)
|
| |
|
| |
$501,413
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
231
SCENARIO 1
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 2022
(in thousands, except share and per share amounts)
|
|
| |
Historical
Three Months
Ended March 31,
2022
|
| |
Historical
Three Months
Ended April 30,
2022
|
| |
Historical
Three Months
Ended March 31,
2022
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
|||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additonal
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Statement of
Operations
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Revenue
|
| |
$—
|
| |
$13,591
|
| |
$ 27,474
|
| |
$—
|
| |
|
| |
$—
|
| |
|
| |
$41,065
|
| |
|
|
Cost of revenue
|
| |
—
|
| |
4,249
|
| |
21,265
|
| |
700
|
| |
6(aa)
|
| |
—
|
| |
|
| |
26,214
|
| |
|
|
Gross profit
|
| |
—
|
| |
9,342
|
| |
6,209
|
| |
(700)
|
| |
|
| |
—
|
| |
|
| |
14,851
|
| |
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
—
|
| |
3,961
|
| |
1,450
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
5,411
|
| |
|
|
Sales and marketing
|
| |
—
|
| |
8,534
|
| |
1,896
|
| |
1,817
|
| |
6(aa)
|
| |
—
|
| |
|
| |
12,247
|
| |
|
|
General and administrative
|
| |
1,763
|
| |
4,946
|
| |
2,823
|
| |
1,545
|
| |
6(aa)
|
| |
—
|
| |
|
| |
11,077
|
| |
|
|
Total operating expenses
|
| |
1,763
|
| |
17,441
|
| |
6,169
|
| |
3,362
|
| |
|
| |
—
|
| |
|
| |
28,735
|
| |
|
|
(Loss) / income from operations
|
| |
(1,763)
|
| |
(8,099)
|
| |
40
|
| |
(4,062)
|
| |
|
| |
—
|
| |
|
| |
(13,884)
|
| |
|
|
Other income (expense):
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense, net
|
| |
—
|
| |
(1,386)
|
| |
(120)
|
| |
120
|
| |
6(cc)
|
| |
1,328
|
| |
6(A)
|
| |
(2,699)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(2,641)
|
| |
6(B)
|
| |
|
| |
|
|
Fair value adjustments
|
| |
8,725
|
| |
(663)
|
| |
8
|
| |
(8)
|
| |
6(ff)
|
| |
663
|
| |
6(D)
|
| |
8,725
|
| |
|
|
Other expense
|
| |
—
|
| |
—
|
| |
(280)
|
| |
42
|
| |
6(dd)
|
| |
|
| |
|
| |
—
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
238
|
| |
6(ee)
|
| |
|
| |
|
| |
|
| |
|
|
Interest earned on marketable securities held in Trust
Account
|
| |
17
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
(17)
|
| |
6(E)
|
| |
—
|
| |
|
|
Total other income (expense)
|
| |
8,742
|
| |
(2,049)
|
| |
(392)
|
| |
392
|
| |
|
| |
(667)
|
| |
|
| |
6,026
|
| |
|
|
Income / (loss) before taxes
|
| |
6,979
|
| |
(10,148)
|
| |
(352)
|
| |
(3,670)
|
| |
|
| |
(667)
|
| |
|
| |
(7,858)
|
| |
|
|
Income taxes
|
| |
—
|
| |
55
|
| |
(94)
|
| |
(863)
|
| |
7(b)
|
| |
971
|
| |
7(b)
|
| |
69
|
| |
7(a)
|
|
Net income / (loss) after taxes
|
| |
$6,979
|
| |
$
(10,203)
|
| |
$(258)
|
| |
$(2,807)
|
| |
|
| |
($1,638)
|
| |
|
| |
$(7,927)
|
| |
|
|
Net (loss) / income attributable to common stockholders
(basic)
|
| |
|
| |
$
(10,203)
|
| |
$(258)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net (loss) / income attributable to common stockholders
(diluted)
|
| |
|
| |
$
(10,203)
|
| |
$(258)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income attributable to Class A redeemable ordinary
shares (basic and diluted)
|
| |
$5,582
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income attributable to Class B non-redeemable ordinary
shares (basic and diluted)
|
| |
$1,396
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss attributable to Class A non-redeemable ordinary
shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$(7,927)
|
| |
|
|
Net (loss) / income per share attributable to common
stockholders (basic)
|
| |
|
| |
$(0.24)
|
| |
$(0.02)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net (loss) / income per share attibutable to common
stockholders (diluted)
|
| |
|
| |
$(0.24)
|
| |
$(0.02)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income per share attributable to Class A redeemable
ordinary shares (basic and diluted)
|
| |
$0.32
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
232
|
|
| |
Historical
Three Months
Ended March 31,
2022
|
| |
Historical
Three Months
Ended April 30,
2022
|
| |
Historical
Three Months
Ended March 31,
2022
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
|||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additonal
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Statement of
Operations
|
| |
|
|
Net income per share attributable to Class B
non-redeemable ordinary shares (basic and diluted)
|
| |
$0.32
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss per share attributable to Class A non-redeemable
ordinary shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$(0.07)
|
| |
|
|
Weighted-average average shares used in computing net
(loss) / income per share attributable to common stockholders (basic)
|
| |
|
| |
42,962,226
|
| |
12,656,363
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares used in computing net (loss) /
income per share attributable to common stockholders (diluted)
|
| |
|
| |
42,962,226
|
| |
12,656,363
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class A redeemable
ordinary shares used in computing net income per share attributable to stockholders of Class A redeemable ordinary shares (basic and diluted)
|
| |
17,250,000
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class B
non-redeemable ordinary shares used in computing net income per share attributable to stockholders of Class B non-redeemable ordinary shares (basic and diluted)
|
| |
4,312,500
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class A
non-redeemable ordinary shares used in computing net loss per share attributable to stockholders of Class A non-redeemable ordinary shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
119,878,430
|
| |
6(G)
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
233
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JANUARY 31, 2022
(in thousands, except share and per share amounts)
|
|
| |
Historical
Year Ended
December 31, 2021
|
| |
Historical
Year Ended
January 31, 2022
|
| |
Historical
Year Ended
December 31, 2021
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
|||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additonal
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Statement of
Operations
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Revenue
|
| |
$—
|
| |
$47,433
|
| |
$ 106,072
|
| |
$—
|
| |
|
| |
$—
|
| |
|
| |
$ 153,505
|
| |
|
|
Cost of revenue
|
| |
—
|
| |
16,357
|
| |
82,745
|
| |
2,800
|
| |
6(aa)
|
| |
—
|
| |
|
| |
101,902
|
| |
|
|
Gross profit
|
| |
—
|
| |
31,076
|
| |
23,327
|
| |
(2,800)
|
| |
|
| |
—
|
| |
|
| |
51,603
|
| |
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
—
|
| |
12,810
|
| |
4,941
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
17,751
|
| |
|
|
Sales and marketing
|
| |
—
|
| |
29,873
|
| |
7,182
|
| |
13,667
|
| |
6(aa)
|
| |
—
|
| |
|
| |
50,722
|
| |
|
|
General and administrative
|
| |
3,848
|
| |
16,408
|
| |
6,872
|
| |
6,180
|
| |
6(aa)
|
| |
—
|
| |
|
| |
33,318
|
| |
|
|
|
| | | | | | | |
10
|
| |
6(bb)
|
| | | |
|
| | | |
|
|||||
|
Total operating expenses
|
| |
3,848
|
| |
59,091
|
| |
18,995
|
| |
19,857
|
| |
|
| |
—
|
| |
|
| |
101,791
|
| |
|
|
(Loss) / income from operations
|
| |
(3,848)
|
| |
(28,015)
|
| |
4,332
|
| |
(22,657)
|
| |
|
| |
—
|
| |
|
| |
(50,188)
|
| |
|
|
Other income (expense):
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense, net
|
| |
—
|
| |
(3,585)
|
| |
(483)
|
| |
483
|
| |
6(cc)
|
| |
3,459
|
| |
6(A)
|
| |
(13,178)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(10,565)
|
| |
6(B)
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(1,627)
|
| |
6(C)
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(860)
|
| |
6(F)
|
| |
|
| |
|
|
Fair value adjustments
|
| |
9,426
|
| |
(7,375)
|
| |
(1,944)
|
| |
1,944
|
| |
6(ff)
|
| |
7,375
|
| |
6(D)
|
| |
9,426
|
| |
|
|
Other expense
|
| |
—
|
| |
—
|
| |
(716)
|
| |
169
|
| |
6(dd)
|
| |
|
| |
|
| |
—
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
25
|
| |
6(ee)
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
522
|
| |
6(ee)
|
| |
|
| |
|
| |
|
| |
|
|
Interest earned on marketable securities held in Trust
Account
|
| |
20
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
(20)
|
| |
6(E)
|
| |
—
|
| |
|
|
Total other income (expense)
|
| |
9,446
|
| |
(10,960)
|
| |
(3,143)
|
| |
3,143
|
| |
|
| |
(2,238)
|
| |
|
| |
(3,752)
|
| |
|
|
Income / (loss) before taxes
|
| |
5,598
|
| |
(38,975)
|
| |
1,189
|
| |
(19,514)
|
| |
|
| |
(2,238)
|
| |
|
| |
(53,940)
|
| |
|
|
Income taxes
|
| |
—
|
| |
(536)
|
| |
1,716
|
| |
(5,864)
|
| |
7(c)
|
| |
4,873
|
| |
7(c)
|
| |
189
|
| |
7(a)
|
|
Net income / (loss) after taxes
|
| |
$5,598
|
| |
$
(38,439)
|
| |
$(527)
|
| |
$(13,650)
|
| |
|
| |
$(7,111)
|
| |
|
| |
$(54,129)
|
| |
|
|
Net (loss) / income attributable to common stockholders
(basic)
|
| |
|
| |
$
(38,439)
|
| |
$(32,978)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net (loss) / income attributable to common stockholders
(diluted)
|
| |
|
| |
$
(38,439)
|
| |
$(32,978)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income attributable to Class A redeemable ordinary
shares (basic and diluted)
|
| |
$4,478
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income attributable to Class B non-redeemable ordinary
shares (basic and diluted)
|
| |
$1,120
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss attributable to Class A non-redeemable ordinary
shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$(54,129)
|
| |
|
|
Net (loss) / income per share attributable to common
stockholders (basic)
|
| |
|
| |
$(0.91)
|
| |
$(2.80)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net (loss) / income per share attibutable to common
stockholders (diluted)
|
| |
|
| |
$(0.91)
|
| |
$(2.80)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income per share attributable to Class A redeemable
ordinary shares (basic and diluted)
|
| |
$0.26
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
234
|
|
| |
Historical
Year Ended
December 31, 2021
|
| |
Historical
Year Ended
January 31, 2022
|
| |
Historical
Year Ended
December 31, 2021
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
|||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additonal
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Statement of
Operations
|
| |
|
|
Net income per share attributable to Class B
non-redeemable ordinary shares (basic and diluted)
|
| |
$0.26
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss per share attributable to Class A non-redeemable
ordinary shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$(0.45)
|
| |
|
|
Weighted-average average shares used in computing net
(loss) / income per share attributable to common stockholders (basic)
|
| |
|
| |
42,073,351
|
| |
11,777,989
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares used in computing net (loss) /
income per share attributable to common stockholders (diluted)
|
| |
|
| |
42,073,351
|
| |
11,777,989
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class A redeemable
ordinary shares used in computing net income per share attributable to stockholders of Class A redeemable ordinary shares (basic and diluted)
|
| |
17,250,000
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class B
non-redeemable ordinary shares used in computing net income per share attributable to stockholders of Class B non-redeemable ordinary shares (basic and diluted)
|
| |
4,312,500
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class A
non-redeemable ordinary shares used in computing net loss per share attributable to stockholders of Class A non-redeemable ordinary shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
119,878,430
|
| |
6(G)
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
235
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Description of the Transactions
Business Combination, Common Equity PIPE Financing, and Convertible
Notes Financing
On December 17, 2021, L&F, ZeroFox and IDX entered into a
definitive business combination agreement (the “Business Combination Agreement”). Under the terms of the Business Combination Agreement, following the domestication of L&F as a Delaware corporation,
(i) ZF Merger Sub, Inc., an indirect wholly-owned subsidiary of L&F, will merge with and into ZeroFox (the “ZF Merger”), with ZeroFox being the surviving company in the ZF Merger and continuing
(immediately following the ZF Merger) as an indirect, wholly-owned subsidiary of L&F, (ii) immediately following the ZF Merger, IDX Merger Sub, Inc., an indirect wholly-owned subsidiary of L&F, will merge with and into IDX (the “IDX Merger”), with IDX being the surviving company in the IDX Merger (referred to herein as “Transitional IDX Entity”) and continuing (immediately following the IDX
Merger) as an indirect, wholly-owned subsidiary of L&F, and (iii) immediately following the IDX Merger, Transitional IDX Entity will merge with and into IDX Forward Merger Sub, LLC, an indirect wholly-owned subsidiary of L&F (the “IDX Forward Merger,” and together with the ZF Merger and IDX Merger, the “Mergers”), with IDX Forward Merger Sub, LLC being the surviving company in the IDX Forward
Merger and continuing (immediately following the IDX Forward Merger) as an indirect, wholly-owned subsidiary of L&F. The cash components of the transaction will be funded by L&F’s cash in trust of approximately $34.8 million (after
giving effect to the Extension Amendment Redemptions and assuming no additional Redemptions), the $20.0 million Common Equity PIPE Financing, and the $150.0 million Convertible Notes Financing. The Notes will mature three years from issuance
and accrue cash interest at 7.00% per annum payable quarterly with an option for the issuer to accrue paid-in-kind interest at an annual rate of 8.75%.
2. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial statements were
prepared in accordance with Article 11 of SEC Regulation S-X, as amended by the final rule, Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. Release No.
33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the Transactions (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction
effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Management has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro
forma condensed combined financial information. The adjustments presented in the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an understanding of
the combined company reflecting the Transactions.
The unaudited pro forma condensed combined financial statements are
based on L&F’s historical financial statements and ZeroFox’s and IDX’s historical consolidated financial statements, as adjusted to give effect to the Transactions. The historical financial statements of L&F and IDX were prepared based
on a March 31 fiscal year-end and the historical financial statements of ZeroFox were prepared based on a January 31 fiscal year-end. Following the consummation of the Business Combination, New ZeroFox will have a January 31 fiscal year-end.
The unaudited pro forma condensed combined balance sheet gives pro
forma effect to the Transactions as if they had been consummated on April 30, 2022. The unaudited pro forma condensed combined statements of operations for the three months ended April 30, 2022 and the year ended January 31, 2022 give effect to
the Transactions as if they had occurred on February 1, 2021.
Management has made significant estimates and assumptions in its
determination of the pro forma adjustments. The pro forma adjustments reflecting the Transactions are based on certain currently available information and certain assumptions and methodologies that management believes are reasonable under the
circumstances. The pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro
forma adjustments, and it is possible the difference may be material. Management believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Transactions based on information
available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial statements.
236
The unaudited pro forma condensed combined financial statements do
not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Business Combination. L&F and ZeroFox have not had any historical relationship prior to the Business
Combination. L&F and IDX have not had any historical relationship prior to the Business Combination. Prior to the Business Combination, IDX was a customer of ZeroFox.
On May 3, 2022, L&F held an extraordinary general meeting of
shareholders and voted to approve the Extension Articles Amendment, extending the date by which L&F must complete its initial business combination from May 23, 2022 to August 24, 2022. The L&F shareholders approved the Extension
Amendment Proposal at the Extension Meeting and on May 3, 2022, L&F filed the Extension Articles Amendment with the Register of Companies of the Cayman Islands. In connection with the vote to approve the Extension Amendment Proposal, the
holders of 13,824,311 Class A Ordinary Shares properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.154 per share, for an aggregate redemption amount of approximately $140,378,518. After
giving effect to the Extension Amendment Redemptions, as of May 27, 2022, there are 3,425,689 Class A Ordinary Shares issued and outstanding and $34,806,051 remaining in the Trust Account.
This presentation assumes that no Public Shareholders exercise their
right to redeem their Class A Ordinary Shares for their pro rata share of the Trust Account and thus the full amount held in the Trust Account as of immediately prior to the Closing is available for the post-Business Combination company; and
shares outstanding as presented in the unaudited pro forma condensed combined financial statements include 82,328,665 shares of New ZeroFox Common Stock to be issued to ZeroFox’s shareholders, 27,811,576 shares of New ZeroFox Common Stock to be
issued to IDX’s shareholders, 7,738,189 shares of New ZeroFox Common Stock issued to L&F shareholders (including the 1,293,750 shares of New ZeroFox Common Stock to be issued to the Sponsor Holders that are subject to forfeiture if certain
earnout conditions are not satisfied (the “Sponsor Holders Earnout Shares”)) (assuming there are no Public Shareholders who exercise their redemption rights), and 2,000,000 shares of New ZeroFox Common
Stock to be issued in connection with the Common Equity PIPE Financing.
As a result of the Transactions, assuming no Public Shareholders
elect to redeem their shares for cash (after giving effect to the Extension Amendment Redemptions), ZeroFox’s shareholders will own approximately 68% of the shares of New ZeroFox Common Stock, IDX’s shareholders will own approximately 23% of
the shares of New ZeroFox Common Stock, the Common Equity PIPE Investors will own approximately 2% of the shares of the New ZeroFox Common Stock, the L&F Public Shareholders will own approximately 3% of the shares of New ZeroFox Common
Stock, and the L&F Initial Shareholders Holders will own approximately 4% of the shares of New ZeroFox Common Stock, based on the number of Class A Ordinary Shares outstanding as of May 4, 2022 (in each case, not giving effect to any shares
issuable upon the exercise of any L&F Warrants, or the conversion of any of the Notes).
|
|
| |
Scenario 1
Assuming No Redemptions
|
|||||||||
|
|
| |
Shares from
Transactions
(after the Extension
Amendment
Redemptions)
|
| |
Shares from
PIPE
Investment
|
| |
Total Shares
|
| |
%
|
|
Stockholder
|
| |
|
| |
|
| |
|
| |
|
|
ZeroFox Shareholders
|
| |
82,328,665
|
| |
—
|
| |
82,328,665
|
| |
68%
|
|
IDX Shareholders
|
| |
27,811,576
|
| |
—
|
| |
27,811,576
|
| |
23%
|
|
Common Equity PIPE Investors
|
| |
—
|
| |
2,000,000
|
| |
2,000,000
|
| |
2%
|
|
L&F Public Shareholders
|
| |
3,425,689
|
| |
—
|
| |
3,425,689
|
| |
3%
|
|
L&F Initial Shareholders
|
| |
4,312,500
|
| |
—
|
| |
4,312,500
|
| |
4%
|
|
Total
|
| |
117,878,430
|
| |
2,000,000
|
| |
119,878,430
|
| |
100%
|
The L&F Public Warrants and L&F Private Placement Warrants of
L&F have been reported as liability-classified instruments that will be subsequently remeasured at fair value in future reporting periods, with changes in fair value recognized in earnings. The 1,293,750 Sponsor Holders Earnout Shares that
are subject to an earnout pursuant to the Sponsor Support Letter Agreement have been reported as equity-classified as they are indexed to the entity’s own stock and meet the additional criteria for equity classification. The final accounting
for the Business Combination, including L&F Warrants and Sponsor Holders Earnout Shares, is expected to be determined at Closing.
237
These unaudited pro forma condensed combined financial statements
and related notes have been derived from and should be read in conjunction with:
|
•
|
the historical unaudited condensed financial statements of L&F as of and for the three months ended March 31, 2022, and the
related notes included elsewhere in this proxy statement/prospectus;
|
|
•
|
the historical audited financial statements of L&F as and for the year ended December 31, 2021 and the related notes
included elsewhere in this proxy statement/prospectus;
|
|
•
|
the historical unaudited condensed financial statements of ZeroFox as of and for the three months ended April 30, 2022 and the
related notes included elsewhere in this proxy statement/prospectus;
|
|
•
|
the historical audited consolidated financial statements of ZeroFox as of and for the year ended January 31, 2022 and the
related notes included elsewhere in this proxy statement/ prospectus;
|
|
•
|
the historical unaudited condensed financial statements of IDX as of and for the three months ended March 31, 2022, and the
related notes included elsewhere in this proxy statement/prospectus;
|
|
•
|
the historical audited consolidated financial statements of IDX as of and for the year ended December 31, 2021 and the related
notes included elsewhere in this proxy statement/ prospectus;
|
|
•
|
the accompanying notes to the unaudited pro forma condensed combined financial statements;
|
|
•
|
the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results
of Operations of L&F,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox,” “Management’s Discussion
and Analysis of Financial Condition and Results of Operations of IDX,” and other financial information relating to L&F, ZeroFox, and IDX included elsewhere in this proxy statement/prospectus.
|
The unaudited pro forma condensed combined financial statements are
provided for illustrative purposes only and are not necessarily indicative of what the actual results of operations and financial position would have been had the Transactions taken place on the dates indicated, nor are they indicative of the
future consolidated results of operations or financial position of New ZeroFox.
3. Accounting Treatment for the Business Combination
With respect to the Business Combination, ZeroFox will be treated as
the accounting acquirer and L&F and IDX will be treated as acquired companies for accounting purposes. This determination is primarily based on the facts that subsequent to the Business Combination:
|
•
|
ZeroFox shareholders will have a majority of the voting power of New ZeroFox;
|
|
•
|
ZeroFox will designate a majority of the governing body of New ZeroFox;
|
|
•
|
ZeroFox’s senior management will comprise all of the senior management of New ZeroFox; and
|
|
•
|
the largest single shareholder of the combined company will be a legacy owner of ZeroFox.
|
As a result of ZeroFox being considered the accounting acquirer in
the Business Combination, the business combination between ZeroFox and L&F represents a reverse merger and will be accounted for as a reverse recapitalization in accordance with U.S. GAAP. Accordingly, for accounting purposes, the business
combination between ZeroFox and L&F will be treated as the equivalent of ZeroFox issuing shares for the net assets of L&F, accompanied by a recapitalization. The net assets of ZeroFox will be stated at historical cost. No goodwill or
other intangible assets will be recorded.
As ZeroFox is determined to be the accounting acquirer in the
Business Combination, the acquisition of IDX will be considered a business combination under ASC 805, Business Combinations, and will be accounted for using the acquisition method of accounting. The
consideration transferred to effect the acquisition will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration transferred over the fair values of assets
acquired and liabilities assumed will be recorded as goodwill. Transaction costs will be expensed as if the acquisition of IDX had occurred on February 1, 2021.
238
4. Exchange of Shares of ZeroFox for Shares of New ZeroFox Common
Stock
Exchange of ZeroFox Shares for New ZeroFox Common Stock
Based on 287,259,824 shares of ZeroFox Common Stock outstanding as of
April 30, 2022 after the assumed net exercise of certain warrants and the ZF Mandatory Conversion immediately prior to the Closing, and the ZF Closing Stock per Share Consideration, determined in accordance with the terms of the Business
Combination Agreement, of approximately 0.2866 of a share of New ZeroFox Common Stock, holders of ZeroFox Common Stock (excluding holders of certain options) are expected to receive 82,328,665 shares of New ZeroFox Common Stock in the Business
Combination, determined as follows:
|
|
| |
ZeroFox Shares
Outstanding as of
April 30, 2022
(Historical)
|
| |
Net Exercise of Stock
Warrants
|
| |
Conversion of
ZeroFox Redeemable
Convertible
Preferred Stock into
ZeroFox Common
Stock
|
| |
ZeroFox common s
tock assumed
outstanding prior to
Closing
|
|
Series Seed, par value $0.00001 per share
|
| |
9,198,372
|
| |
—
|
| |
(9,198,372)
|
| |
—
|
|
Series A, par value $0.00001 per share
|
| |
15,997,285
|
| |
110,976
|
| |
(16,108,261)
|
| |
—
|
|
Series B, par value $0.00001 per share
|
| |
26,914,949
|
| |
125,401
|
| |
(27,040,350)
|
| |
—
|
|
Series C, par value $0.00001 per share
|
| |
21,124,699
|
| |
—
|
| |
(21,124,699)
|
| |
—
|
|
Series C-1, par value $0.00001 per share
|
| |
11,376,115
|
| |
—
|
| |
(11,376,115)
|
| |
—
|
|
Series D, par value $0.00001 per share
|
| |
13,871,547
|
| |
—
|
| |
(13,871,547)
|
| |
—
|
|
Series D-1, par value $0.00001 per share
|
| |
5,878,303
|
| |
—
|
| |
(5,878,303)
|
| |
—
|
|
Series D-2, par value $0.00001 per share
|
| |
993,868
|
| |
—
|
| |
(993,868)
|
| |
—
|
|
Series E, par value $0.00001 per share
|
| |
15,227,437
|
| |
725,930
|
| |
(15,953,367)
|
| |
—
|
|
Common stock, par value $0.00001 per share
|
| |
43,207,753
|
| |
—
|
| |
244,052,071
|
| |
287,259,824
|
|
Total
|
| |
163,790,328
|
| |
962,307
|
| |
122,507,189
|
| |
287,259,824
|
|
ZeroFox common stock assumed outstanding prior to Closing
|
| |
287,259,824
|
|||||||||
|
ZF Closing Stock Per Share Consideration
|
| |
0.2866
|
|||||||||
|
Estimated shares of New ZeroFox Common Stock issued to ZeroFox stockholders upon Closing
|
| |
83,328,665
|
|||||||||
239
Exchange of Shares of IDX Capital Stock for Shares of New ZeroFox
Common Stock
Based on 45,024,408 shares of IDX Capital Stock outstanding as of
March 31, 2022 after the net exercise of a common stock warrant immediately prior to the Closing, and the IDX Closing Stock Per Share Consideration, determined in accordance with the terms of the Business Combination Agreement, of approximately
0.6177 of a share of New ZeroFox Common Stock, holders of IDX Capital Stock are expected to receive 27,811,576 shares of New ZeroFox Common Stock in the Business Combination, determined as follows:
|
|
| |
IDX Capital Stock outstanding as of March 31, 2022 (Historical)
|
| |
Net Exercise of IDX Common Stock
Warrants
|
| |
Conversion of IDX Redeemable Convertible Preferred Stock into IDX Common
Stock
|
| |
IDX Common Stock assumed outstanding prior to Closing
|
|
Series A-1, par value $0.0001 per share
|
| |
5,882,350
|
| |
—
|
| |
(5,882,350)
|
| |
—
|
|
Series A-2, par value $0.0001 per share
|
| |
26,194,324
|
| |
—
|
| |
(26,194,324)
|
| |
—
|
|
Common stock, par value $0.0001 per share
|
| |
12,673,667
|
| |
274,067
|
| |
32,076,674
|
| |
45,024,408
|
|
|
| |
44,750,341
|
| |
274,067
|
| |
—
|
| |
45,024,408
|
|
IDX Common Stock assumed outstanding prior to closing
|
| |
45,024,408
|
|||||||||
|
IDX Closing Stock Per Share Consideration
|
| |
0.6177
|
|||||||||
|
Estimated shares of New ZeroFox Common Stock issued to IDX stockholders upon Closing
|
| |
27,811,576
|
|||||||||
5. Adjustments to the Unaudited Pro Forma Condensed Combined Balance
Sheet
The pro forma adjustments, based on preliminary estimates that could
change materially as additional information is obtained, are as follows:
Pro Forma Adjustments Related to IDX:
The adjustments below relate to IDX and include adjustments to record
the allocation of the purchase price for the acquisition of IDX and additional adjustments related to the Business Combination.
|
(aa)
|
Upon the Closing, all of the outstanding shares of IDX Capital Stock will be exchanged for shares of New ZeroFox Common Stock.
IDX believes it is a leading consumer privacy platform built for agility in the digital age. IDX provides privacy, identity protection, and data breach response services to its government and commercial customers. The IDX acquisition
will allow New ZeroFox to further scale its digital risk protection services and expand its customer base. The acquisition will be accounted for as a business combination in accordance with ASC 805, Business
Combinations.
|
The following table summarizes the preliminary estimate of the consideration
transferred to effect the IDX acquisition (in thousands, except share and share price amounts):
|
Cash consideration(1)
|
| |
$29,403
|
|
Repayment of IDX’s estimated transaction costs(2)
|
| |
5,010
|
|
Repayment of IDX’s debt(3)
|
| |
12,724
|
|
Total cash consideration and repayment of IDX’s debt and estimated transaction
costs
|
| |
$47,137
|
|
Shares of New ZeroFox Common Stock transferred(4)
|
| |
27,811,576
|
|
New ZeroFox Common Stock share price(4)
|
| |
$10.00
|
|
New ZeroFox Common Stock consideration transferred
|
| |
$278,116
|
|
Total consideration transferred
|
| |
$325,253
|
|
(1)
|
Total consideration transferred will include cash consideration of $47.1 million, adjusted for IDX’s closing working capital,
debt, and cash. As a condition to the Business Combination, IDX retains their pre-closing cash balance. As such, the pro forma adjustment to cash includes a reduction of $15.7 million.
|
|
(2)
|
Total consideration transferred will include transaction costs incurred by IDX that are not deemed to be direct and incremental
costs of the Business Combination that will be reimbursed by New ZeroFox.
|
240
|
(3)
|
Total consideration transferred will include payment of IDX’s debt by New ZeroFox.
|
|
(4)
|
Total consideration transferred will include 27,811,576 shares of New ZeroFox with an estimated fair value of $10.00 per share.
|
Adjustment 5(aa) reflects the following:
|
•
|
The adjustment reflects consideration transferred in the adjustments to cash and cash equivalents of $47.1 million, L&F
Class A ordinary shares (Domesticated) of $3,000, and additional paid-in capital of $213.2 million.
|
|
•
|
The adjustment reflects the elimination of IDX’s historical equity as well as its equity arising from the other Adjustments
Related to Acquisition of IDX (see Notes 5(bb) through 5(dd)). These eliminations of IDX’s equity include the elimination of its additional paid-in capital arising from the other Adjustments Related to Acquisition of IDX of $65.7
million. The eliminations of IDX’s equity also include the elimination of historical common stock of $1,000 and the elimination of $3,000 of common stock arising from the other Adjustments Related to Acquisition of IDX. These
eliminations also include the elimination of IDX’s historical accumulated deficit of $70.5 million and the elimination of $10,000 of accumulated deficit arising from the Adjustments Related to Acquisition of IDX.
|
|
•
|
The adjustment reflects fair value adjustments to record IDX’s identifiable intangible assets and goodwill of $94.9 million and
$239.8 million, respectively.
|
|
•
|
The adjustment reflects the payment of IDX’s current portion of long-term debt, long-term debt—net of current portion, and
related party convertible debt of $2.5 million, $7.5 million, and $2.7 million, respectively.
|
The following table summarizes the allocation of the preliminary estimate of the
purchase price to the assets acquired and liabilities assumed (in thousands):
|
Accounts receivable
|
| |
11,219
|
|
Deferred contract acquisitions costs, current
|
| |
1,416
|
|
Prepaid expenses and other assets
|
| |
807
|
|
Property and equipment
|
| |
142
|
|
Deferred contract acquisition costs, net of current portion
|
| |
312
|
|
Goodwill
|
| |
239,801
|
|
Intangible assets
|
| |
94,900
|
|
Total assets acquired
|
| |
348,597
|
|
Accounts payable
|
| |
7,471
|
|
Accrued liabilities
|
| |
5,530
|
|
Deferred revenue, current
|
| |
7,112
|
|
Deferred revenue, net of current portion
|
| |
2,472
|
|
Accrued liabilities, long-term
|
| |
759
|
|
Total liabilities assumed
|
| |
23,344
|
|
Total consideration transferred
|
| |
$325,253
|
The excess of the purchase price over the fair values of the net identifiable tangible
and intangible assets acquired will be assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the New ZeroFox’s
competitive position. Goodwill will not be amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event that management determines that the value of goodwill has been
impaired, an accounting charge for the amount of impairment during the quarter in which the determination is made may be recognized. Goodwill attributable to the IDX acquisition is not expected to be deductible for tax purposes.
With respect to the adoption of ASU No. 2021-08, notwithstanding the fact that the
Business Combination is assumed to have occurred as of February 1, 2021, based on Article 11 guidance for the pro forma condensed statement of comprehensive income, ZeroFox used February 1, 2022 as the adoption date for purposes of the pro
forma condensed statement of comprehensive income as that is the adoption date reflected in the historical financial statements for the three months ended April 30, 2022.
The following table sets forth the amounts allocated to the intangible assets
identified, the estimated useful lives of those intangible assets, and the methodologies used to determine the fair values of those intangible assets (dollars in thousands):
|
|
| |
Fair value
|
| |
Useful Life
(in years)
|
| |
Fair Value Methodology
|
|
Trade name
|
| |
$30,900
|
| |
5
|
| |
Relief from Royalty method
|
|
Developed technology
|
| |
14,000
|
| |
5
|
| |
Replacement Cost method
|
|
Breach-related contracts
|
| |
2,300
|
| |
1
|
| |
Multi-period Excess Earnings Method of the Income Approach
|
|
Office of Personnel Management contract
|
| |
43,600
|
| |
6
|
| |
Multi-period Excess Earnings Method of the Income Approach
|
|
Customer relationships
|
| |
4,100
|
| |
1
|
| |
Multi-period Excess Earnings Method of the Income Approach
|
|
|
| |
$94,900
|
| |
|
| |
|
As part of the IDX acquisition, ZeroFox incurred negligible acquisition-related costs
and therefore no adjustment is reflected in these pro forma financial statements.
|
(bb)
|
To reflect the payment of IDX’s total estimated advisory, legal, accounting, auditing, and other professional fees of $0.9
million that are deemed to be direct and incremental costs of the Business Combination.
|
241
|
(cc)
|
To reflect the conversion of all of IDX’s redeemable convertible preferred stock into IDX Common Stock due to the Business
Combination. Each share of all series of IDX redeemable convertible preferred stock converts into one share of IDX common stock.
|
|
(dd)
|
To reflect stock-based compensation for stock options that are subject to accelerated vesting upon the Business Combination.
|
Additional Pro Forma Adjustments
The adjustments below include adjustments related to the Common Equity PIPE Financing,
the Convertible Notes Financing, and the Business Combination, which include additional adjustments related to ZeroFox and L&F.
|
(A)
|
To reflect the redemption by the L&F Public Shareholders of 13,824,311 Class A Shares in connection with the vote to approve
the Extension Amendment Proposal.
|
|
(B)
|
To reflect the release of cash from the Trust Account to cash and cash equivalents, assuming no Public Shareholders exercise
their right to have their Class A Ordinary Shares redeemed for their pro rata share of the Trust Account.
|
|
(C)
|
To reflect the payment of L&F’s total estimated advisory, legal, accounting, auditing, and other professional fees of $13.3
million that are deemed to be direct and incremental costs of the Business Combination. The adjustment reduces prepaid expenses by $7,000, accrued liabilities by $4.2 million, and additional paid-in capital by $9.0 million.
|
|
(D)
|
To reflect the payment of L&F’s accrued offering costs of $0.4 million upon consummation of the Business Combination.
|
|
(E)
|
To reflect ZeroFox’s payment of its long-term debt of $15.0 million with Stifel and $37.5 million with Orix. This adjustment
eliminates the long-term debt carrying values of $14.4 million and $36.0 million with Stifel and Orix, respectively. In addition, this adjustment eliminates unamortized debt discounts of $0.6 million for Stifel and $1.5 million for
Orix. The unamortized debt discounts are related to unamortized debt issuance costs and warrants. The debt with Orix is subject to a prepayment penalty of 3.00% on the outstanding balance of $37.5 million, or $1.1 million. The
prepayment penalty is reflected in the reduction to cash of $38.6 million and the increase to accumulated deficit of $3.2 million.
|
|
(F)
|
To reflect the net exercise of warrants to purchase ZeroFox Series A, B, and E redeemable convertible preferred stock that were
outstanding and unexercised as of April 30, 2022. This adjustment reduces the warrant liability by $4.8 million and increases redeemable convertible preferred stock and additional paid-in capital by $3.3 million and $1.5 million,
respectively.
|
|
(G)
|
To reflect the issuance of the Notes for $150.0 million. This adjustment records an increase of cash from the convertible note
issuance of $149.8 million ($150.0 million, net of debt issuance costs of $0.2 million) and a corresponding increase in the carrying value of convertible debt. The Notes contain a provision whereby, in the case of an event of default,
the obligation will bear additional interest at a rate equal to 2.00% per annum. Management evaluated events of default and determined the non-credit related events of default represent an embedded derivative that must be bifurcated and
accounted for separately from the Notes. The default rate derivative is treated as a liability, initially measured at fair value with subsequent changes in fair value recorded in earnings. Management has assessed the probability of
occurrence for a non-credit default event and determined the likelihood of a referenced event to be remote. Therefore, the estimated fair value of the default rate derivative is negligible and no amount was recorded.
|
|
(H)
|
To reflect the issuance of an aggregate of 1,500,000 shares of New ZeroFox Common Stock in the Common Equity PIPE Financing
(excludes the 500,000 Common Equity PIPE Financing shares to be issued to holders of the ZeroFox PIK Promissory Notes, see Note 5(M)) at a price of $10.00 per share, for an aggregate purchase price of $15.0 million.
|
|
(I)
|
To reflect the payment of ZeroFox’s total estimated advisory, legal, accounting, auditing, and other professional fees of $14.9
million that are deemed to be direct and incremental costs of the Business
|
242
Combination. Approximately $4.9 million of these costs have been expensed in the
historical financial statements. Any remaining costs are assumed to be deferred. This adjustment reduces additional paid-in capital by $10.0 million and accrued liabilities by $2.7 million.
|
(J)
|
To reflect the settlement of the $6.0 million deferred underwriting fee payable that was incurred during L&F’s initial
public offering, which is required to be settled upon completion of the Business Combination.
|
|
(K)
|
To reflect the conversion of all of ZeroFox’s redeemable convertible preferred stock into ZeroFox Common Stock in the ZF
Mandatory Conversion immediately prior to the Closing. Each share of all series of ZeroFox redeemable convertible preferred stock converts into two shares of ZeroFox Common Stock.
|
|
(L)
|
To reflect the conversion of the Class A Ordinary Shares into shares of New ZeroFox Common Stock in connection with the
Domestication.
|
|
(M)
|
To reflect the issuance of an aggregate of 500,000 shares of New ZeroFox Common Stock in the Common Equity PIPE Financing to be
issued to holders of the ZeroFox PIK Promissory Notes at a price of $10.00 per share. The issuance of these shares results in a reduction to the ZeroFox PIK Promissory Notes liability and an increase to additional paid-in-capital of
$5.0 million.
|
|
(N)
|
To reflect the reclassification of Class A Ordinary Shares of $34.7 million to common stock and additional paid-in capital $34.7
million.
|
|
(O)
|
To reflect the recapitalization of ZeroFox through the cancelation of all outstanding common stock of ZeroFox and the issuance
of 82,328,665 shares of New ZeroFox Common Stock and the elimination of the accumulated deficit of L&F, the accounting acquiree. As a result of the recapitalization, ZeroFox common stock and L&F’s accumulated deficit of
$20.2 million are derecognized. The shares of New ZeroFox Common Stock issued in exchange for shares of ZeroFox common stock are recorded as an increase to common stock of $8,000 and a decrease to additional paid-in capital of
$20.2 million.
|
|
(P)
|
To reflect the reclassification of Silver Lake’s warrant to purchase up to 1,924,790 shares of ZeroFox common stock from a
liability to additional paid-in-capital. Upon the Business Combination, using the estimated Exchange Ratio ZF Closing Stock Per Share Consideration of 0.2866, this warrant is expected to be exchanged for a warrant to purchase up to
551,644 shares of New ZeroFox Common Stock. The terms of the warrant to purchase New ZeroFox Common Stock are expected to result in the warrant being classified as equity.
|
|
(Q)
|
To reflect the reclassification of Hercules Capital, Inc.’s (“Hercules”) warrant to purchase up to 648,350 shares of ZeroFox’s
Series C-1 redeemable convertible preferred stock from a liability to additional paid-in-capital. Upon the Business Combination, the warrant is expected to be converted into a warrant to purchase up to 1,296,700 shares of ZeroFox Common
Stock. Immediately subsequent to this conversion, using the estimated Exchange Ratio ZF Closing Stock Per Share Consideration of 0.2866, the converted warrant is expected to be exchanged for a warrant to purchase up to 371,634 shares of
New ZeroFox Common Stock. The terms of the warrant to purchase New ZeroFox Common Stock are expected to result in the warrant being classified as equity.
|
6. Adjustments to the Unaudited Pro Forma Condensed Combined
Statements of Operations
The pro forma adjustments, based on preliminary estimates that could
change materially as additional information is obtained, are as follows:
Pro Forma Adjustments Related to IDX:
The adjustments below relate to IDX and include adjustments related to the allocation
of the purchase price for the acquisition of IDX and additional adjustments related to the Business Combination.
|
(aa)
|
To reflect incremental amortization expense as a result of the fair value adjustment to intangible assets. Amortization expense
related to developed technology is recorded as cost of revenue. Amortization expense related to the trade name is recorded as general and administrative expense. Amortization expense related to the Office of Personnel Management
contract, breach-related contract, and customer relationships is recorded as sales and marketing expense.
|
243
|
(bb)
|
To reflect stock-based compensation for stock options that are subject to accelerated vesting upon the Business Combination.
|
|
(cc)
|
To reflect the elimination of interest expense and amortization of deferred debt issuance costs on IDX’s loan with Comerica Bank
as it is assumed that this debt balance is paid off upon the Closing.
|
|
(dd)
|
To reflect the elimination of interest expense on IDX’s related party convertible debt as it is assumed that this debt balance
would have been paid off upon the Closing.
|
|
(ee)
|
To reflect the elimination of the change in fair value of IDX’s related party convertible debt as it is assumed that this debt
balance would have been paid off upon the Closing.
|
|
(ff)
|
To reflect the elimination of the change in fair value of IDX’s warrant liabilities. It is assumed that the warrants to purchase
IDX’s capital stock will be net exercised on February 1, 2021.
|
Additional Pro-Forma Adjustments:
The adjustments below include adjustments related to the Common Equity PIPE Financing,
the Convertible Notes Financing and the Business Combination, which include additional adjustments related to ZeroFox and L&F.
|
(A)
|
To reflect an adjustment to eliminate interest expense, amortization of discount and debt issuance costs on the Stifel and Orix
loans as it is assumed that the related debt balances would have been paid off by ZeroFox on February 1, 2021.
|
|
(B)
|
To reflect an adjustment to record cash interest expense of 7.00% and amortization of debt issuance costs on the Notes (see Note
5(E)).
|
The Notes bear interest at a rate of 7.00% per annum, payable quarterly in cash;
provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum. The preparation of the unaudited pro forma condensed combined financials statements assumes the cash interest option was elected consistently throughout
the reporting period. The following table summarizes the impact of selecting the interest in kind option on unaudited pro forma condensed combined financials statements (in thousands, except share and share price amounts):
|
For the three months ended April 30, 2022
|
| |
Cash Interest
Option
|
| |
PIK Option
|
|
Convertible Debt
|
| |
$149,806
|
| |
$167,077
|
|
Total liabilities
|
| |
$230,035
|
| |
$247,306
|
|
Accumulated Deficit
|
| |
$(170,200)
|
| |
$(187,471)
|
|
Total stockholders' equity
|
| |
$271,378
|
| |
$254,167
|
|
|
| |
|
| |
|
|
Interest expense
|
| |
$2,699
|
| |
$3,665
|
|
Net loss after tax
|
| |
$(7,927)
|
| |
$(8,893)
|
|
|
| |
|
| |
|
|
Net loss per share
|
| |
$(0.07)
|
| |
$(0.07)
|
|
For the year ended January 31, 2022
|
| |
|
| |
|
|
Interest expense
|
| |
$13,178
|
| |
$16,342
|
|
Net loss after tax
|
| |
$(54,129)
|
| |
$(57,293)
|
|
|
| |
|
| |
|
|
Net loss per share
|
| |
$(0.45)
|
| |
$(0.48)
|
|
(C)
|
To reflect an adjustment to write-off the unamortized debt discounts related to ZeroFox loans with Orix and Stifel. The
unamortized debt discounts include discounts due to unamortized debt issuance costs and warrants.
|
|
(D)
|
To reflect the elimination of the change in fair value of ZeroFox’s warrant liabilities. It is assumed that the warrants to
purchase ZeroFox’s Series A, B, and E redeemable convertible preferred stock will be net exercised on February 1, 2021. In addition, it is assumed that the warrants to purchase ZeroFox’s
|
244
common stock (see Note 5(P)) and Series C-1 redeemable convertible preferred stock
(see Note 5(Q)) will be exchanged for warrants to purchase New ZeroFox Common Stock on February 1, 2021 and that the exchanged warrants will be classified as equity.
|
(E)
|
To reflect the elimination of interest income related to the marketable securities held in the trust account.
|
|
(F)
|
To reflect write-down of the unamortized debt issuance costs and warrants and the prepayment penalty associated with the payment
of its long-term debt with Orix (see Note 5(E)).
|
|
(G)
|
The pro forma basic and diluted net loss per share amounts presented in the unaudited pro forma condensed combined statements of
operations are based upon the number of New ZeroFox shares outstanding as if the Transactions occurred on February 1, 2020. The calculation of weighted-average shares outstanding for pro forma basic and diluted net loss per share
assumes that the shares issuable in connection with the Transactions have been outstanding for the entirety of the periods presented. The 1,293,750 Sponsor Holders Earnout Shares are participating securities that contractually entitle
the holders of such shares to participate in nonforfeitable dividends but do not contractually obligate the holders of such shares to participate in losses. The unaudited pro forma condensed combined statements of operations reflect net
losses for the periods presented and, accordingly, no loss amounts have been allocated to the Sponsor Holders Earnout Shares. The Sponsor Holders Earnout Shares have also been excluded from basic and diluted pro forma net loss per share
as such shares are subject to forfeiture until certain specified earnout triggering events have occurred.
|
Pro Forma weighted-average common shares outstanding—basic and diluted is calculated
as follows for the three months ended April 30, 2022 and year ended January 31, 2022:
|
Weighted-average shares calculation - basic and diluted
|
| |
Assuming No
Redemptions into
Cash
|
|
Assume conversion of Class B ordinary shares into Class A
ordinary shares effective January 1, 2021 as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
4,312,500
|
|
Assume reclassification of L&F Class A ordinary shares
subject to redemption to L&F Class A ordinary shares not subject to redemption effective January 1, 2021 under Scenario 1 as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
3,425,689
|
|
Assume January 1, 2021 issuance of L&F Class A
ordinary shares in connection with the closing of the Common Equity PIPE Investment Financing
|
| |
2,000,000
|
|
Assume January 1, 2021 issuance of L&F Class A
ordinary shares to ZeroFox shareholders as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
82,328,665
|
|
Assume January 1, 2021 issuance of L&F Class A
ordinary shares to IDX shareholders as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
27,811,576
|
|
Pro forma weighted-average shares outstanding—basic and diluted
|
| |
119,878,430
|
245
7. Income Taxes
|
(a)
|
The pro forma provision for income taxes for the three months ended April 30, 2022 and year ended January 31, 2022, is as
follows (in thousands):
|
|
|
| |
Three Months
Ended
April 30, 2022
|
| |
Year Ended
January 31, 2022
|
|
Current tax expense:
|
| |
|
| |
|
|
Federal
|
| |
$—
|
| |
$—
|
|
Foreign
|
| |
55
|
| |
100
|
|
State and local
|
| |
14
|
| |
89
|
|
|
| |
69
|
| |
189
|
|
|
| |
|
| |
|
|
Deferred tax (benefit) expense:
|
| |
|
| |
|
|
Federal
|
| |
(3,034)
|
| |
(10,471)
|
|
State and local
|
| |
(181)
|
| |
(674)
|
|
Foreign
|
| |
—
|
| |
—
|
|
|
| |
(3,215)
|
| |
(11,145)
|
|
Less change in valuation allowance
|
| |
3,215
|
| |
11,145
|
|
Income tax expense
|
| |
$69
|
| |
$189
|
The reported pro forma income tax provision differs from the
amount computed by applying the statutory US federal income tax rate to the loss before income taxes due to foreign non-deductible income and nondeductible expenses, primarily consisting of transaction costs, as well as the change in the
valuation allowance. A full-valuation allowance has been established to offset deferred tax assets because New ZeroFox does not have a history of taxable income. A reconciliation of the statutory US income tax rate to the effective pro forma
income tax rate for the three months ended April 30, 2022 and year ended January 31, 2022, is as follows:
|
|
| |
Three Months
Ended
April 30, 2022
|
| |
Year Ended
January 31, 2022
|
|
US statutory rate
|
| |
21.00%
|
| |
21.00%
|
|
Permanent differences
|
| |
17.58
|
| |
(0.56)
|
|
Change in deferred tax assets and liabilities
|
| |
1.60
|
| |
0.87
|
|
Change in valuation allowance
|
| |
(40.91)
|
| |
(21.34)
|
|
Other
|
| |
(0.14)
|
| |
(0.33)
|
|
Net income tax expense
|
| |
(0.87)%
|
| |
(0.36)%
|
Deferred income taxes reflect temporary differences in the
recognition of revenue and expenses between financial statement and income tax reporting. Deferred income taxes as of April 30, 2022 consisted of the following (in thousands):
|
|
| |
April 30, 2022
|
|
Deferred tax assets:
|
| |
|
|
Depreciation and amortization
|
| |
$676
|
|
Deferred revenue
|
| |
1,430
|
|
Stock-based compensation
|
| |
115
|
|
Accruals
|
| |
1,001
|
|
Charitable contributions
|
| |
3
|
|
Allowance for doubtful accounts
|
| |
65
|
|
Tax credits
|
| |
12
|
|
Limitation on business interest expense
|
| |
3,483
|
|
Net operating losses- federal and state
|
| |
32,619
|
|
Credit carryforward
|
| |
36
|
|
Deferred rent
|
| |
13
|
|
Other, net
|
| |
(10)
|
|
Total deferred tax asset before valuation allowance
|
| |
39,443
|
|
Valuation allowance
|
| |
(18,080)
|
|
Total deferred tax asset
|
| |
21,363
|
246
|
|
| |
April 30, 2022
|
|
Deferred tax liabilities:
|
| |
|
|
Prepaid commissions
|
| |
(2,864)
|
|
Intangibles from ZeroFox's acquisition of a business
|
| |
(664)
|
|
IDX intangibles
|
| |
(17,739)
|
|
Other, net
|
| |
(96)
|
|
Total deferred tax liability before valuation allowance
|
| |
(21,363)
|
|
Valuation allowance
|
| |
—
|
|
Total deferred tax liability
|
| |
(21,363)
|
|
Net deferred tax liability
|
| |
$—
|
|
(b)
|
The following table represents the pro forma income tax adjustments for the three months ended April 30, 2022 (in thousands):
|
|
|
| |
Adjustments
Related
to IDX
|
| |
Additional
Pro Forma
Adjustments
|
|
Pro forma income tax adjustments
|
| |
|
| |
|
|
Amortization intangible assets
|
| |
$(1,057)
|
| |
$—
|
|
Net operating loss carryforward
|
| |
—
|
| |
(2,613)
|
|
Deferred revenue
|
| |
86
|
| |
(702)
|
|
Limitation of business interest expense
|
| |
—
|
| |
606
|
|
Other
|
| |
108
|
| |
465
|
|
Valuation allowance
|
| |
—
|
| |
3,215
|
|
Total pro forma income tax adjustments
|
| |
$(863)
|
| |
$971
|
|
(c)
|
The following table represents the pro forma income tax adjustments for the year ended January 31, 2022 (in thousands):
|
|
|
| |
Adjustments
Related
to IDX
|
| |
Additional
Pro Forma
Adjustments
|
|
Pro forma income tax adjustments
|
| |
|
| |
|
|
Amortization intangible assets
|
| |
$(4,613)
|
| |
$—
|
|
Net operating loss carryforward
|
| |
—
|
| |
(8,902)
|
|
Deferred revenue
|
| |
342
|
| |
4,736
|
|
Limitation of business interest expense
|
| |
—
|
| |
(3,428)
|
|
Other
|
| |
(1,593)
|
| |
1,322
|
|
Valuation allowance
|
| |
—
|
| |
11,145
|
|
Total pro forma income tax adjustments
|
| |
$(5,864)
|
| |
$4,873
|
The pro forma tax adjustments are based on the
assumption that the acquired deferred tax liabilities will be a source of income for our net operating losses. We will complete our analysis relating to the availability of the deferred tax liabilities as a source of income and evaluate any
limitations on the use of our net operating losses when the merger is complete.
247
SCENARIO 2
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF APRIL 30, 2022
(in thousands, except share amounts)
|
|
| |
Historical
March 31,
2022
|
| |
Historical
April 30,
2022
|
| |
Historical
March 31,
2022
|
| |
Transaction Accounting Adjustments
|
| |
|
|||||||||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to ZF
|
| |
|
| |
Adjustments
Related to IDX
|
| |
|
| |
Additional
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Balance Sheet
|
|
ASSETS
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Current assets:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Cash and cash equivalents
|
| |
$263
|
| |
$10,110
|
| |
$15,697
|
| |
$(12,700)
|
| |
5(cc)
|
| |
$(62,601)
|
| |
5(A)
|
| |
$140,379
|
| |
5(AA)
|
| |
$41,312
|
|
|
| |
|
| |
|
| |
|
| |
(53,625)
|
| |
5(hh)
|
| |
(855)
|
| |
5(B)
|
| |
(140,379)
|
| |
5(AA)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
28,710
|
| |
5(BB)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(13,264)
|
| |
5(CC)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(350)
|
| |
5(DD)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
149,806
|
| |
5(EE)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
15,000
|
| |
5(FF)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(34,786)
|
| |
5(HH)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(93)
|
| |
5(II)
|
| |
|
|
Accounts receivable, net of allowance for doubtful
accounts
|
| |
—
|
| |
12,476
|
| |
11,219
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
23,695
|
|
Deferred contract acquisitions costs, current
|
| |
—
|
| |
4,594
|
| |
1,416
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
6,010
|
|
Prepaid expenses and other assets
|
| |
7
|
| |
2,404
|
| |
807
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(7)
|
| |
5(CC)
|
| |
3,211
|
|
Total current assets
|
| |
270
|
| |
29,584
|
| |
29,139
|
| |
(66,325)
|
| |
|
| |
(63,456)
|
| |
|
| |
145,016
|
| |
|
| |
74,228
|
|
Marketable investments held in Trust Account
|
| |
175,127
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(140,379)
|
| |
5(AA)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(28,710)
|
| |
5(BB)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(6,038)
|
| |
5(GG)
|
| |
|
|
Property and equipment, net of accumulated depreciation
|
| |
—
|
| |
625
|
| |
142
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
767
|
|
Capitalized software, net of accumulated amortization
|
| |
—
|
| |
983
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
983
|
|
Deferred contract acquisition costs, net of current
portion
|
| |
—
|
| |
6,869
|
| |
312
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
7,181
|
|
Acquired intangible assets, net of accumulated
amortization
|
| |
—
|
| |
13,421
|
| |
—
|
| |
172,000
|
| |
5(aa)
|
| |
94,900
|
| |
5(A)
|
| |
—
|
| |
|
| |
280,321
|
|
Goodwill
|
| |
—
|
| |
35,002
|
| |
—
|
| |
756,722
|
| |
5(aa)
|
| |
239,801
|
| |
5(A)
|
| |
—
|
| |
|
| |
1,031,525
|
|
Deferred tax asset
|
| |
—
|
| |
—
|
| |
1,144
|
| |
36,304
|
| |
5(aa)
|
| |
(1,144)
|
| |
5(A)
|
| |
—
|
| |
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
(36,304)
|
| |
5(gg)
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Other assets
|
| |
—
|
| |
344
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
344
|
|
Total assets
|
| |
$175,397
|
| |
$86,828
|
| |
$30,737
|
| |
$862,397
|
| |
|
| |
$270,101
|
| |
|
| |
$(30,111)
|
| |
|
| |
$1,395,349
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
248
See accompanying notes to the unaudited pro forma condensed combined financial statements.
249
|
|
| |
Historical
March 31,
2022
|
| |
Historical
April 30,
2022
|
| |
Historical
March 31,
2022
|
| |
Transaction Accounting Adjustments
|
| |
|
|||||||||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to ZF and
Acquisition
of ZF
|
| |
|
| |
Adjustments
Related to IDX
and Acquisition
of IDX
|
| |
|
| |
Additional
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Balance Sheet
|
|
ZeroFox redeemable convertible preferred stock
|
| |
—
|
| |
132,229
|
| |
—
|
| |
2,626
|
| |
5(bb)
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
(134,855)
|
| |
5(dd)
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
IDX redeemable convertible preferred stock
|
| |
—
|
| |
—
|
| |
65,166
|
| |
—
|
| |
|
| |
(65,166)
|
| |
5(C)
|
| |
—
|
| |
|
| |
—
|
|
Total redeemable convertible preferred stock
|
| |
—
|
| |
132,229
|
| |
65,166
|
| |
(132,229)
|
| |
|
| |
(65,166)
|
| |
|
| |
—
|
| |
|
| |
—
|
|
L&F Class A ordinary shares subject to possible
redemption (pre-Domestication)
|
| |
175,088
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(140,379)
|
| |
5(AA)
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(34,709)
|
| |
5(HH)
|
| |
|
|
L&F Class A ordinary shares subject to possible
redemption (Domesticated)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
Stockholders' equity (deficit):
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
L&F Class A ordinary shares (pre-Domestication)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
L&F Class B ordinary shares (pre-Domestication)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
|
| |
|
| |
—
|
|
L&F Class A ordinary shares (Domesticated)
|
| |
—
|
| |
—
|
| |
—
|
| |
8
|
| |
5(aa)
|
| |
3
|
| |
5(A)
|
| |
—
|
| |
|
| |
11
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
ZeroFox common stock
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
IDX common stock
|
| |
—
|
| |
—
|
| |
1
|
| |
—
|
| |
|
| |
(4)
|
| |
5(A)
|
| |
—
|
| |
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
3
|
| |
5(C)
|
| |
|
| |
|
| |
|
|
Additional paid-in capital
|
| |
—
|
| |
4,327
|
| |
8
|
| |
740,659
|
| |
5(aa)
|
| |
213,165
|
| |
5(A)
|
| |
(9,038)
|
| |
5(CC)
|
| |
1,177,827
|
|
|
| |
|
| |
|
| |
|
| |
2,200
|
| |
5(bb)
|
| |
(510)
|
| |
5(B)
|
| |
15,000
|
| |
5(FF)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
134,855
|
| |
5(dd)
|
| |
65,163
|
| |
5(C)
|
| |
5,000
|
| |
5(II)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
4,510
|
| |
5(ee)
|
| |
10
|
| |
5(D)
|
| |
(77)
|
| |
5(HH)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
2,555
|
| |
5(ff)
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Accumulated deficit
|
| |
(20,225)
|
| |
(167,023)
|
| |
(70,493)
|
| |
164,828
|
| |
5(aa)
|
| |
70,503
|
| |
5(A)
|
| |
—
|
| |
|
| |
(35,604)
|
|
|
| |
|
| |
|
| |
|
| |
(10,007)
|
| |
5(cc)
|
| |
(10)
|
| |
5(D)
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
(3,177)
|
| |
5(hh)
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Accumulated other comprehensive loss
|
| |
—
|
| |
(147)
|
| |
—
|
| |
147
|
| |
5(aa)
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
Total stockholders' equity (deficit)
|
| |
(20,225)
|
| |
(162,843)
|
| |
(70,484)
|
| |
1,036,578
|
| |
|
| |
348,323
|
| |
|
| |
10,885
|
| |
|
| |
1,142,234
|
|
Total liabilities, redeemable convertible preferred stock,
L&F Class A ordinary shares, and stockholders' equity (deficit)
|
| |
$175,397
|
| |
$86,828
|
| |
$30,737
|
| |
$862,397
|
| |
|
| |
$270,101
|
| |
|
| |
$(30,111)
|
| |
|
| |
$1,395,349
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
250
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED APRIL 30, 2022
(in thousands, except share and per share amounts)
|
|
| |
Historical
Three Months
Ended
March 31, 2022
|
| |
Historical
Three Months
Ended
April 30, 2022
|
| |
Historical
Three Months
Ended
March 31, 2022
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
|||||||||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to ZF
|
| |
|
| |
Adjustments
Related to IDX
|
| |
|
| |
Additional
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Statement of
Operations
|
| |
|
|
Revenue
|
| |
$—
|
| |
$13,591
|
| |
$ 27,474
|
| |
$—
|
| |
|
| |
$—
|
| |
|
| |
$—
|
| |
|
| |
$41,065
|
| |
|
|
Cost of revenue
|
| |
—
|
| |
4,249
|
| |
21,265
|
| |
4,950
|
| |
6(aa)
|
| |
700
|
| |
6(A)
|
| |
—
|
| |
|
| |
31,164
|
| |
|
|
Gross profit
|
| |
—
|
| |
9,342
|
| |
6,209
|
| |
(4,950)
|
| |
|
| |
(700)
|
| |
|
| |
—
|
| |
|
| |
9,901
|
| |
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
—
|
| |
3,961
|
| |
1,450
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
5,411
|
| |
|
|
Sales and marketing
|
| |
—
|
| |
8,534
|
| |
1,896
|
| |
2,250
|
| |
6(aa)
|
| |
1,817
|
| |
6(A)
|
| |
—
|
| |
|
| |
14,497
|
| |
|
|
General and administrative
|
| |
1,763
|
| |
4,946
|
| |
2,823
|
| |
950
|
| |
6(aa)
|
| |
1,545
|
| |
6(A)
|
| |
—
|
| |
|
| |
12,027
|
| |
|
|
Total operating expenses
|
| |
1,763
|
| |
17,441
|
| |
6,169
|
| |
3,200
|
| |
|
| |
3,362
|
| |
|
| |
—
|
| |
|
| |
31,935
|
| |
|
|
(Loss) / income from operations
|
| |
(1,763)
|
| |
(8,099)
|
| |
40
|
| |
(8,150)
|
| |
|
| |
(4,062)
|
| |
|
| |
—
|
| |
|
| |
(22,034)
|
| |
|
|
Other income (expense):
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense, net
|
| |
—
|
| |
(1,386)
|
| |
(120)
|
| |
1,328
|
| |
6(cc)
|
| |
120
|
| |
6(B)
|
| |
(2,641)
|
| |
6(AA)
|
| |
(2,699)
|
| |
|
|
Fair value adjustments
|
| |
8,725
|
| |
(663)
|
| |
8
|
| |
663
|
| |
6(dd)
|
| |
(8)
|
| |
6(E)
|
| |
—
|
| |
|
| |
8,725
|
| |
|
|
Other expense
|
| |
—
|
| |
—
|
| |
(280)
|
| |
—
|
| |
|
| |
42
|
| |
6(C)
|
| |
—
|
| |
|
| |
—
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
238
|
| |
6(D)
|
| |
|
| |
|
| |
|
| |
|
|
Interest earned on marketable securities held in
Trust Account
|
| |
17
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(17)
|
| |
6(CC)
|
| |
—
|
| |
|
|
Total other income (expense)
|
| |
8,742
|
| |
(2,049)
|
| |
(392)
|
| |
1,991
|
| |
|
| |
392
|
| |
|
| |
(2,658)
|
| |
|
| |
6,026
|
| |
|
|
Income / (loss) before taxes
|
| |
6,979
|
| |
(10,148)
|
| |
(352)
|
| |
(6,159)
|
| |
|
| |
(3,670)
|
| |
|
| |
(2,658)
|
| |
|
| |
(16,008)
|
| |
|
|
Income tax expense (benefit)
|
| |
—
|
| |
55
|
| |
(94)
|
| |
(3,660)
|
| |
7(b)
|
| |
(865)
|
| |
7(b)
|
| |
(455)
|
| |
7(b)
|
| |
(5,019)
|
| |
7(a)
|
|
Net income / (loss) after taxes
|
| |
$6,979
|
| |
$(10,203)
|
| |
$(258)
|
| |
$(2,499)
|
| |
|
| |
$(2,805)
|
| |
|
| |
($2,203)
|
| |
|
| |
$(10,989)
|
| |
|
|
Net (loss) / income attributable to common
stockholders (basic)
|
| |
|
| |
$(10,203)
|
| |
$(258)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net (loss) / income attributable to common
stockholders (diluted)
|
| |
|
| |
$(10,203)
|
| |
$(258)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income attributable to Class A redeemable
ordinary shares (basic and diluted)
|
| |
$5,582
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income attributable to Class B non-redeemable
ordinary shares (basic and diluted)
|
| |
$1,396
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss attributable to Class A non-redeemable
ordinary shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$(10,989)
|
| |
|
|
Net (loss) / income per share attributable to common
stockholders (basic)
|
| |
|
| |
$(0.24)
|
| |
$(0.02)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net (loss) / income per share attibutable to common
stockholders (diluted)
|
| |
|
| |
$(0.24)
|
| |
$(0.02)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income per share attributable to Class A
redeemable ordinary shares (basic and diluted)
|
| |
$0.32
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
251
|
|
| |
Historical
Three Months
Ended
March 31, 2022
|
| |
Historical
Three Months
Ended
April 30, 2022
|
| |
Historical
Three Months
Ended
March 31, 2022
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
|||||||||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to ZF
|
| |
|
| |
Adjustments
Related to IDX
|
| |
|
| |
Additional
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Statement of
Operations
|
| |
|
|
Net income per share attributable to Class B
non-redeemable ordinary shares (basic and diluted)
|
| |
$0.32
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss per share attributable to Class A
non-redeemable ordinary shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$(0.09)
|
| |
|
|
Weighted-average average shares used in computing
net (loss) / income per share attributable to common stockholders (basic)
|
| |
|
| |
42,962,226
|
| |
12,656,363
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares used in computing net (loss)
/ income per share
attributable to common stockholders (diluted)
|
| |
|
| |
42,962,226
|
| |
12,656,363
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class A
redeemable ordinary shares used in computing net income per share attributable to stockholders of Class A redeemable ordinary shares (basic and diluted)
|
| |
17,250,000
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class B
non-redeemable ordinary shares used in computing net income per share attributable to stockholders of Class B non-redeemable ordinary shares (basic and diluted)
|
| |
4,312,500
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class A
non-redeemable ordinary shares used in computing net loss per share attributable to stockholders of Class A non-redeemable ordinary shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
116,452,741
|
| |
6(CC)
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
252
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JANUARY 31, 2022
(in thousands, except share and per share amounts)
|
|
| |
Historical
Year Ended
December 31,
2021
|
| |
Historical
Year Ended
January 31,
2022
|
| |
Historical
Year Ended
December 31,
2021
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
|||||||||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to ZF
|
| |
|
| |
Adjustments
Related to IDX
|
| |
|
| |
Additonal
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Statement of
Operations
|
| |
|
|
Revenue
|
| |
$—
|
| |
$47,433
|
| |
$ 106,072
|
| |
$—
|
| |
|
| |
$—
|
| |
|
| |
$—
|
| |
|
| |
$ 153,505
|
| |
|
|
Cost of revenue
|
| |
—
|
| |
16,357
|
| |
82,745
|
| |
19,800
|
| |
6(aa)
|
| |
2,800
|
| |
6(A)
|
| |
—
|
| |
|
| |
121,702
|
| |
|
|
Gross profit
|
| |
—
|
| |
31,076
|
| |
23,327
|
| |
(19,800)
|
| |
|
| |
(2,800)
|
| |
|
| |
—
|
| |
|
| |
31,803
|
| |
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
—
|
| |
12,810
|
| |
4,941
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
17,751
|
| |
|
|
Sales and marketing
|
| |
—
|
| |
29,873
|
| |
7,182
|
| |
9,000
|
| |
6(aa)
|
| |
13,667
|
| |
6(A)
|
| |
—
|
| |
|
| |
59,722
|
| |
|
|
General and administrative
|
| |
3,848
|
| |
16,408
|
| |
6,872
|
| |
3,800
|
| |
6(aa)
|
| |
6,180
|
| |
6(A)
|
| |
—
|
| |
|
| |
49,320
|
| |
|
|
|
| | | | | | | |
12,202
|
| |
6(ee)
|
| |
10
|
| |
6(B)
|
| | | |
|
| | | |
|
|||||
|
Total operating expenses
|
| |
3,848
|
| |
59,091
|
| |
18,995
|
| |
25,002
|
| |
|
| |
19,857
|
| |
|
| |
—
|
| |
|
| |
126,792
|
| |
|
|
(Loss) / income from operations
|
| |
(3,848)
|
| |
(28,015)
|
| |
4,332
|
| |
(44,802)
|
| |
|
| |
(22,657)
|
| |
|
| |
—
|
| |
|
| |
(94,990)
|
| |
|
|
Other income (expense):
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense, net
|
| |
—
|
| |
(3,585)
|
| |
(483)
|
| |
3,459
|
| |
6(bb)
|
| |
483
|
| |
6(C)
|
| |
(10,565)
|
| |
6(AA)
|
| |
(13,178)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
(1,627)
|
| |
6(cc)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
(860)
|
| |
6(ff)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Fair value adjustments
|
| |
9,426
|
| |
(7,375)
|
| |
(1,944)
|
| |
7,375
|
| |
6(dd)
|
| |
1,944
|
| |
6(F)
|
| |
|
| |
|
| |
9,426
|
| |
|
|
Other expense
|
| |
—
|
| |
—
|
| |
(716)
|
| |
|
| |
|
| |
25
|
| |
6(E)
|
| |
|
| |
|
| |
—
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
169
|
| |
6(D)
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
522
|
| |
6(E)
|
| |
|
| |
|
| |
|
| |
|
|
Interest earned on marketable securities held in
Trust Account
|
| |
20
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(20)
|
| |
6(BB)
|
| |
—
|
| |
|
|
Total other income (expense)
|
| |
9,446
|
| |
(10,960)
|
| |
(3,143)
|
| |
8,347
|
| |
|
| |
3,142
|
| |
|
| |
(10,585)
|
| |
|
| |
(3,752)
|
| |
|
|
Income / (loss) before taxes
|
| |
5,598
|
| |
(38,975)
|
| |
1,189
|
| |
(36,455)
|
| |
|
| |
(19,154)
|
| |
|
| |
(10,585)
|
| |
|
| |
(98,742)
|
| |
|
|
Income taxes
|
| |
—
|
| |
(536)
|
| |
1,716
|
| |
(11,658)
|
| |
7(c)
|
| |
(5,919)
|
| |
7(c)
|
| |
(2,380)
|
| |
7(c)
|
| |
(18,777)
|
| |
7(a)
|
|
Net income / (loss) after taxes
|
| |
$5,598
|
| |
$(38,439)
|
| |
$(527)
|
| |
$(24,797)
|
| |
|
| |
$(13,595)
|
| |
|
| |
$(8,205)
|
| |
|
| |
$(79,965)
|
| |
|
|
Net (loss) / income attributable to common
stockholders (basic)
|
| |
|
| |
$(38,439)
|
| |
$(32,978)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net (loss) / income attributable to common
stockholders (diluted)
|
| |
|
| |
$(38,439)
|
| |
$(32,978)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income attributable to Class A redeemable
ordinary shares (basic and diluted)
|
| |
$4,478
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income attributable to Class B non-redeemable
ordinary shares (basic and diluted)
|
| |
$1,120
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss attributable to Class A non-redeemable
ordinary shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$(79,965)
|
| |
|
|
Net (loss) / income per share attributable to common
stockholders (basic)
|
| |
|
| |
$(0.91)
|
| |
$(2.80)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net (loss) / income per share attibutable to common
stockholders (diluted)
|
| |
|
| |
$(0.91)
|
| |
$(2.80)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
253
See accompanying notes to the unaudited pro forma condensed combined financial statements.
254
SCENARIO 2
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Description of the Transactions
Business Combination, Common Equity PIPE Financing, and Notes
On December 17, 2021, L&F, ZeroFox and IDX entered into a
definitive business combination agreement (the “Business Combination Agreement”). Under the terms of the Business Combination Agreement, following the domestication of L&F as a Delaware corporation,
(i) ZF Merger Sub, Inc., an indirect wholly-owned subsidiary of L&F, will merge with and into ZeroFox (the “ZF Merger”), with ZeroFox being the surviving company in the ZF Merger and continuing
(immediately following the ZF Merger) as an indirect, wholly-owned subsidiary of L&F, (ii) immediately following the ZF Merger, IDX Merger Sub, Inc., an indirect wholly-owned subsidiary of L&F, will merge with and into IDX (the “IDX Merger”), with IDX being the surviving company in the IDX Merger (referred to herein as “Transitional IDX Entity”) and continuing (immediately following the IDX
Merger) as an indirect, wholly-owned subsidiary of L&F, and (iii) immediately following the IDX Merger, Transitional IDX Entity will merge with and into IDX Forward Merger Sub, LLC, an indirect wholly-owned subsidiary of L&F (the “IDX Forward Merger,” and together with the ZF Merger and IDX Merger, the “Mergers”), with IDX Forward Merger Sub, LLC being the surviving company in the IDX Forward
Merger and continuing (immediately following the IDX Forward Merger) as an indirect, wholly-owned subsidiary of L&F. The cash components of the transaction will be funded by the $20.0 million Common Equity PIPE Financing, and $150.0 million
Convertible Notes Financing. The Notes will mature three years from issuance and accrue cash interest at 7.00% per annum payable quarterly with an option for the issuer to accrue paid-in-kind interest at an annual rate of 8.75%.
2. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial statements were
prepared in accordance with Article 11 of SEC Regulation S-X, as amended by the final rule, Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. Release No. 33-10786 replaces the existing pro forma
adjustment criteria with simplified requirements to depict the accounting for the Transactions (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are
reasonably expected to occur (“Management’s Adjustments”). Management has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined financial
information. The adjustments presented in the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an understanding of the combined company reflecting the
Transactions.
The unaudited pro forma condensed combined financial statements are
based on L&F’s historical financial statements and ZeroFox’s and IDX’s historical consolidated financial statements, as adjusted to give effect to the Transactions. The historical financial statements of L&F and IDX were prepared based
on a March 31 fiscal year-end and the historical financial statements of ZeroFox were prepared based on a January 31 fiscal year-end. Following the consummation of the Business Combination, New ZeroFox will have a January 31 fiscal year-end.
The unaudited pro forma condensed combined balance sheet gives pro
forma effect to the Transactions as if they had been consummated on April 30, 2022. The unaudited pro forma condensed combined statements of operations for the three months ended April 30, 2022 and the year ended January 31, 2022 give effect to
the Transactions as if they had occurred on February 1, 2021.
Management has made significant estimates and assumptions in its
determination of the pro forma adjustments. The pro forma adjustments reflecting the Transactions are based on certain currently available information and certain assumptions and methodologies that management believes are reasonable under the
circumstances. The pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro
forma adjustments, and it is possible the difference may be material. Management believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Transactions based on information
available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial statements.
255
On May 3, 2022, L&F held an extraordinary general meeting of
shareholders and voted to approve the Extension Articles Amendment, extending the date by which L&F must complete its initial business combination from May 23, 2022 to August 24, 2022. The L&F shareholders approved the Extension
Amendment Proposal at the Extension Meeting and on May 3, 2022, L&F filed the Extension Articles Amendment with the Register of Companies of the Cayman Islands. In connection with the vote to approve the Extension Amendment Proposal, the
holders of 13,824,311 Class A Ordinary Shares properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.154 per share, for an aggregate redemption amount of approximately $140,378,518. After
giving effect to the Extension Amendment Redemptions, as of May 27, 2022, there are 3,425,689 Class A Ordinary Shares issued and outstanding and approximately $34,806,051 remaining in the Trust Account.
The unaudited pro forma condensed combined financial statements do
not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Business Combination. L&F and ZeroFox have not had any historical relationship prior to the Business
Combination. L&F and IDX have not had any historical relationship prior to the Business Combination. Prior to the Business Combination, IDX was a customer of ZeroFox.
After giving effect to the Extension Amendment Redemptions, this
presentation assumes that all Public shareholders redeem their Class A Ordinary Shares for their pro rata share of the Trust Account and thus none of the amount held in the Trust Account as of immediately prior to the Closing is available for
the post-Business Combination company. As there is no minimum L&F cash on hand required to consummate the Business Combination, Scenario 2 assumes all 3,425,689 issued and outstanding shares of L&F Class A Ordinary Shares are redeemed
by the L&F Public Shareholders. It is a condition to the parties’ obligations to close under the Business Combination Agreement that the aggregate net cash proceeds from the Trust Account (after deducting any amounts paid to Public
Shareholders that exercise their redemption rights in connection with the Business Combination), together with the net cash proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing, be equal to no less than
$170.0 million. As the cash proceeds (without taking into account offering expenses, as agreed by the parties) from the Common Equity PIPE Financing and the Convertible Notes Financing are expected to satisfy this requirement, the maximum
redemption scenario assumes that all 3,425,689 Class A Ordinary Shares are redeemed. The unaudited pro forma financial information also has been prepared on the basis that L&F’s shareholders approve the Articles Amendment Proposal.
Shares outstanding as presented in the unaudited pro forma condensed
combined financial statements include 82,328,665 shares of New ZeroFox Common Stock to be issued to ZeroFox’s shareholders, 27,811,576 shares of New ZeroFox Common Stock to be issued to IDX’s shareholders, 4,312,500 shares of New ZeroFox Common
Stock issued to L&F shareholders (including the 1,293,750 shares of New ZeroFox Common Stock to be issued to the Sponsor Holders that are subject to forfeiture if certain earnout conditions are not satisfied (the “Sponsor Holders Earnout Shares”)), and 2,000,000 shares of New ZeroFox Common Stock to be issued in connection with the Common Equity PIPE Financing.
256
As a result of the Transactions and after giving effect to the
maximum redemption of L&F Class A Ordinary Shares, ZeroFox’s shareholders will own approximately 71% of the shares of New ZeroFox Common Stock, IDX’s shareholders will own approximately 23% of the shares of New ZeroFox Common Stock, the
Common Equity PIPE Investors will own 2% of the shares of New ZeroFox Common Stock, and the L&F Initial Shareholders will own approximately 4% of the shares of New ZeroFox Common Stock, based on the number of Class A Ordinary Shares
outstanding as of May 4, 2022 (in each case, not giving effect to any shares issuable upon exercise of any L&F warrants, L&F options, or conversion of the Notes).
|
|
| |
Assuming Maximum Redemptions
|
|||||||||
|
|
| |
Shares from
Transactions
(after the Extension
Amendment
Redemptions)
|
| |
Shares from
PIPE Investment
|
| |
Total Shares
|
| |
%
|
|
Stockholder
|
| |
|
| |
|
| |
|
| |
|
|
ZeroFox Shareholders
|
| |
82,328,665
|
| |
—
|
| |
82,328,665
|
| |
71%
|
|
IDX Shareholders
|
| |
27,811,576
|
| |
—
|
| |
27,811,576
|
| |
23%
|
|
Common Equity PIPE Investors
|
| |
—
|
| |
2,000,000
|
| |
2,000,000
|
| |
2%
|
|
L&F Initial Shareholders
|
| |
4,312,500
|
| |
—
|
| |
4,312,500
|
| |
4%
|
|
Total
|
| |
114,452,741
|
| |
2,000,000
|
| |
116,452,741
|
| |
100%
|
The L&F Public Warrants and the L&F Private Placement
Warrants have been reported as liability-classified instruments that will be subsequently remeasured at fair value in future reporting periods, with changes in fair value recognized in earnings. The 1,293,750 Sponsor Holders Earnout Shares that
are subject to an earnout pursuant to the Sponsor Support Letter Agreement have been reported as equity-classified as they are indexed to the entity’s own stock and meet the additional criteria for equity classification. The final accounting
for the Business Combination, including L&F Warrants and Sponsor Holders Earnout Shares, is expected to be determined at Closing.
These unaudited pro forma condensed combined financial statements and
related notes have been derived from and should be read in conjunction with:
|
•
|
the historical unaudited condensed financial statements of L&F as of and for the three months ended March 31, 2022, and the
related notes included elsewhere in this proxy statement/prospectus;
|
|
•
|
the historical audited financial statements of L&F as of and for the year ended December 31, 2021 and the related notes
included elsewhere in this proxy statement/prospectus;
|
|
•
|
the historical unaudited condensed financial statements of ZeroFox as of and for the three months ended April 30, 2022, and the
related notes included elsewhere in this proxy statement/ prospectus;
|
|
•
|
the historical audited consolidated financial statements of ZeroFox as of and for the year ended January 31, 2022 and the
related notes included elsewhere in this proxy statement/ prospectus;
|
|
•
|
the historical unaudited condensed financial statements of IDX as of and for the three months ended March 31, 2022, and the
related notes included elsewhere in this proxy statement/prospectus;
|
|
•
|
the historical audited consolidated financial statements of IDX as of and for the year ended December 31, 2021 and the related
notes included elsewhere in this proxy statement/ prospectus;
|
|
•
|
the accompanying notes to the unaudited pro forma condensed combined financial statements;
|
|
•
|
the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results
of Operations of L&F,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox ,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations of IDX,” and other financial information relating to L&F, ZeroFox, and IDX included elsewhere in this proxy statement/prospectus.
|
257
The unaudited pro forma condensed combined financial statements
are provided for illustrative purposes only and are not necessarily indicative of what the actual results of operations and financial position would have been had the Transactions taken place on the dates indicated, nor are they indicative of
the future consolidated results of operations or financial position of New ZeroFox.
3. Accounting Treatment for the Business Combination
The accounting treatment for the Business Combination is dependent
upon which entity is considered the accounting acquirer. If a combining entity meets the definition of a variable interest entity, the primary beneficiary of the variable interest entity is the accounting acquirer.
Upon consummation of the Business Combination, IDX is considered a
business in accordance with ASC 805, Business Combinations. However, upon consummation of the Business Combination, ZeroFox is considered a variable interest entity as the equity at risk for ZeroFox is
not sufficient to fund expected future cash flow needs, including funding future projected losses, and servicing existing debt obligations. L&F will hold a variable interest in ZeroFox as it will own 100% of ZeroFox’s equity. L&F will
be considered the primary beneficiary as its ownership will provide the power to direct the activities that most significantly impact ZeroFox’s performance and the obligation to absorb the losses and/or receive the benefits of ZeroFox that
could potentially be significant to ZeroFox. L&F will be treated as the accounting acquirer.
As L&F is determined to be the primary beneficiary of ZeroFox, it
is considered the accounting acquirer in the Business Combination. L&F’s acquisitions of ZeroFox and IDX will be considered business combinations under ASC 805, Business Combinations, and will be
accounted for using the acquisition method of accounting. The consideration transferred to effect the acquisitions will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The
excess of consideration transferred over the fair values of assets acquired and liabilities assumed will be recorded as goodwill. Transaction costs related to the acquisitions of ZeroFox and IDX will be expensed.
4. Exchange of Shares for New ZeroFox Common Stock
Exchange of ZeroFox Shares for New ZeroFox Common Stock
Based on 287,259,824 shares of ZeroFox Common Stock outstanding as of
April, 30, 2022 after the assumed net exercise of certain warrants and the ZF Mandatory Conversion immediately prior to the Closing, and the ZF Closing Stock per Share Consideration, determined in accordance with the terms of the Business
Combination Agreement, of approximately 0.2866 of a share of New ZeroFox Common Stock, holders of ZeroFox Common Stock (excluding holders of certain ZeroFox warrants and ZeroFox options) are expected to receive 82,328,665 shares of New ZeroFox
Common Stock in the Business Combination, determined as follows:
|
|
| |
ZeroFox Shares
Outstanding as of
April 30, 2022
(Historical)
|
| |
Net Exercise of Stock
Warrants
|
| |
Conversion of ZeroFox Redeemable
Convertible
Preferred Stock into
ZeroFox Common
Stock
|
| |
ZeroFox common
stock assumed
outstanding prior to
Closing
|
|
Series Seed, par value $0.00001 per share
|
| |
9,198,372
|
| |
—
|
| |
(9,198,372)
|
| |
—
|
|
Series A, par value $0.00001 per share
|
| |
15,997,285
|
| |
110,976
|
| |
(16,108,261)
|
| |
—
|
|
Series B, par value $0.00001 per share
|
| |
26,914,949
|
| |
125,401
|
| |
(27,040,350)
|
| |
—
|
|
Series C, par value $0.00001 per share
|
| |
21,124,699
|
| |
—
|
| |
(21,124,699)
|
| |
—
|
|
Series C-1, par value $0.00001 per share
|
| |
11,376,115
|
| |
—
|
| |
(11,376,115)
|
| |
—
|
|
Series D, par value $0.00001 per share
|
| |
13,871,547
|
| |
—
|
| |
(13,871,547)
|
| |
—
|
|
Series D-1, par value $0.00001 per share
|
| |
5,878,303
|
| |
—
|
| |
(5,878,303)
|
| |
—
|
|
Series D-2, par value $0.00001 per share
|
| |
993,868
|
| |
—
|
| |
(993,868)
|
| |
—
|
|
Series E, par value $0.00001 per share
|
| |
15,227,437
|
| |
725,930
|
| |
(15,953,367)
|
| |
—
|
|
Common stock, par value $0.00001 per share
|
| |
43,207,753
|
| |
—
|
| |
244,052,071
|
| |
287,259,824
|
|
Total
|
| |
163,790,753
|
| |
962,307
|
| |
122,507,189
|
| |
287,259,824
|
|
ZeroFox common stock assumed outstanding prior to Closing
|
| |
287,259,824
|
|||||||||
|
ZF Closing Stock Per Share Consideration
|
| |
0.2866
|
|||||||||
|
Estimated shares of New ZeroFox Common Stock issued to ZeroFox stockholders upon Closing
|
| |
82,328,665
|
|||||||||
258
Exchange of Shares of IDX Capital Stock for Shares of New ZeroFox
Common Stock
Based on 45,024,408 shares of IDX Capital Stock outstanding as of
March 31, 2022 after the net exercise of a common stock warrant immediately prior to the Closing, and the IDX Closing Stock Per Share Consideration, determined in accordance with the terms of the Business Combination Agreement, of approximately
0.6177 of a share of New ZeroFox Common Stock, holders of IDX Capital Stock are expected to receive 27,811,576 shares of New ZeroFox Common Stock in the Business Combination, determined as follows:
|
|
| |
IDX Capital Stock
outstanding as of
March 31, 2022
(Historical)
|
| |
Net Exercise of IDX
Common Stock
Warrants
|
| |
Conversion of IDX
Redeemable
Convertible
Preferred Stock into
IDX Common Stock
|
| |
IDX Common Stock
assumed outstanding
prior to Closing
|
|
Series A-1, par value $0.0001 per share
|
| |
5,882,350
|
| |
—
|
| |
(5,882,350)
|
| |
—
|
|
Series A-2, par value $0.0001 per share
|
| |
26,194,324
|
| |
—
|
| |
(26,194,324)
|
| |
—
|
|
Common stock, par value $0.0001 per share
|
| |
12,673,667
|
| |
274,067
|
| |
32,076,674
|
| |
45,024,408
|
|
|
| |
44,750,341
|
| |
274,067
|
| |
—
|
| |
45,024,408
|
|
IDX Common Stock assumed outstanding prior to closing
|
| |
45,024,408
|
|||||||||
|
IDX Closing Stock Per Share Consideration
|
| |
0.6177
|
|||||||||
|
Estimated shares of New ZeroFox Common Stock issued to IDX stockholders upon Closing
|
| |
27,811,576
|
|||||||||
5. Adjustments to the Unaudited Pro Forma Condensed Combined Balance
Sheet
The pro forma adjustments, based on preliminary estimates that could
change materially as additional information is obtained, are as follows:
Pro Forma Adjustments Related to ZeroFox:
The adjustments below relate to ZeroFox and include adjustments to record the
allocation of the purchase price for the acquisition of ZeroFox and additional adjustments related to the Business Combination.
|
(aa)
|
Upon the effective date of the Business Combination, all of the outstanding shares of ZeroFox will be exchanged for shares of
New ZeroFox. ZeroFox provides digital risk protection services and safeguards modern organizations from dynamic security risks across social, mobile, surface, deep and dark web, email and collaboration platforms. The ZeroFox acquisition
will allow New ZeroFox to further scale its digital risk protection services and expand its customer base. The acquisition will be accounted for as a business combination in accordance with ASC 805, Business
Combinations.
|
The following table summarized the preliminary estimate of the consideration
transferred to effect the ZeroFox acquisition (in thousands, except share and share price amounts):
|
Repayment of ZeroFox's debt(1)
|
| |
$53,625
|
|
Shares of New ZeroFox Common Stock transferred(3)
|
| |
82,328,665
|
|
New ZeroFox Common Stock share price(4)
|
| |
$10.00
|
|
New ZeroFox Common Stock consideration transferred
|
| |
$823,287
|
|
Total consideration transferred
|
| |
$876,912
|
|
(1)
|
Total consideration transferred will include payment ZeroFox’s debt with Stifel and Orix by New ZeroFox.
|
|
(2)
|
Total consideration transferred will include 82,328,665 shares of New ZeroFox with an estimated fair value of $10.00 per share.
|
Adjustment 5(aa) reflects the following:
|
•
|
The adjustment reflects consideration transferred in the adjustments to L&F Class A ordinary shares (Domesticated) of $8,000
and additional paid-in capital of $741.5 million.
|
259
|
•
|
The adjustment reflects the elimination of ZeroFox’s historical equity as well as its equity arising from the other Adjustments
Related to ZeroFox. These eliminations include:
|
|
○
|
the elimination of $4.3 million of historical additional paid-in capital;
|
|
○
|
the elimination of ($131.9) million of additional paid-in capital arising from the other
Adjustments Related to ZeroFox;
|
|
○
|
the elimination of $2,000 of common stock arising from the other Adjustments Related to ZeroFox;
|
|
○
|
the elimination of $(167.0) million of historical accumulated deficit;
|
|
○
|
the elimination of $2.2 million of accumulated deficit arising from the Adjustments Related to
ZeroFox;
|
|
○
|
the elimination of $0.1 million of historical accumulated other comprehensive income.
|
|
•
|
The adjustment reflects fair value adjustments to record ZeroFox’s identifiable intangible assets and goodwill of $172.0 million
and $747.5 million, respectively.
|
|
•
|
The adjustment reflects the acquisition of a deferred tax asset of $36.3 million and a deferred tax liability of $59.4
million.
|
|
•
|
This adjustment reflects the payment of ZeroFox’s long-term debt — net of current portion with Stifel and Orix of $50.5 million.
|
The following table summarizes the allocation of the preliminary estimate of the
purchase price to the assets acquired and liabilities assumed (in thousands):
|
Cash and cash equivalents(3)
|
| |
$(2,590)
|
|
Accounts receivable, net of allowance for doubtful accounts
|
| |
12,476
|
|
Deferred contract acquisitions costs, current
|
| |
4,594
|
|
Prepaid expenses and other assets
|
| |
2,404
|
|
Property and equipment, net of accumulated depreciation
|
| |
625
|
|
Capitalized software, net of accumulated amortization
|
| |
983
|
|
Deferred contract acquisition costs, net of current portion
|
| |
6,869
|
|
Acquired intangible assets, net of accumulated amortization
|
| |
185,421
|
|
Goodwill
|
| |
791,724
|
|
Deferred tax asset
|
| |
36,304
|
|
Other assets
|
| |
344
|
|
Total assets acquired
|
| |
1,039,154
|
|
Accounts payable
|
| |
4,181
|
|
Accrued liabilities
|
| |
626
|
|
Deferred revenue, current
|
| |
32,855
|
|
Current portion of long-term debt
|
| |
6,301
|
|
Deferred revenue, net of current portion
|
| |
6,806
|
|
Long-term debt, net of current portion
|
| |
52,359
|
|
Deferred tax liability
|
| |
59,384
|
|
Total liabilities assumed
|
| |
162,242
|
|
Total consideration transferred
|
| |
$876,912
|
|
(3)
|
Cash is presented net of payment of $14.1 million of ZeroFox’s transaction costs which are offset against goodwill in the
preliminary purchase price allocation above.
|
The excess of the purchase price over the fair values of the net identifiable tangible
and intangible assets acquired will be assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the New ZeroFox’s
competitive position. Goodwill will not be amortized, but instead will be tested for
260
impairment at least annually or more frequently if certain indicators are present.
In the event that management determines that the value of goodwill has been impaired, an accounting charge for the amount of impairment during the quarter in which the determination is made may be recognized. Goodwill attributable to the
ZeroFox acquisition is not expected to be deductible for tax purposes.
With respect to the adoption of ASU No. 2021-08, notwithstanding the fact that the
Business Combination is assumed to have occurred as of February 1, 2021, based on Article 11 guidance for the pro forma condensed statement of comprehensive income, ZeroFox used February 1, 2022 as the adoption date for purposes of the pro
forma condensed statement of comprehensive income as that is the adoption date reflected in the historical financial statements for the three months ended April 30, 2022.
The following table sets forth the amounts allocated to the intangible assets
identified, the estimated useful lives of those intangible assets, and the methodologies used to determine the fair values of those intangible assets (dollars in thousands):
|
|
| |
Fair value
|
| |
Useful Life
(in years)
|
| |
Fair Value Methodology
|
|
Trade names and trademarks
|
| |
$19,000
|
| |
5
|
| |
Relief from Royalty method
Developed technology
|
|
Developed technology
|
| |
99,000
|
| |
5
|
| |
Replacement Cost method
Customer relationships
|
|
Customer Relationships
|
| |
54,000
|
| |
6
|
| |
Multi-period Excess Earnings Method
of the Income Approach
|
|
|
| |
$172,000
|
| |
|
| |
|
As part of the ZeroFox acquisition, L&F incurred acquisition-related costs of
approximately $0.7 million which are reflected in general and administrative expense.
|
(bb)
|
To reflect the net exercise of warrants to purchase ZeroFox Series A, B, and E redeemable convertible preferred stock that were
outstanding and unexercised as of April 30, 2022. This adjustment reduces the warrant liability by $4.8 million and increases redeemable convertible preferred stock and additional paid-in capital by $2.6 million and $2.2 million,
respectively.
|
|
(cc)
|
To reflect the payment of ZeroFox’s total estimated advisory, legal, accounting, auditing, and other professional fees of $14.9
million that are deemed to be direct and incremental costs of the Business Combination. Approximately $4.9 million of these costs have been expensed in the historical financial statements. This adjustment reduces accumulated deficit by
$10.0 million and accrued liabilities by $2.7 million.
|
|
(dd)
|
To reflect the conversion of all of ZeroFox’s redeemable convertible preferred stock into ZeroFox common stock in connection
with the Business Combination. Each share of all series of ZeroFox redeemable convertible preferred stock converts into two shares of ZeroFox common stock.
|
|
(ee)
|
To reflect the reclassification of Silver Lake’s warrant to purchase up to 1,924,790 shares of ZeroFox common stock from a
liability to additional paid-in-capital. Upon the Business Combination, using the estimated Exchange Ratio of 0.2866, this warrant is expected to be exchanged for a warrant to purchase up to 551,644 shares of New ZeroFox Common Stock.
The terms of the warrant to purchase New ZeroFox Common Stock are expected to result in the warrant being classified as equity.
|
|
(ff)
|
To reflect the reclassification of Hercules Capital, Inc.’s (“Hercules”) warrant to purchase up to 648,350 shares of Series C-1
redeemable convertible preferred stock from a liability to additional paid-in-capital. Upon the Business Combination, the warrant is expected to be converted into a warrant to purchase up to 1,296,700 shares of ZeroFox common stock.
Immediately subsequent to this conversion, using the estimated Exchange Ratio of 0.2866, the converted warrant is expected to be exchanged for a warrant to purchase up to 371,634 shares of New ZeroFox Common Stock. The terms of the
warrant to purchase New ZeroFox Common Stock are expected to result in the warrant being classified as equity.
|
261
|
(gg)
|
To reflect an adjustment to present deferred taxes as a net deferred tax liability. The proforma tax adjustments are based on
the assumption that the acquired deferred tax liabilities will be a source of income for our net operating losses. The Company will complete its analysis relating to the availability of the deferred tax liabilities as a source of income
and evaluate any limitations on the use of its net operating losses when the merger is complete.
|
|
(hh)
|
To reflect the repayment of notes due to Orix Growth Capital, LLC and Stifel Bank of $37.5 million and $15.0 million,
respectively. The repayment of the note due to Orix Growth Capital, LLC includes a 3% pre-payment penalty of $1.1 million. The net book value of the notes includes unamortized debt issuance costs and unamortized debt discounts of $1.6
million and $0.6M for Orix Growth Capital, LLC and Stifel Bank, respectively.
|
Pro Forma Adjustments Related to IDX:
The adjustments below relate to IDX and include an adjustment to record the allocation
of the purchase price for the acquisition of IDX and additional adjustments related to the Business Combination.
|
(A)
|
Upon the Closing, all of the outstanding shares of IDX Capital Stock will be exchanged for shares of New ZeroFox Common Stock.
IDX provides privacy, identity protection, and data breach response services to its government and commercial customers. The IDX acquisition will allow New ZeroFox to further scale its digital risk protection services and expand its
customer base. The acquisition will be accounted for as a business combination in accordance with ASC 805, Business Combinations.
|
The following table summarizes the preliminary estimate of the consideration
transferred to effect the IDX acquisition (in thousands, except share and share price amounts):
|
Cash consideration(1)
|
| |
$29,403
|
|
Repayment of IDX’s estimated transaction costs(2)
|
| |
5,010
|
|
Repayment of IDX’s debt(3)
|
| |
12,724
|
|
Total cash consideration and repayment of IDX’s debt and estimated transaction
costs
|
| |
$47,137
|
|
Shares of New ZeroFox Common Stock transferred(4)
|
| |
27,811,576
|
|
New ZeroFox Common Stock share price(4)
|
| |
$10.00
|
|
New ZeroFox Common Stock consideration transferred
|
| |
278,116
|
|
Total consideration transferred
|
| |
$325,253
|
|
(1)
|
Total consideration transferred will include cash consideration of $47.1 million, adjusted for IDX’s closing working capital,
debt, and cash. As a condition to the Business Combination, IDX retains their pre-closing cash balance. As such, the pro forma adjustment to cash includes a reduction of $15.7 million.
|
|
(2)
|
Total consideration transferred will include transaction costs incurred by IDX that are not deemed to be direct and incremental
costs of the Business Combination that will be reimbursed by New ZeroFox.
|
|
(3)
|
Total consideration transferred will include payment of IDX’s debt by New ZeroFox.
|
|
(4)
|
Total consideration transferred will include 27,811,576 shares of New ZeroFox with an estimated fair value of $10.00 per share.
|
Adjustment 5(A) reflects the following:
|
•
|
The adjustment reflects consideration transferred in the adjustments to cash and cash equivalents of $47.1 million, L&F
Class A ordinary shares (Domesticated) of $3,000, and additional paid-in capital of $213.2 million.
|
|
•
|
The adjustment reflects the elimination of IDX’s historical equity as well as its equity arising from the other Adjustments
Related to Acquisition of IDX (see Notes 5(B) through 5(D)). These eliminations of IDX’s equity include the elimination of IDX’s historical additional paid-in capital of $0.7 million as well as the elimination of its additional paid-in
capital arising from the other Adjustments Related to Acquisition of IDX of $65.1 million. The eliminations of IDX’s equity also include the elimination of historical common stock of
|
262
$1,000 and the elimination of $3,000 of common stock arising from the other
Adjustments Related to Acquisition of IDX. These eliminations also include the elimination of IDX’s historical accumulated deficit of $70.5 million and the elimination of $10,000 of accumulated deficit arising from the Adjustments Related to
Acquisition of IDX.
|
•
|
The adjustment reflects fair value adjustments to record IDX’s identifiable intangible assets and goodwill of $94.9 million and
$239.8 million, respectively.
|
|
•
|
The adjustment reflects the payment of IDX’s current portion of long-term debt, long-term debt—net of current portion, and
related party convertible debt of $2.5 million, $7.5 million, and $2.7 million, respectively.
|
The following table summarizes the allocation of the preliminary estimate of the
purchase price to the assets acquired and liabilities assumed (in thousands):
|
Accounts receivable
|
| |
$11,219
|
|
Deferred contract acquisitions costs, current
|
| |
1,416
|
|
Prepaid expenses and other assets
|
| |
807
|
|
Property and equipment
|
| |
142
|
|
Deferred contract acquisition costs, net of current portion
|
| |
312
|
|
Goodwill
|
| |
239,801
|
|
Intangible assets
|
| |
94,900
|
|
Total assets acquired
|
| |
348,597
|
|
Accounts payable
|
| |
7,471
|
|
Accrued liabilities
|
| |
5,530
|
|
Deferred revenue, current
|
| |
7,112
|
|
Deferred revenue, net of current portion
|
| |
2,472
|
|
Accrued liabilities, long-term
|
| |
759
|
|
Total liabilities assumed
|
| |
23,344
|
|
Total consideration transferred
|
| |
$325,253
|
The excess of the purchase price over the fair values of the net identifiable tangible
and intangible assets acquired will be assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the New ZeroFox’s
competitive position. Goodwill will not be amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event that management determines that the value of goodwill has been
impaired, an accounting charge for the amount of impairment during the quarter in which the determination is made may be recognized. Goodwill attributable to the IDX acquisition is not expected to be deductible for tax purposes.
With respect to the adoption of ASU No. 2021-08, notwithstanding the fact that the
Business Combination is assumed to have occurred as of February 1, 2021, based on Article 11 guidance for the pro forma condensed statement of comprehensive income, ZeroFox used February 1, 2022 as the adoption date for purposes of the pro
forma condensed statement of comprehensive income as that is the adoption date reflected in the historical financial statements for the three months ended April 30, 2022.
263
The following table sets forth the amounts allocated to the intangible assets
identified, the estimated useful lives of those intangible assets, and the methodologies used to determine the fair values of those intangible assets (dollars in thousands):
|
|
| |
Fair value
|
| |
Useful Life
(in years)
|
| |
Fair Value Methodology
|
|
Trade name
|
| |
$30,900
|
| |
5
|
| |
Relief from Royalty method
|
|
Developed technology
|
| |
14,000
|
| |
5
|
| |
Replacement Cost method
|
|
Breach-related contracts
|
| |
2,300
|
| |
1
|
| |
Multi-period Excess Earnings Method
of the Income Approach
|
|
Office of Personnel Management contract
|
| |
43,600
|
| |
6
|
| |
Multi-period Excess Earnings Method
of the Income Approach
|
|
Customer relationships
|
| |
4,100
|
| |
1
|
| |
Multi-period Excess Earnings Method
of the Income Approach
|
|
|
| |
$94,900
|
| |
|
| |
|
As part of the IDX acquisition, ZeroFox incurred negligible acquisition-related costs
and therefore no adjustment is reflected in these pro forma financial statements.
|
(B)
|
To reflect the payment of IDX’s total estimated advisory, legal, accounting, auditing, and other professional fees of $0.9
million that are deemed to be direct and incremental costs of the Business Combination.
|
|
(C)
|
To reflect the conversion of all of IDX’s redeemable convertible preferred stock into IDX common stock due to the Business
Combination. Each share of all series of IDX redeemable convertible preferred stock converts into one share of IDX common stock.
|
|
(D)
|
To reflect stock-based compensation for stock options that are subject to accelerated vesting upon the Business Combination.
|
Additional Pro Forma Adjustments:
The adjustments below are related to the Common Equity PIPE Financing, the Convertible
Notes Financing, and the Business Combination, which include additional adjustments related to L&F.
|
(AA)
|
To reflect the redemption by the L&F Public Shareholders of 13,824,311 Class A Shares in connection with the vote to approve
the Extension Amendment Proposal.
|
|
(BB)
|
To reflect the release of cash from the trust account to cash and cash equivalents, assuming no L&F public shareholders
exercise their right to have their L&F Class A Ordinary Shares redeemed for their pro rata share of the trust account.
|
|
(CC)
|
To reflect the payment of L&F’s total estimated advisory, legal, accounting, auditing, and other professional fees of $13.3
million that are deemed to be direct and incremental costs of the Business Combination. The adjustment reduces prepaid expenses by $7,000, accrued liabilities by $4.2 million, and additional paid-in capital by $9.0 million.
|
|
(DD)
|
To reflect the payment of L&F’s accrued offering costs of $0.4 million upon consummation of the Business Combination.
|
|
(EE)
|
To reflect the issuance of the Notes for $150.0 million. This adjustment records an increase of cash from the convertible note
issuance of $149.8 million ($150.0 million, net of debt issuance costs of $0.2 million) and a corresponding increase in the carrying value of convertible debt. The Notes contain a provision whereby, in the case of an event of default,
the obligation will bear additional interest at a rate equal to 2.00%. Management evaluated Events of Default and determined the non-credit related events of default represent an embedded derivative that must be bifurcated and accounted
for separately from the Notes. The default rate derivative is treated as a liability, initially
|
264
measured at fair value with subsequent changes in fair value recorded in earnings.
Management has assessed the probability of occurrence for a non-credit default event and determined the likelihood of a referenced event to be remote. Therefore, the estimated fair value of the default rate derivative is negligible and no
amount was recorded.
|
(FF)
|
To reflect the issuance of an aggregate of 1,500,000 shares of New ZeroFox Common Stock in the Common Equity PIPE Financing
(excludes the 500,000 Common Equity PIPE Financing shares to be issued to holders of the ZeroFox PIK Promissory Notes, see Note 5(HH)) at a price of $10.00 per share, for an aggregate purchase price of $15.0 million.
|
|
(GG)
|
To reflect the settlement of the $6.0 million deferred underwriting fee payable that was incurred during L&F’s initial
public offering, which is required to be settled upon completion of the Business Combination.
|
|
(HH)
|
To reflect the assumption that L&F’s public shareholders exercise their redemption rights with respect to a maximum of
3,425,689 L&F Class A Ordinary Shares prior to the Closing at a redemption price of approximately $10.15 per share, or $34.8 million in cash. As there is no minimum L&F cash on hand required to consummate the Business
Combination, Scenario 2 assumes all 3,425,689 L&F Class A Ordinary Shares subject to possible redemption are redeemed.
|
|
(II)
|
To reflect the issuance of an aggregate of 500,000 shares of New ZeroFox Common Stock in the Common Equity PIPE Financing to be
issued to holders of the ZeroFox PIK Promissory Notes at a price of $10.00 per share. The issuance of these shares results in a reduction to the ZeroFox PIK Promissory Notes liability and an increase to additional paid-in-capital of
$5.0 million.
|
6. Adjustments to the Unaudited Pro Forma Condensed Combined
Statements of Operations
The pro forma adjustments, based on preliminary estimates that could
change materially as additional information is obtained, are as follows:
Pro Forma Adjustments Related to ZeroFox:
The adjustments below relate to ZeroFox and include adjustments related to the
allocation of the purchase price and additional adjustments related to the Business Combination.
|
(aa)
|
To reflect incremental amortization expense as a result of the fair value adjustment to intangible assets. Amortization expense
related to developed technology is recorded as cost of revenue. Amortization expense related to the trade names and trademarks is recorded as general and administrative expense. Amortization expense related to customer relationships is
recorded as sales and marketing expense.
|
|
(bb)
|
To reflect an adjustment to eliminate interest expense, amortization of discount and debt issuance costs on the Stifel and Orix
loans as it is assumed that the related debt balances would have been paid off by ZeroFox on February 1, 2021.
|
|
(cc)
|
To reflect an adjustment to write-off the unamortized debt discounts related to ZeroFox’s loans with Orix and Stifel. The
unamortized debt discounts include discounts due to unamortized debt issuance costs and warrants.
|
|
(dd)
|
To reflect the elimination of the change in fair value of ZeroFox’s warrant liabilities. It is assumed that the warrants to
purchase ZeroFox’s Series A, B, and E redeemable convertible preferred stock will be net exercised on February 1, 2020. In addition, it is assumed that the warrants to purchase ZeroFox’s common stock (see Note 5(ee)) and Series C-1
redeemable convertible preferred stock (see Note 5(ff)) will be exchanged for warrants to purchase New ZeroFox common stock on February 1, 2020 and that the exchanged warrants will be classified as equity.
|
|
(ee)
|
To reflect the payment of ZeroFox’s total estimated advisory, legal, accounting, auditing, and other professional fees of $12.2
million that are deemed to be direct and incremental costs of the Business Combination (see Note 5(cc)).
|
|
(ff)
|
To reflect write-down of the unamortized debt issuance costs and warrants and the prepayment penalty associated with the payment
of its long-term debt with Orix (see Note 5(hh)).
|
265
Pro Forma Adjustments Related to IDX:
The adjustments below relate to IDX and include adjustments related to the allocation
of the purchase price and additional adjustments related to the Business Combination.
|
(A)
|
To reflect incremental amortization expense as a result of the fair value adjustment to intangible assets. Amortization expense
related to developed technology is recorded as cost of revenue. Amortization expense related to the trade name is recorded as general and administrative expense. Amortization expense related to the Office of Personnel Management
contract, breach-related contract, and customer relationships is recorded as sales and marketing expense.
|
|
(B)
|
To reflect stock-based compensation for stock options that are subject to accelerated vesting upon the Business Combination.
|
|
(C)
|
To reflect the elimination of interest expense and amortization of deferred debt issuance costs on IDX’s loan with Comerica Bank
as it is assumed that this debt balance is paid off upon Closing.
|
|
(D)
|
To reflect the elimination of interest expense on IDX’s related party convertible debt as it is assumed that this debt balance
would have been paid off upon the Closing.
|
|
(E)
|
To reflect the elimination of the change in fair value of IDX’s related party convertible debt as it is assumed that this debt
balance would have been paid off upon the Closing.
|
|
(F)
|
To reflect the elimination of the change in fair value of IDX’s warrant liabilities. It is assumed that the warrants to purchase
IDX’s capital stock will be net exercised on February 1, 2021.
|
Additional Pro Forma Adjustments:
The adjustments below include adjustments related to the Common Equity PIPE Financing,
the Convertible Notes Financing and the Business Combination, which include additional adjustments related to L&F.
|
(AA)
|
To reflect an adjustment to record cash interest expense of 7.00% and amortization of debt issuance costs on the Notes (see Note
5(EE)).
|
The Notes bear interest at a rate of 7.00% per annum, payable quarterly in cash;
provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum. The preparation of the unaudited pro forma condensed combined financials statements assumes the cash interest option was elected consistently throughout
the reporting period. The following table summarizes the impact of selecting the interest in kind option on unaudited pro forma condensed combined financials statements (in thousands, except share and share price amounts):
|
|
| |
Cash Interest
Option
|
| |
PIK Option
|
|
For the three months ended April 30, 2022
|
| |
|
| |
|
|
Convertible Debt
|
| |
$149,806
|
| |
$167,077
|
|
Total liabilities
|
| |
$253,115
|
| |
$270,386
|
|
Accumulated Deficit
|
| |
$(35,604)
|
| |
$(52,875)
|
|
Total stockholders' equity
|
| |
$1,142,234
|
| |
$1,124,963
|
|
|
| |
|
| |
|
|
Interest expense
|
| |
$2,699
|
| |
$3,665
|
|
Net loss after tax
|
| |
$(10,989)
|
| |
$(11,955)
|
|
|
| |
|
| |
|
|
Net loss per share
|
| |
$(0.09)
|
| |
$(0.10)
|
|
For the year ended January 31, 2022
|
| |
|
| |
|
|
Interest expense
|
| |
$13,178
|
| |
$16,342
|
|
Net loss after tax
|
| |
$(79,965)
|
| |
$(83,129)
|
|
|
| |
|
| |
|
|
Net loss per share
|
| |
$(0.69)
|
| |
$(0.71)
|
|
(BB)
|
To reflect the elimination of interest income related to the marketable securities held in the trust account.
|
266
|
(CC)
|
The pro forma basic and diluted net loss per share amounts presented in the unaudited pro forma condensed combined statements of
operations are based upon the number of New ZeroFox shares outstanding as if the Transactions occurred on February 1, 2020. The calculation of weighted-average shares outstanding for pro forma basic and diluted net loss per share
assumes that the shares issuable in connection with the Transactions have been outstanding for the entirety of the periods presented. The 1,293,750 Sponsor Holders Earnout Shares are participating securities that contractually entitle
the holders of such shares to participate in nonforfeitable dividends but do not contractually obligate the holders of such shares to participate in losses. The unaudited pro forma condensed combined statements of operations reflect net
losses for the periods presented and, accordingly, no loss amounts have been allocated to the Sponsor Holders Earnout Shares. The Sponsor Holders Earnout Shares have also been excluded from basic and diluted pro forma net loss per share
as such shares are subject to forfeiture until certain specified earnout triggering events have occurred.
|
Pro Forma weighted-average common shares outstanding—basic and diluted is calculated
as follows for the year ended January 31, 2021 and the three months ended April 30, 2022:
|
Weighted-average shares calculation - basic and diluted
|
| |
Assuming No
Redemptions into
Cash
|
|
Assume conversion of Class B ordinary shares into Class A
ordinary shares effective January 1, 2021 as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
4,312,500
|
|
Assume reclassification of L&F Class A ordinary shares
subject to redemption to L&F Class A ordinary shares not subject to redemption effective January 1, 2021 under Scenario 1 as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
—
|
|
Assume January 1, 2021 issuance of L&F Class A
ordinary shares in connection with the closing of the Common Equity PIPE Investment Financing
|
| |
2,000,000
|
|
Assume January 1, 2021 issuance of L&F Class A
ordinary shares to ZeroFox shareholders as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
82,328,665
|
|
Assume January 1, 2021 issuance of L&F Class A
ordinary shares to IDX shareholders as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
27,811,576
|
|
Pro forma weighted-average shares outstanding—basic and
diluted
|
| |
116,452,741
|
7. Income Taxes
|
(a)
|
The pro forma provision for income taxes for the three months ended April 30, 2022 and year ended January 31, 2022, is as
follows (in thousands):
|
|
|
| |
Three Months
Ended
April 30, 2022
|
| |
Year Ended
January 31, 2022
|
|
Current tax expense:
|
| |
|
| |
|
|
Federal
|
| |
$—
|
| |
$—
|
|
Foreign
|
| |
55
|
| |
100
|
|
State and local
|
| |
14
|
| |
74
|
|
|
| |
69
|
| |
174
|
|
|
| |
|
| |
|
|
Deferred tax (benefit) expense:
|
| |
|
| |
|
|
Federal
|
| |
(4,746)
|
| |
(20,225)
|
|
State and local
|
| |
(589)
|
| |
226
|
|
Foreign
|
| |
—
|
| |
—
|
|
|
| |
(5,335)
|
| |
(19,999)
|
|
Less change in valuation allowance
|
| |
247
|
| |
1,048
|
|
Income tax benefit
|
| |
$(5,019)
|
| |
$(18,777)
|
267
The reported pro forma income tax provision differs from the amount computed by
applying the statutory US federal income tax rate to the loss before income taxes due to foreign non-deductible income and nondeductible expenses, primarily consisting of transaction costs. A reconciliation of the statutory US income tax rate
to the effective pro forma income tax rate for the three months ended April 30, 2022 and year ended January 31, 2022, is as follows:
|
|
| |
Three Months
Ended
April 30, 2022
|
| |
Year Ended
January 31, 2022
|
|
US statutory rate
|
| |
21.00%
|
| |
21.00%
|
|
Permanent differences
|
| |
8.62
|
| |
(0.31)
|
|
Change in deferred tax assets and liabilities
|
| |
3.68
|
| |
(0.45)
|
|
Change in valuation allowance
|
| |
(1.54)
|
| |
(1.06)
|
|
Other
|
| |
(0.41)
|
| |
(0.16)
|
|
Net income tax expense
|
| |
31.35%
|
| |
19.02%
|
Deferred income taxes reflect temporary differences in the recognition of revenue and
expenses between financial statement reporting and income tax reporting. Deferred income taxes as of April 30, 2022 consisted of the following (in thousands):
|
|
| |
April 30, 2022
|
|
Deferred tax assets:
|
| |
|
|
Depreciation and amortization
|
| |
$676
|
|
Deferred revenue
|
| |
1,430
|
|
Stock-based compensation
|
| |
115
|
|
Accruals
|
| |
1,001
|
|
Charitable contributions
|
| |
3
|
|
Allowance for doubtful accounts
|
| |
65
|
|
Tax credits
|
| |
12
|
|
Limitation on business interest expense
|
| |
3,483
|
|
Net operating losses- federal and state
|
| |
32,619
|
|
Credit carryforward
|
| |
36
|
|
Deferred rent
|
| |
13
|
|
Other, net
|
| |
(8)
|
|
Total deferred tax asset before valuation allowance
|
| |
39,445
|
|
Valuation allowance
|
| |
(3,141)
|
|
Total deferred tax asset
|
| |
36,304
|
|
Deferred tax liabilities:
|
| |
|
|
Prepaid commissions
|
| |
(2,864)
|
|
Deferred revenue
|
| |
(3,877)
|
|
Intangibles from ZeroFox's acquisition of a business
|
| |
(664)
|
|
ZeroFox intangibles
|
| |
(34,144)
|
|
IDX intangibles
|
| |
(17,740)
|
|
Other, net
|
| |
(95)
|
|
Total deferred tax liability before valuation allowance
|
| |
(59,384)
|
|
Valuation allowance
|
| |
—
|
|
Total deferred tax liability
|
| |
(59,384)
|
|
Net deferred tax liability
|
| |
$(23,080)
|
268
|
(b)
|
The following table represents the pro forma income tax adjustments for the three months ended April 30, 2022 (in thousands):
|
|
|
| |
Adjustments
Related
to ZF
|
| |
Adjustments
Related
to IDX
|
| |
Additional
Pro Forma
Adjustments
|
|
Pro forma income tax adjustments
|
| |
|
| |
|
| |
|
|
Amortization intangible assets
|
| |
$(2,120)
|
| |
$(1,057)
|
| |
$—
|
|
Net operating loss carryforward
|
| |
(2,613)
|
| |
—
|
| |
—
|
|
Deferred revenue
|
| |
606
|
| |
86
|
| |
—
|
|
Limitation of business interest expense
|
| |
—
|
| |
—
|
| |
(702)
|
|
Other
|
| |
467
|
| |
106
|
| |
—
|
|
Valuation allowance
|
| |
—
|
| |
—
|
| |
247
|
|
Total pro forma income tax adjustments
|
| |
$(3,660)
|
| |
$(865)
|
| |
$(455)
|
|
(c)
|
The following table represents the pro forma income tax adjustments for the year ended January 31, 2022 (in thousands):
|
|
|
| |
Adjustments
Related
to ZF
|
| |
Adjustments
Related
to IDX
|
| |
Additional
Pro Forma
Adjustments
|
|
Pro forma income tax adjustments
|
| |
|
| |
|
| |
|
|
Amortization intangible assets
|
| |
$(6,111)
|
| |
$(4,584)
|
| |
$—
|
|
Net operating loss carryforward
|
| |
(11,811)
|
| |
—
|
| |
—
|
|
Deferred revenue
|
| |
4,736
|
| |
342
|
| |
—
|
|
Limitation of business interest expense
|
| |
—
|
| |
—
|
| |
(3,428)
|
|
Other
|
| |
1,528
|
| |
(1,677)
|
| |
—
|
|
Valuation allowance
|
| |
—
|
| |
—
|
| |
1,048
|
|
Total pro forma income tax adjustments
|
| |
$(11,658)
|
| |
$(5,919)
|
| |
$(2,380)
|
The pro forma tax adjustments are based on the assumption that the
acquired deferred tax liabilities will be a source of income for our net operating losses. We will complete our analysis relating to the availability of the deferred tax liabilities as a source of income and evaluate any limitations on the use
of our net operating losses when the merger is complete.
269
References in this section to “we,” “our,” or “us” refer to L&F
Acquisition Corp.
General
We are a blank check company incorporated in the Cayman Islands on
August 20, 2020 formed for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or other similar business combination with one or more businesses. We reviewed a number of
opportunities to enter into an initial business combination with one or more operating businesses, and entered into the Business Combination Agreement on December 17, 2021. We intend to effectuate the Business Combination using cash derived
from the proceeds of the L&F IPO and the sale of the L&F Private Placement Warrants, our shares, and proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing.
IPO and Private Placement
On November 23, 2020, we consummated the L&F IPO of 15,000,000
L&F Public Units at $10.00 per L&F Public Unit, generating gross proceeds of $150,000,000. The securities in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-249497). The SEC
declared the registration statement effective on November 18, 2020. Simultaneously with the closing of the L&F IPO, we consummated the sale of 6,859,505 L&F Private Placement Warrants to the Sponsor and Jefferies LLC at a price of $1.00
per L&F Private Placement Warrant and approximately $1.21 per L&F Private Placement Warrant, respectively, generating gross proceeds of $7,250,002. On November 25, 2020, the underwriters fully exercised their over-allotment option,
resulting in an additional 2,250,000 L&F Public Units issued for an aggregate amount of $22,500,000. In connection with the underwriters’ full exercise of their over-allotment option, we consummated the sale of an additional 728,925 L&F
Private Placement Warrants to the Sponsor and Jefferies LLC at $1.00 per L&F Private Placement Warrant and approximately $1.21 per L&F Private Placement Warrant, respectively, generating total proceeds of $787,500.
Transaction costs amounted to $10,050,665, consisting of $3,450,000
of underwriting fees, $6,037,500 of deferred underwriting fees and $563,165 of other offering costs.
Following the closing of the L&F IPO on November 23, 2020 and the
full exercise of the underwriters’ over-allotment on November 25, 2020, an amount of approximately $175,087,500 ($10.15 per L&F Unit) from the net proceeds of the sale of the L&F Public Units in the L&F IPO and the sale of the
L&F Private Placement Warrants were placed in a Trust Account, and invested in U.S. government securities, within the meaning set forth in the Investment Company Act, with a maturity of 185 days or less, or in any open-ended investment
company that holds itself out as a money market fund investing solely in U.S. Treasuries and meeting certain conditions under Rule 2a-7 of the Investment Company Act, as determined by us, until the earliest of: (i) the completion of a Business
Combination and (ii) the distribution of the funds in the Trust Account to our shareholders, as described below. See “—Redemption Rights for Public Shareholders upon Completion of the Business Combination.”
Extension of Time to Complete a Business Combination
Prior to the Extension Articles Amendment, L&F's amended and
restated memorandum and articles of association required that L&F consummate its initial business combination by May 23, 2022. On May 3, 2022, L&F held an extraordinary general meeting of shareholders to amend its amended and restated
memorandum and articles of association to extend the date by which L&F must complete its initial business combination from May 23, 2022 to August 24, 2022. The L&F shareholders approved the Extension Amendment Proposal at the Extension
Meeting and on May 3, 2022, L&F filed the Extension Articles Amendment with the Register of Companies of the Cayman Islands. In connection with the vote to approve the Extension Amendment Proposal, the holders of 13,824,311 Class A Ordinary
Shares properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.154 per share, for an aggregate redemption amount of approximately $140,378,518. After giving effect to the Extension Amendment
Redemptions, as of May 27, 2022, there are 3,425,689 Class A Ordinary Shares issued and outstanding and approximately $34,806,051 remaining in the Trust Account.
270
Effecting a Business Combination
Fair Market Value of Target Business
Pursuant to NYSE American listing rules, the target business or
businesses that we acquire must collectively have a fair market value equal to at least 80% of the balance of the funds in the Trust Account (less any deferred underwriting commissions and taxes payable on interest earned) at the time of the
execution of a definitive agreement for our initial business combination. The fair market value of the target or targets will be determined by the L&F Board based upon one or more standards generally accepted by the financial community,
such as discounted cash flow valuation or value of comparable businesses. Our shareholders will be relying on the business judgment of the L&F Board, which will have significant discretion in choosing the standard used to establish the fair
market value of the target or targets, and different methods of valuation may vary greatly in outcome from one another. As discussed in the Section entitled “The Business Combination Proposal — Satisfaction of
80% Test,” the L&F Board determined that this test was met in connection with the Business Combination.
Shareholder Approval of the Business Combination
We are seeking shareholder approval of the Business Combination at
the Shareholder Meeting to which this proxy statement/prospectus relates and, in connection with such meeting, holders of L&F Public Shares may redeem their shares for cash. The Public Shareholders will be entitled to redeem their L&F
Public Shares, equal to the aggregate amount then on deposit in the Trust Account, calculated as of two business days prior to the consummation of the Business Combination (initially $10.15 per L&F Public Share), including interest
(which interest shall be net of taxes payable), divided by the number of then issued and outstanding Public Shares, subject to certain limitations as described in this proxy statement/prospectus. The per-share amount to be distributed to the
Public Shareholders who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. There will be no redemption rights upon the completion of a Business Combination with respect to
the L&F Public Warrants.
Such redemption rights will be effected under the Existing Governing
Documents and the DGCL. The Sponsor Holders, ZeroFox, IDX and Jeffery C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy entered into the Sponsor Support Letter Agreement pursuant to which, among other things, the Sponsor Holders have
agreed to (i) vote in favor of the Business Combination Agreement and the transactions contemplated thereby (including the Mergers), (ii) waive the anti-dilution or similar protection with respect to the Founder Shares (whether resulting from
the transactions contemplated by the Common Equity PIPE Financing, the Convertible Notes Financing, the Domestication, the Mergers or otherwise), (iii) be bound by certain other covenants and agreements related to the Business Combination, and
(iv) not transfer (subject to customary exceptions) any Founder Shares until the earlier of (a) one year after the Closing, (b) the share price equaling or exceeding $12.00 on a volume-weighted average price basis for any 20 trading days within
any 30 trading day period commencing at least 150 days after the Closing, and (c) the completion of a transaction that results in all shareholders having the right to exchange shares for cash, securities or other property.
Limitations on Redemptions
Our proposed initial business combination may impose a minimum cash
requirement for (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. In the event the aggregate cash
consideration we would be required to pay for all Class A Ordinary Shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial business combination exceed
the aggregate amount of cash available to us, we will not complete the initial business combination or redeem any shares, and all Class A Ordinary Shares submitted for redemption will be returned to the holders thereof. We may, however, raise
funds through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial business combination, including pursuant to forward purchase agreements or backstop arrangements we may enter
into following consummation of the L&F IPO, in order to, among other reasons, satisfy such minimum cash requirements.
Redemption of Class A Ordinary Shares and Liquidation if No Initial
Business Combination
The Existing Governing Documents (after giving effect to the
Extension Articles Amendment) provide that we have from the closing of the L&F IPO until August 24, 2022 to complete our initial business combination
271
(“Combination Period”). If we are unable to
complete our initial business combination within the Combination Period, we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the
Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (less taxes payable and up to $100,000 of interest to pay
dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish the Public Shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if
any) and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and the L&F Board, liquidate and dissolve, subject in the case of clauses (ii) and (iii) to our obligations
under Cayman Islands law to provide for claims of creditors and in all cases subject to the other requirements of applicable law. There will be no redemption rights or liquidating distributions with respect to our warrants, which will expire
worthless if we fail to complete our initial business combination within the Combination Period.
Our Sponsor, officers and directors have entered into a letter
agreement with us, pursuant to which they have waived their rights to liquidating distributions from the Trust Account with respect to any Founder Shares held by them if we fail to complete our initial business combination within the
Combination Period. However, if our Sponsor or management team acquire Class A Ordinary Shares in or after the L&F IPO, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if we fail
to complete our initial business combination by the Combination Period.
Our Sponsor, officers and directors have agreed, pursuant to a
written agreement with us, that they will not propose any amendment to the Existing Governing Documents (A) to modify the substance or timing of our obligation to allow redemption in connection with our initial business combination or to redeem
100% of our Class A Ordinary Shares if we do not complete our initial business combination within the Combination Period or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial business combination
activity, unless we provide our Public Shareholders with the opportunity to redeem their Class A Ordinary Shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the
Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, divided by the number of then outstanding Public Shares.
We expect that all costs and expenses associated with implementing
our plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining out of the approximately $1,500,000 of proceeds held outside the Trust Account, although we cannot assure you that there will be sufficient
funds for such purpose. However, if those funds are not sufficient to cover the costs and expenses associated with implementing our plan of dissolution, to the extent that there is any interest accrued in the Trust Account not required to pay
income taxes on interest income earned on the Trust Account balance, we may request the trustee to release to us an additional amount of up to $100,000 of such accrued interest to pay those costs and expenses.
If we were to expend all of the net proceeds of the L&F IPO and
the sale of the L&F Private Placement Warrants, other than the proceeds deposited in the Trust Account, and without taking into account interest, if any, earned on the Trust Account, the per-share redemption amount received by Public
Shareholders upon our dissolution would be approximately $10.15. The proceeds deposited in the Trust Account could, however, become subject to the claims of our creditors which would have higher priority than the claims of our Public
Shareholders. We cannot assure you that the actual per-share redemption amount received by Public Shareholders will not be substantially less than $10.15. While we intend to pay such amounts, if any, we cannot assure you that we will have funds
sufficient to pay or provide for all creditors’ claims.
Although we will seek to have all vendors, service providers,
prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our Public
Shareholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the Trust Account including but not limited to fraudulent inducement,
breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the
Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will consider whether competitive alternatives are reasonably available to us and will
272
only enter into an agreement with such third party if management believes that such
third party’s engagement would be in the best interests of the company under the circumstances. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant
whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute
a waiver. WithumSmith+Brown, PC, our independent registered public accounting firm, and the underwriter of the L&F IPO will not execute agreements with us waiving such claims to the monies held in the Trust Account. In addition, there is no
guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. In
order to protect the amounts held in the Trust Account, our Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us, or a prospective target business with
which we have entered into a written letter of intent, confidentiality or other similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.15 per public share and (ii) the
actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.15 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability
will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under
our indemnity of the underwriter of the L&F IPO against certain liabilities, including liabilities under the Securities Act. However, we have not asked our Sponsor to reserve for such indemnification obligations, nor have we independently
verified whether our Sponsor has sufficient funds to satisfy its indemnity obligations and we believe that our Sponsor’s only assets are securities of L&F. Therefore, we cannot assure you that our Sponsor would be able to satisfy those
obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for our initial business combination and redemptions could be reduced to less than $10.15 per Public Share. In such event, we may
not be able to complete our initial business combination, and you would receive such lesser amount per share in connection with any redemption of your Public Shares. None of our officers or directors will indemnify us for claims by third
parties including, without limitation, claims by vendors and prospective target businesses.
In the event that the proceeds in the Trust Account are reduced below
the lesser of (i) $10.15 per public share and (ii) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.15 per share due to reductions in the value of the trust
assets, in each case less taxes payable, and our Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine
whether to take legal action against our Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification
obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance if, for example, the cost of such legal action is deemed by the independent directors to
be too high relative to the amount recoverable or if the independent directors determine that a favorable outcome is not likely. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption
price will not be less than $10.15 per share.
We will seek to reduce the possibility that our Sponsor will have to
indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title,
interest or claim of any kind in or to monies held in the Trust Account. Our Sponsor will also not be liable as to any claims under our indemnity of the underwriter of the L&F IPO against certain liabilities, including liabilities under the
Securities Act. We will have access to up to approximately $1,500,000 from the proceeds of the L&F IPO with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation, currently
estimated to be no more than approximately $100,000). In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, shareholders who received funds from our Trust Account could be
liable for claims made by creditors. In the event that our offering expenses exceed our estimate of $1,000,000, we may fund such excess with funds from the funds not to be held in the Trust Account.
273
In such case, the amount of funds we intend to be held outside the Trust Account
would decrease by a corresponding amount. Conversely, in the event that the offering expenses are less than our estimate of $1,000,000, the amount of funds we intend to be held outside the Trust Account would increase by a corresponding amount.
If we file a bankruptcy or insolvency petition or an involuntary
bankruptcy or insolvency petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy or insolvency estate and
subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy or insolvency claims deplete the Trust Account, we cannot assure you we will be able to return $10.15 per share to our Public
Shareholders. Additionally, if we file a bankruptcy or insolvency petition or an involuntary bankruptcy or insolvency petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under
applicable debtor/creditor and/or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our
shareholders. Furthermore, the L&F Board may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying Public
Shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.
Our Public Shareholders are entitled to receive funds from the Trust
Account only (i) in the event of the redemption of our Public Shares if we do not complete our initial business combination within the Combination Period; (ii) in connection with a shareholder vote to amend the Existing Governing Documents (A)
to modify the substance or timing of our obligation to allow redemption in connection with our initial business combination or to redeem 100% of our Public Shares if we do not complete our initial business combination within the Combination
Period or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial business combination activity; or (iii) if they redeem their respective shares for cash upon the completion of our initial business
combination. In no other circumstances will a shareholder have any right or interest of any kind to or in the Trust Account. In the event we seek shareholder approval in connection with our initial business combination, a shareholder’s voting
in connection with the business combination alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the Trust Account. Such shareholder must have also exercised its redemption rights described
above. These provisions of the Existing Governing Documents, like all provisions of the Existing Governing Documents, may be amended with a shareholder vote.
Employees
We currently have two officers. These individuals are not obligated
to devote any specific number of hours to our matters, but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time they will devote in any
time period will vary based on whether a target business has been selected for our initial business combination and the stage of the business combination process we are in. We do not intend to have any full-time employees prior to the
completion of our initial business combination.
Facilities
We currently utilize office space at 150 North Riverside Plaza, Suite
5200, Chicago, Illinois 60606 from an affiliate of our Sponsor as our executive offices. We consider our current office space adequate for our current operations.
Legal Proceedings
There is no material litigation, arbitration or governmental
proceeding currently pending against us or any members of our management team in their capacities as such.
Periodic Reporting and Audited Financial Statements
We registered the L&F Public Units, L&F Public Shares and
L&F Public Warrants under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual
reports contain financial statements audited and reported on by our independent registered public accountants.
274
We are required to evaluate our internal control procedures for
the fiscal year ending December 31, 2021 as required by the Sarbanes-Oxley Act. Only in the event we are deemed to be a large accelerated filer or an accelerated filer, and no longer qualify as an emerging growth company, will we be required to
have our internal control procedures audited. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to
achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such business combination.
We are a Cayman Islands exempted company. Exempted companies are
Cayman Islands companies conducting business mainly outside the Cayman Islands and, as such, are exempted from complying with certain provisions of the Cayman Islands Companies Act. As an exempted company, we applied for and received a tax
exemption undertaking from the Cayman Islands government that, in accordance with Section 6 of the Tax Concessions Act (Revised) of the Cayman Islands, for a period of 20 years from the date of the undertaking, no law which is enacted in the
Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations will apply to us or our operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate
duty or inheritance tax will be payable (i) on or in respect of our shares, debentures or other obligations or (ii) by way of the withholding in whole or in part of a payment of dividend or other distribution of income or capital by us to our
shareholders or a payment of principal or interest or other sums due under a debenture or other obligation of us.
We are an “emerging growth company,” as defined in Section 2(a) of
the Securities Act, as modified by the JOBS Act. As such, we are eligible to 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 non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less
attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an
“emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay
the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.
We will remain an emerging growth company until the earlier of (1)
the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which
means the market value of our Class A Ordinary Shares that are held by non-affiliates exceeds $700,000,000 as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities
during the prior three-year period.
Additionally, we are a “smaller reporting company” as defined in Item
10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting
company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates exceeds $250,000,000 as of the prior June 30th, or (2) our annual revenues exceeded $100,000,000 during such
completed fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700,000,000 as of the prior June 30.
275
Directors and Executive Officers
Our current directors and officers are as follows:
|
Name
|
| |
Age
|
| |
Position
|
|
Jeffrey C. Hammes
|
| |
63
|
| |
Chairman
|
|
Adam Gerchen
|
| |
40
|
| |
Chief Executive Officer and Director
|
|
Richard Levy
|
| |
50
|
| |
Director
|
|
Tom Gazdziak
|
| |
34
|
| |
Chief Financial Officer
|
|
Senator Joseph Lieberman
|
| |
80
|
| |
Director
|
|
Albert Goldstein
|
| |
41
|
| |
Director
|
|
Kurt Summers
|
| |
42
|
| |
Director
|
Jeffrey C. Hammes serves as the Chairman of the company and is on the board of directors. Mr. Hammes served as the Chairman of Kirkland & Ellis LLP and Kirkland & Ellis International LLP (collectively, “K&E”) from 2010 until retiring in
2019. During his tenure as Chairman of K&E, K&E revenues grew from $1.4 billion to more than $4.0 billion, and net income rose from less than $700,000,000 to more than $2,000,000,000 according to the American Lawyer. Under Mr. Hammes’
leadership, in 2019, K&E ranked first in total revenue and aggregate net income among the world’s top large law firms according to Bloomberg. That growth came across a variety of verticals where K&E has built leading franchises,
including private equity and M&A, restructuring and litigation, a breadth of expertise that affords valuable insight into various product categories as one of the largest consumers of the tech-enabled services offered by companies in our
target universe. In addition, K&E currently services more than 400 private equity clients around the world and Mr. Hammes maintains relationships at the senior levels of many of those firms. Mr. Hammes received a B.B.A. in accounting from
the University of Wisconsin-Madison and received his J.D. from Northwestern Pritzker School of Law. He is a member of the Illinois bar (inactive).
Adam Gerchen is
the current Chief Executive Officer of L&F and serves on its board of directors and has served in both roles since 2020. Mr. Gerchen has also served as co-founder and Chief Executive Officer of Keller Lenkner, a law firm that has
developed unique arbitration strategies and other innovations in mass actions since 2018. Additionally, in order to serve the large number of firm clients, and address the complexity of various areas of law, Mr. Gerchen also built a separate
servicing business at Keller Lenkner in 2018 that combines client origination, intake, customer relationship management, IT, and settlement administration. From 2016 to 2017, Mr. Gerchen served as President of Burford Capital Limited (LSE:
BUR) (“Burford”), the leading global finance firm focused on law. Previously, Mr. Gerchen co-founded and served as Chief Executive Officer of Gerchen Keller Capital (“GKC”) from 2013 until GKC’s sale in 2016 to Buford. Prior to its
acquisition, GKC grew into the largest private investment and advisory firm focused exclusively on legal and regulatory risk, raising $1.4 billion of institutional capital. Across both organizations, products developed for and deployed into
the legal sector included single-case litigation finance, portfolio funding, risk management & insurance, claim monetization, post-settlement, bankruptcy & insolvency, international arbitration, and patent and intellectual property.
Mr. Gerchen received a B.A. in Business Economics and graduated Magna Cum Laude from Brown University and a J.D. from Harvard Law School.
Richard Levy
serves on the board of directors of the company. Mr. Levy is the Chief Executive Officer and Founder of VPC. Mr. Levy oversees VPC’s investment and operational activities. Mr. Levy is also the chairman of VPC’s Senior Leadership Team and
Investment Committee. Mr. Levy serves as chairman of the board of directors of VPC portfolio company, Giordano’s. He also serves as a member of the board of directors of the following VPC portfolio companies: Caribbean Financial Group since
2018, VPC Pizza Operating Corp. since 2011 and United Automobile Insurance Company since 2018. Previously, Mr. Levy served as head of the Small Cap Structured Products Group and co-head of the Solutions Group at Magnetar Capital. Mr. Levy
also co-founded and served as managing partner at Crestview Capital Partners. Mr. Levy received a B.A. in political science from The Ohio State University, an M.B.A. from the Illinois Institute of Technology’s Stuart School of Business and a
J.D. from Chicago-Kent College of Law. He is a member of the Illinois bar (inactive). Mr. Levy is also chairman of the board of nonprofit, Gardeneers, an active board member of Camp Kesem and he sits on the Board of Trustees for the Illinois
Institute of Technology.
Tom Gazdziak is
the Chief Financial Officer of the company. Mr. Gazdziak joined VPC in 2015 and currently serves as Fund Controller. He oversees VPC’s accounting team in the execution of accounting, finance,
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tax, audit, reporting and treasury related activities for the VPC funds, including
VPC Specialty Lending Investments PLC (LSE: VSL), a VPC managed UK publicly listed investment trust focused on opportunities in the litigation and fintech markets. Mr. Gazdziak joined VPC from PricewaterhouseCoopers LLP where he progressed
through several accounting roles since 2011 within the financial services practice specializing in the banking and capital markets industry. Mr. Gazdziak received a B.S. in accountancy and finance and an M.B.A. in accountancy and financial
analysis from the Kelley School of Business at Indiana University. He is a Certified Public Accountant (inactive).
Senator Joseph I. Lieberman serves on the L&F Board. Senator Lieberman has served as Senior Counsel at Kasowitz, Benson & Torres LLP since 2013. Prior to joining Kasowitz, Senator Lieberman, the Democratic Vice Presidential nominee
in 2000, served 24 years in the U.S. Senate, retiring in January 2013 following the end of his fourth term. During his tenure with the U.S. Senate, Senator Lieberman served as the Chairman of the Committee on Homeland Security and
Governmental Affairs and helped shape legislation for homeland security, foreign policy, fiscal policy, environmental protection, human rights, health care, trade, energy, cyber security and taxes. Prior to being elected to the U.S. Senate,
Senator Lieberman served as the Attorney General of the State of Connecticut from 1983 until 1988. From 1970 until 1980, Senator Lieberman also served in the Connecticut State Senate, including three terms as majority leader. Senator
Lieberman currently serves on the board of directors of Park Hotels and Resorts Inc. (Nasdaq: PK). Senator Lieberman received his B.A. in political science and economics and his J.D. from Yale University.
Albert Goldstein
serves on the L&F Board. Mr. Goldstein is the Founder, Chairman & CEO of StoicLane Holdings, Inc., an investment holding company that is making strategic long-term investments in the digitization of the FIRE verticals (Finance,
Insurance & Real Estate). Prior to StoicLane, he co-founded Avant Inc in 2013, a digital bank for middle-income consumers, and Amount Inc in 2016, a Banking-as-a-Service (BaaS) company helping the largest financial institutions in the
world to digitize and deliver a seamless digital and mobile customer experience. Avant and Amount have raised over $750,000,000 of equity capital from leading investors including Goldman Sachs, Tiger Global and General Atlantic and JP Morgan.
Mr. Goldstein is currently a board member of Spring Labs, a blockchain company and I2R Holdings, a supplier of electricity and solar power. Goldstein has been the recipient of multiple awards for entrepreneurship including winning the Ernst
& Young Midwest Entrepreneur of the Year Award twice and being named to the Crain’s Chicago Business 40 Under 40 list. Mr. Goldstein holds a B.S. in finance and mathematics from the University of Illinois Urbana — Champaign.
Kurt Summers serves on our board of directors. Mr. Summers has twenty years of experience in both private and public sector finance. Mr. Summers has been a Senior Managing Director at Blackstone since January
2022 and previously served as Senior Advisor at Blackstone from November 2019 to December 2021. Mr. Summers has been a Senior Advisor at Ullico and Bridgewater since January 2020 and November
2020, respectively, where he provides insight and strategic direction around various investment opportunities and existing holdings. From March 2021 to January 2022, Mr. Summers served as a member of the Board of Directors
of VPC Impact Acquisitions Holdings III, Inc. prior to its business combination with Dave Inc. From September 2020 to October 2021, Mr. Summers served as a member of the Board of Directors of VPC Impact Acquisition
Holdings prior to its business combination with Bakkt Holdings, Inc. From 2014 to 2019, Mr. Summers served as Treasurer of the City of Chicago, where he managed the city’s more than $8 billion investment portfolio and
served as a trustee or fiduciary of five local pension boards with nearly $25 billion under management. As Treasurer of Chicago, Mr. Summers and his team more than tripled the returns on the city’s portfolio,
which now generates more than $100,000,000 of incremental revenue to Chicago’s taxpayers, bondholders and other stakeholders each year. From 2012 to 2014, Mr. Summers served as Senior Vice President at
Grosvenor Capital Management where he helped lead the firm’s strategy and business development efforts and served as a member of the Office of the Chairman. From 2010 to 2012, Mr. Summers served as Chief of Staff to the
Cook County Board President where he was the architect of a turnaround of the second largest county in the country. From 2009 to 2010, Mr. Summers served as Managing Director at Ryan Specialty Group, an international
specialty insurance organization. Mr. Summers began his career at McKinsey & Company, a preeminent global strategy-consulting firm, and also worked as an investment banker at Goldman Sachs. Mr. Summers
received a B.S.B.A. in finance and international business with high honors from Washington University and an M.B.A. from Harvard Business School.
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Number and Terms of Office of Officers and Directors
The L&F Board consists of six members and is divided into three
classes with only one class of directors being appointed in each year, and with each class (except for those directors appointed prior to our first annual general meeting) serving a three-year term. In accordance with NYSE American corporate
governance requirements, we are not required to hold an annual general meeting until one year after our first fiscal year end following our listing on NYSE American. The term of office of the first class of directors, consisting of Senator
Joseph Lieberman and Albert Goldstein, will expire at our first annual general meeting. The term of office of the second class of directors, consisting of Richard Levy and Kurt Summers, will expire at the second annual general meeting. The term
of office of the third class of directors, consisting of Jeffrey C. Hammes and Adam Gerchen, will expire at the third annual general meeting.
Prior to the completion of an initial business combination, any
vacancy on the board of directors may be filled by a nominee chosen by holders of a majority of our Class B Ordinary Shares. In addition, prior to the completion of an initial business combination, holders of a majority of our Class B Ordinary
Shares may remove a member of the board of directors for any reason.
Pursuant to an agreement entered into concurrently with the issuance
and sale of the securities in the L&F IPO, our Sponsor, upon consummation of an initial business combination, will be entitled to nominate three individuals for election to the L&F Board, as long as the Sponsor holds any securities
covered by the registration and shareholder rights agreement.
Our officers are appointed by the board of directors and serve at the
discretion of the board of directors, rather than for specific terms of office. The L&F Board is authorized to appoint officers as it deems appropriate pursuant to our Existing Governing Documents.
Director Independence
The rules of the NYSE American require that a majority of the L&F
Board be independent. The L&F Board has determined that Richard Levy, Senator Joseph Lieberman, Albert Goldstein and Kurt Summers are “independent directors” as defined in the NYSE American listing standards and applicable SEC rules. Our
independent directors have regularly scheduled meetings at which only independent directors are present.
Officer and Director Compensation
The following disclosure concerns the compensation of our executive
officers and directors for the period from December 31, 2020 through December 31, 2021.
None of our officers or directors have received any cash compensation
for services rendered to us. Commencing on the date that our securities were first listed on the NYSE and the NYSE American through the earlier of consummation of our initial business combination and our liquidation, we pay our Sponsor $10,000
per month for office space, utilities, secretarial and administrative support services provided to members of our management team. We may elect to make payment of customary fees to members of the L&F Board for director service. In addition,
our Sponsor, officers and directors, or any of their respective affiliates are being reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing
due diligence on suitable business combinations. Our audit committee reviews on a quarterly basis all payments that were made to our Sponsor, officers or directors, or our or their affiliates. Any such payments prior to an initial business
combination are made using funds held outside the Trust Account. Other than quarterly audit committee review of such reimbursements, we do not expect to have any additional controls in place governing our reimbursement payments to our directors
and officers for their out-of-pocket expenses incurred in connection with our activities on our behalf in connection with identifying and consummating an initial business combination. Other than these payments and reimbursements, no
compensation of any kind, including finder’s and consulting fees, is paid by the company to our Sponsor, officers and directors, or any of their respective affiliates, prior to completion of our initial business combination.
After the completion of our initial business combination, directors
or members of our management team who remain with us may be paid consulting or management fees from the combined company. All of these fees will be fully disclosed to shareholders, to the extent then known, in the proxy solicitation materials
or tender offer materials furnished to our shareholders in connection with a proposed initial business combination. We have not established any limit on the amount of such fees that may be paid by the combined company to our directors
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or members of management. It is unlikely the amount of such compensation will be
known at the time of the proposed initial business combination, because the directors of New ZeroFox will be responsible for determining officer and director compensation.
Any compensation to be paid to our officers will be determined, or
recommended to the board of directors for determination, either by a compensation committee constituted solely by independent directors or by a majority of the independent directors on the L&F Board.
We do not intend to take any action to ensure that members of our
management team maintain their positions with us after the consummation of our initial business combination, although it is possible that some or all of our officers and directors may negotiate employment or consulting arrangements to remain
with us after our initial business combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business
but we do not believe that the ability of our management to remain with us after the consummation of our initial business combination will be a determining factor in our decision to proceed with any potential business combination. We are not
party to any agreements with our officers and directors that provide for benefits upon termination of employment.
Committees of the Board of Directors
The L&F Board has three standing committees: an audit committee,
a compensation committee and a nominating and corporate governance committee. Subject to phase-in rules and a limited exception, the rules of the NYSE American and Rule 10A of the Exchange Act require that the audit committee of a listed
company be comprised solely of independent directors. Subject to phase-in rules and a limited exception, the rules of the NYSE American require that the compensation committee and the nominating and corporate governance committee of a listed
company be comprised solely of independent directors.
Audit Committee
We have established an audit committee of the board of directors.
Senator Joseph Lieberman, Albert Goldstein and Kurt Summers serve as members of our audit committee. Under the NYSE American listing standards and applicable SEC rules, we are required to have at least two members of the audit committee, each
of whom must be independent, subject to the exception described below. Senator Joseph Lieberman, Albert Goldstein and Kurt Summers are independent.
Albert Goldstein serves as chair of the audit committee. Each member
of the audit committee is financially literate and the L&F Board has determined that Albert Goldstein qualifies as an “audit committee financial expert” as defined in applicable SEC rules.
We have adopted an audit committee charter, which details the
principal functions of the audit committee, including:
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assisting board oversight of (1) the integrity of our financial statements, (2) our compliance with legal and regulatory
requirements, (3) our independent registered public accounting firm’s qualifications and independence, and (4) the performance of our internal audit function and independent registered public accounting firm; the appointment,
compensation, retention, replacement, and oversight of the work of the independent registered public accounting firm and any other independent registered public accounting firm engaged by us;
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pre-approving all audit and non-audit services to be provided by the independent registered public accounting firm or any other
registered public accounting firm engaged by us, and establishing pre-approval policies and procedures; reviewing and discussing with the independent registered public accounting firm all relationships the firm has with us in order to
evaluate their continued independence;
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setting clear policies for audit partner rotation in compliance with applicable laws and regulations; obtaining and reviewing a
report, at least annually, from the independent registered public accounting firm describing (1) the independent auditor’s internal quality-control procedures and (2) any material issues raised by the most recent internal
quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years respecting one or more independent audits carried out by the firm
and any steps taken to deal with such issues;
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meeting to review and discuss our annual audited financial statements and quarterly financial statements with management and the
independent auditor, including reviewing our specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; reviewing and approving any related party transaction required to be
disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction; and
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reviewing with management, the independent registered public accounting firm, and our legal advisors, as appropriate, any legal,
regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies
and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities.
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Compensation Committee
We have established a compensation committee of the board of
directors. Senator Joseph Lieberman and Albert Goldstein serve as members of our compensation committee. Subject to a limited exception, under the NYSE American listing standards and applicable SEC rules, the compensation committee of a listed
company is required to be comprised solely of independent directors. Senator Joseph Lieberman and Albert Goldstein are independent. Senator Joseph Lieberman serves as chair of the compensation committee.
We have adopted a compensation committee charter, which details the
principal functions of the compensation committee, including:
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reviewing and approving on an annual basis the corporate goals and objectives relevant to our chief executive officer’s
compensation, evaluating our chief executive officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our chief executive officer’s based on such evaluation;
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reviewing and making recommendations to the L&F Board with respect to the compensation, and any incentive compensation and
equity based plans that are subject to board approval of all of our other officers;
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reviewing our executive compensation policies and plans;
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implementing and administering our incentive compensation equity-based remuneration plans;
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assisting management in complying with our proxy statement and annual report disclosure requirements;
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approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our
officers and employees;
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producing a report on executive compensation to be included in our annual proxy statement; and
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reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors.
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Notwithstanding the foregoing, as indicated above, other than the
payment of customary fees we make to members of the L&F Board for director service and payment to an affiliate of our Sponsor of $10,000 per month, for up to 18 months, for office space, utilities and secretarial and administrative support
and reimbursement of expenses, no compensation of any kind, including finders, consulting or other similar fees, will be paid to any of our existing shareholders, officers, directors or any of their respective affiliates, prior to, or for any
services they render in order to effectuate the consummation of an initial business combination. Accordingly, it is likely that prior to the consummation of an initial business combination, the compensation committee will only be responsible
for the review and recommendation of any compensation arrangements to be entered into in connection with such initial business combination.
The charter also provides that the compensation committee may, in its
sole discretion, retain or obtain the advice of a compensation consultant, independent legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However,
before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by the NYSE American
and the SEC.
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Nominating and Corporate Governance Committee
Prior to the consummation of the L&F IPO, we established a
nominating and corporate governance committee of the board of directors. Senator Joseph Lieberman and Albert Goldstein serve as members of our nominating and corporate governance committee. Senator Joseph Lieberman serves as chair of the
nominating and corporate governance committee.
The primary purposes of our nominating and corporate governance committee is to
assist the board in:
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identifying, screening and reviewing individuals qualified to serve as directors, consistent with criteria approved by the
board, and recommending to the board of directors candidates for nomination for election at the annual general meeting or to fill vacancies on the board of directors
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developing and recommending to the board of directors and overseeing implementation of our corporate governance guidelines;
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coordinating and overseeing the annual self-evaluation of the board of directors, its committees, individual directors and
management in the governance of the company; and
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reviewing on a regular basis our overall corporate governance and recommending improvements as and when necessary.
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The nominating and corporate governance committee is governed by a
charter that complies with the rules of the NYSE American.
Director Nominations
The Board has nominated each of the current directors to serve as
directors of L&F. Please see the section entitled “Directors and Executive Officers” for more information on the experience of the nominees.
Compensation Committee Interlocks and Insider Participation
None of our officers currently serves, or in the past year has
served, as a member of the compensation committee of any entity that has one or more officers serving on the L&F Board.
Code of Ethics
We have adopted a code of ethics that applies to our officers and
directors. In addition, a copy of the code of ethics will be provided without charge upon request to us and is posted on our website: https://lfacquisitioncorp.com/about/.
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AND RESULTS OF OPERATIONS OF L&F
The following discussion and analysis should be
read in conjunction with the financial statements and related notes included elsewhere in this proxy statement/prospectus. This discussion contains forward-looking statements reflecting our current expectations, estimates and assumptions
concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of
factors, including those discussed in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” appearing elsewhere in this proxy statement/prospectus.
References in this section to “we,” “our” or “us” refer to L&F
Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the
financial statements and the notes thereto contained elsewhere in this proxy statement/prospectus. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and
uncertainties.
Overview
We are a blank check company incorporated in the Cayman Islands on
August 20, 2020 formed for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or other similar business combination with one or more businesses. We reviewed a number of
opportunities to enter into an initial business combination with one or more operating businesses, and entered into the Business Combination Agreement on December 17, 2021. We intend to effectuate the Business Combination using cash derived
from the proceeds of the L&F IPO and the sale of the L&F Private Placement Warrants, our shares, and proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing.
Results of Operations
We have neither engaged in any operations nor generated any operating
revenues to date. Our only activities from inception through March 31, 2022 were organizational activities and those necessary to prepare for the L&F IPO and identifying a target company for a business combination, and activities in
connection with the Business Combination with the Target Companies. We do not expect to generate any operating revenues until after the completion of the Business Combination. We generate non-operating income in the form of interest income on
marketable investments held after the L&F IPO. We expect that we will incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses
in connection with completing an initial business combination.
For the three months ended March 31, 2022, we had a net income of
$6,978,015, which consists of change in fair value of warrant liabilities of $8,724,725 and interest earned on marketable investments held in Trust Account of $16,649, offset by operating costs of $1,763,359.
For the three months ended March 31, 2021, we had a net income of
$10,586,342, which consists of change in fair value of warrant liabilities of $10,825,645 and interest earned on marketable investments held in Trust Account of $8,192, offset by operating costs of $247,495.
Liquidity and Capital Resources
On November 23, 2020, we consummated the L&F IPO of 15,000,000
L&F Public Units, at a price of $10.00 per L&F Public Unit, generating gross proceeds of $150,000,000. Simultaneously with the closing of the L&F IPO, we consummated the sale of 6,859,505 L&F Private Placement Warrants to the
Sponsor and Jefferies LLC at a price of $1.00 per L&F Private Placement Warrant and approximately $1.21 per L&F Private Placement Warrant, respectively, generating gross proceeds of $7,250,002.
On November 25, 2020, we sold an additional 2,250,000 L&F Public
Units for total gross proceeds of $22,500,000 in connection with the underwriters’ full exercise of their over-allotment option. Simultaneously with the closing of the over-allotment option, we also consummated the sale of an additional 728,925
L&F Private Placement Warrants to the Sponsor and Jefferies LLC at $1.00 per L&F Private Placement Warrant and approximately $1.21 per L&F Private Placement Warrant, respectively, generating total proceeds of $787,500.
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Following the L&F IPO, the full exercise of the over-allotment
option, and the sale of the L&F Private Placement Warrants, a total of $175,087,500 was placed in the Trust Account, and we had $1,480,035 of cash held outside of the Trust Account, after payment of costs related to the L&F IPO, and
available for working capital purposes. We incurred $10,050,665 in transaction costs, including $3,450,000 of underwriting fees, $6,037,500 of deferred underwriting fees and $563,165 of other offering costs.
Net Cash Used in Operating Activities
For the three months ended March 31, 2022, net cash used in operating
activities was $312,492. Net income of $6,978,015 was affected by change in fair value of warrant liabilities of $8,724,725 and interest earned on marketable investments held in trust account of $16,649. Changes in operating assets and
liabilities provided $1,450,867 of cash from operating activities.
For the three months ended March 31, 2021, net cash used in operating
activities was $49,844. Net income of $10,586,342 was affected by change in fair value of warrant liabilities of $10,825,645 and interest earned on marketable investments held in trust account of $8,192. Changes in operating assets and
liabilities provided $197,651 of cash from operating activities.
Cash and Marketable Investments in the Trust
Account
At March 31, 2022, we had cash and marketable securities held in the
trust account of $175,126,678. We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account, which interest shall be net of taxes payable and excluding
deferred underwriting commissions, to complete our business combination. We may withdraw interest from the trust account to pay taxes, if any. To the extent that our share capital or debt is used, in whole or in part, as consideration to
complete a business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
At March 31, 2022, we had cash of $263,247 held outside of the trust
account. We intend to use the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar
locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, structure, negotiate and complete a business combination.
In order to fund working capital deficiencies or finance transaction
costs in connection with the Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete the Business Combination, we
may repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that the Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned
amounts, but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants, at a price of $1.00 per warrant, at the option of the lender. The warrants would be identical to
the L&F Private Placement Warrants.
In connection with our assessment of going concern considerations in
accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” we have until August 24, 2022 to consummate an initial
business combination. It is uncertain that we will be able to consummate an initial business combination by this time. If a business combination is not consummated by this date and an extension not requested by the Sponsor, there will be a
mandatory liquidation and subsequent dissolution of L&F. Management has determined that such mandatory liquidation, should a business combination not occur and an extension is not requested by the Sponsor, and potential subsequent
dissolution, raises substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after August 24, 2022.
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Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be
considered off-balance sheet arrangements as of March 31, 2022. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would
have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other
entities, or purchased any non-financial assets.
Critical Accounting Policies
The preparation of financial statements and related disclosures
included elsewhere in this proxy statement/prospectus in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the
following critical accounting policies:
Class A Ordinary Shares Subject to Possible
Redemption
We account for our ordinary shares subject to possible redemption in
accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A Ordinary Shares subject to mandatory redemption is classified as a liability instrument and is measured at
fair value. Conditionally redeemable ordinary shares (including ordinary shares that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within
our control) is classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. Our Class A Ordinary Shares feature certain redemption rights that are considered to be outside of our control and
subject to occurrence of uncertain future events. Accordingly, Class A Ordinary Shares subject to possible redemption is presented as temporary equity, outside of the shareholders’ equity section of our balance sheet.
Warrant Liabilities
We account for warrants as either equity-classified or
liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing
Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC
480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own ordinary shares, among other conditions for equity classification. This assessment, which
requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for
equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are
required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
Net (Loss) Income per Ordinary Share
Net (loss) income per ordinary share is computed by dividing net
(loss) income by the weighted average number of ordinary shares outstanding during the period. We apply the two-class method in calculating earnings per share. Accretion associated with the redeemable Class A Ordinary Shares is excluded from
earnings per share as the redemption value approximates fair value.
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Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 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” (“ASU 2020-06”), which simplifies
accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and
it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. We
adopted ASU 2020-06 effective as of January 1, 2021. The adoption of ASU 2020-06 did not have an impact on our consolidated financial statements.
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The following discussion reflects the business of
New ZeroFox, as currently embodied by each of ZeroFox and IDX. “We,” “us” and “our” generally refer to ZeroFox, Inc. (together with its subsidiaries, “ZeroFox”) in the present tense or New ZeroFox following the business combination, as the
context requires.
Who We Are
ZeroFox is an enterprise cybersecurity software-as-a-service company
that addresses the full lifecycle of external cyber threats and risks for its customers. External cybersecurity encompasses the threats that target internet accessible systems, devices and digital assets that exist beyond the protection of an
organization’s endpoint and firewall systems. The ZeroFox platform addresses these risks by providing enterprises external threat intelligence and protection to disrupt attacks and threats to brands, people, systems, assets and data, and
respond to data breaches across the internet.
Organizations are increasingly challenged by cybercriminal activity,
with the number of employee and customer records compromised exceeding tens of billions annually. The ZeroFox platform goes beyond traditional threat intelligence to protect organizations from threats outside the firewall with AI-driven
analysis, experienced intelligence analysts with unique dark web access, and comprehensive breach response and adversary disruption services. The ZeroFox platform enables actionable intelligence to disrupt phishing, impersonations, malicious
domains and data leakage.
ZeroFox provides customers with an innovative and comprehensive
platform for digital attack detection and protection. The ZeroFox platform is powered by patented artificial intelligence innovations, full spectrum threat intelligence, and response and disruption capabilities that are designed to detect
external threats to brands, people, systems, assets and data across a customer’s public attack surface and dismantle and remediate attacks against those brands, people, systems, assets and data. Our patented technology collects and processes
millions of pieces of content, rich media, posts, messages, global intelligence and threat actor activity across the digital landscape, including social media sites, public, deep and dark web forums, mobile app stores, code repositories, and
thousands of digital platforms and discrete content sources. From the data we collect and process, we can identify and remediate issues like targeted phishing attacks, credential and account compromise, data exfiltration, and brand hijacking
threats. With the growing digital presence of enterprise organizations, our modular ZeroFox platform is designed to meet the external cybersecurity needs of our customers as well as enable the ZeroFox platform to quickly add new capabilities.
Our Story
ZeroFox, a Washington, D.C. metro-based company, was founded in 2013,
based on the recognition that the emergence and adoption of social media, mobile applications and cloud computing by enterprise organizations would fundamentally change the cybersecurity paradigm. Social media represents much more than a
platform where individuals connect online. The adoption of social media has also revolutionized the way that people communicate with each other and, subsequently, how enterprises and organizations enable communication among employees,
customers, partners, and prospects. Mobile applications accelerated the digital transformation in which earlier versions of the web would need to become interactive and persist across multiple modern mediums. Furthermore, cloud computing’s
continued evolution and adoption demonstrate how organizations are more comfortable with data residing beyond their traditional security perimeter outside of the historical boundaries of IT governance and control.
An increasingly large number of businesses, including those in
industries that were slower to adopt digital technologies, have adopted social media, mobile applications and cloud computing, with critical digital assets now residing outside of traditional firewalls. These organizations now offer mobile and
web applications as a key driver of their revenue production in order to make customer access easier, transactions smoother, and their services more engaging. These same organizations have aggressively embraced social media and digital channels
to interact and transact with customers, vendors, and partners. This dramatic shift has created an enormous digital footprint on the “public” internet, expanding the attack surface to include all externally available digital platforms. These
public platforms are largely ungoverned, unmonitored and unprotected by existing perimeter and internal security technologies. This public attack surface exposes these organizations and their respective communities to targeted cyberattacks,
data loss, phishing scams, compliance violations and account takeovers.
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The COVID-19 Pandemic has further accelerated the movement toward
a digital-first strategy for an increasing number of organizations. Given the shift to work-from-home arrangements and consumers’ increasing reliance on digital engagement for services, organizations and their security teams must continue to
implement new security strategies that protect against external digital threats to ensure trust and reduce risks. The modern enterprise IT infrastructures are commonly characterized by greater decentralization, cloud-based collaboration, and a
growing dependency upon cloud-hosted operating systems. Growing attacks on this external attack surface will drive the need for advanced, innovative, artificial-intelligence-powered external cybersecurity solutions, such as ours.
ZeroFox has completed strategic acquisitions that have expanded our
platform’s core capabilities and provided important additions of human talent, technology and intellectual property, customers and revenue. ZeroFox acquired Cyveillance, a business unit of Lookingglass Cyber Solutions, Inc, in September 2020
and more recently, we acquired Vigilante ATI, Inc. in June 2021. As part of the Business Combination, ZeroFox will materially enhance its platform by acquiring IDX, a provider of digital privacy protection and breach response services.
IDX, a Portland, Oregon-headquartered company, was founded in 2003
with a mission to address the growing risks that stem from emerging external cybersecurity threats and data breaches that result in expanding corporate fraud and harms to an organization’s employees, customers, and partners. The IDX enterprise
platform protects individuals from the risks of privacy compromise and identity cybercrime and remediates the negative effects that can result. As organizations began to experience cybersecurity attacks and breaches at a growing frequency and
severity, IDX expanded its platform offering by providing data breach response services, leveraging its digital protection platform that enable organizations to comply with cybersecurity laws and regulations, and associated corporate risks. The
IDX business is poised to benefit from this tailwind, serving organizations of all sizes that have experienced an attack, breach, or cyber compromise.
Following the consummation of the Business Combination with IDX,
IDX’s technology will be fully integrated into the ZeroFox platform in order to enhance the platform to support expanded use cases, additional cross-sell synergy opportunities between ZeroFox’s and IDX’s customer bases and future growth. The
combined businesses will create a unique competitive advantage by providing external threat protection capabilities and breach response services, for companies protecting against, or responding to, an external cyberattack, effectively capturing
the entire lifecycle of the external cybersecurity market.
Industry Overview
Enterprise cybersecurity, compliance, governance and risk management
teams are under-resourced and overwhelmed with an influx of issues and high-priority threats, and they lack purpose-built applications to successfully address external cyber threats and risks. Consequently, organizations are insufficiently
prepared to deal with external cyber threats and risks and may fall victim to cybercrime. In general, external threats, unlike internal threats and risks that may be caused by disgruntled or untrained employees, are comprised of individuals
that are not employees or affiliated with an organization and where the attacking infrastructure is not within the logical or physical confines of an organization’s network. Successful external cyberattacks may result in both loss of revenue
and increased liability following the compromise or breach of sensitive customer data or intellectual property, as well as business disruption, extortion, impaired reputation and the need to provide for regulatory compliance.
Cybersecurity leaders need a single source of truth and a
consolidated external cybersecurity platform to provide broad visibility and defensibility in the digital-first world. External cybersecurity solutions call for the ability to quickly assess and understand an organization’s digital horizon, to
then correlate that information, and, ultimately, take action to prevent attacks, limit exposure, remediate an incident and disrupt the adversary. This area of the cyber landscape is becoming increasingly relevant, since malicious events can
become major disruptors of a business, its brand, reputation, supply chain, ability to interact online, conduct commerce, and operate in a normal course.
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As illustrated in the following diagram, our view of the emerging
external cybersecurity market is large and security and risk teams need to address several different threat vectors daily with converging technologies and workflows.
TAM is based on 2025 Estimates of each segment.
1) “Vulnerability & Attack Surface Management” by Markets and Markets (May 2020). 2)“ID Protection / Privacy” by Research and Markets (October 2020). 3)“Cyber Threat Intelligence” by Verified Market research (August 2020) and “SOAR Market”
by Adroit Market Research (July 2020). 4)“DRP Market” by Futuremarketinsight (September 2020) and “MSS Market Share” by Gartner (December 2020).
The external cybersecurity market opportunity encompasses the
simultaneous management of several different technology segments that include but are not necessarily limited to the following critical components:
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Digital Risk Protection: the discipline of identifying and protecting the brand or brands, mobile applications, domains,
executives, digital accounts, locations and the overall digital footprint of an organization.
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Cyber Threat Intelligence or Advanced Threat Intelligence: the monitoring of platforms, forums and underground internet
marketplaces for threat intelligence content that pertains to companies, people and their inherent risk postures, and the reporting of relevant threat intelligence.
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Attack Surface Management: the awareness, understanding and continuous identification of the total set of technology systems and
digital platforms that an organization has exposed to the open internet and is visible to both the organization and their potential adversaries. The attack surface includes technologies ranging from corporate firewalls and routers to
cloud instances, mobile devices and IoT/EoT devices as well as IP addresses, domains, networks and hosts’ names.
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Vulnerability Management: the process of identifying, assessing, remediating and reporting security vulnerabilities in software
and systems that attackers can potentially use to compromise a device and repurpose as a platform to extend and compromise a network.
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Breach Response: the processes and corresponding courses of action to analyze and mitigate the potential negative impact and
harms caused by the breach of an organization’s data, which includes
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notifying individuals whose sensitive personal information may have been exposed in an
unauthorized manner by the breach, and taking steps, including providing protection software and services, to address the risks of harm to the affected individuals and the organization, as a result of the breach.
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Security Orchestration and Automation: the process of integrating a disparate ecosystem of required security tools and processes
to automate tasks for simpler, more effective security operations, enabling analyses of relevant data, and the timely correlation and orchestration of the actions to take in order to mitigate risk and loss.
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In an increasingly digital-first world, we believe that organizations
need personnel, systems, and software, combined with continuous identification, protection and breach response capabilities to effectively manage the external cybersecurity landscape. Organizations attempt to manually integrate data, workflows
and responses across multiple vendors, the collective effort of which is sometimes referred to as “swivel chair security.” Security teams become fatigued after failing to align these critical processes. Unintegrated security systems and
platforms that produce threat data without the capability to take remediation actions can become burdensome to cybersecurity teams. A platform-based approach, such as the ZeroFox platform, that is designed to provide an organization with
results and demonstrated outcomes offers a more successful solution to their external cybersecurity needs. These outcomes include efficient and aggregated content with context and, most importantly, actions to keep organizations, people,
assets, and intellectual property more secure.
Industry Trends
Cybersecurity and related threats such as ransomware and data
breaches are top-of-mind for governments and corporations around the world. The macro level changes driving the digital-first world will continue for the foreseeable future, driving the need for external cybersecurity solutions. A 2020 Gartner
research report forecasted that the penetration of the target audience for digital risk protection services will increase from 1% to 10%, representing a 1,000% increase in the adoption of digital risk protection solutions by organizations in
less than a five-year period.
We believe that the following trends will continue to increase the
demand for external cybersecurity solutions:
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The increase in remote work is likely to continue. This shift toward working more from
home, or in a hybrid home/office arrangement, is likely to drive decentralization of corporate IT beyond the protection of the traditional perimeter, resulting in a greater chance of adversarial risk being introduced into an
organization’s systems, applications, and workflows.
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A continued acceleration of digital adoption, including emerging businesses that disrupt
industries with new and unique technologies, is likely to continue. As the adoption of digital technologies continues, people will likely use a greater breadth of devices. We expect that this pattern will continue, with
increased reliance on mobile phones and tablets before expanding into devices integrated into new automobiles, homes, other business and personal devices—all representing an expansion of the potential attack surface for malicious actors
targeting an organization, its employees and customers.
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We will likely see a continued increase and evolution in cybercrime and ransomware. As
a result of organizations’ and governments’ inabilities to proactively identify, track, stop and convict criminals that operate on the open internet or criminal underground, or outside the jurisdiction of authorities where hacks occur,
cyberattacks, rampant financial fraud, abuse and extortion will likely continue to compromise organizations, intellectual property and nation-state secrets.
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Continued fragmentation of the cybersecurity industry with organizations providing point
intelligence, protection and response solutions or capabilities is also likely to continue. Other cybersecurity providers may add external threat intelligence and digital risk protection capabilities but may lack the technical
expertise and operational experience that we have built into our consolidated and unified platform over the last decade to create a competitive advantage.
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We will likely see an increase in cybersecurity protections and government requirements,
combined with multidimensional enforcement by regulators. Cybersecurity laws already exist in many U.S. states, and we are beginning to see new enhancements and further regulation passed by
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states, including California and Virginia. The passage of expanded and additional
state laws is likely to propel the trend toward a patchwork of provisions and requirements that increase the pressure on organizations to enhance their cybersecurity and compliance. Several new cybersecurity bills are pending in the U.S.
Congress. Additionally, many national and multinational data protection laws, led by the General Data Protection Regulation (GDPR) in the European Union further add pressure for enhanced cybersecurity.
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There will be a continued shortage of adequate and qualified, well-trained cybersecurity staff
for enterprises and governments. Organizations face a critical shortage of experienced cyber-trained talent. According to CyberSeek in partnership with the National Initiative for Cybersecurity Education (NICE), led by the
National Institute of Standards and Technology (NIST), in the United States alone, as of January 2022, over 500,000 positions were open for cybersecurity professionals. Companies are recruiting for technical automation and 24x7 support
personnel to augment and complement already strained operations and staff processes.
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Consequences of cybersecurity breaches have become more severe. An ongoing wave of
high-profile breaches in multiple industries has exposed a broad range of data. The monetary and reputational cost of these breaches, whether malicious or inadvertent, is increasing rapidly, and the regulatory and compliance risks can
result in levied fines and penalties, as well as the need to implement new technologies.
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Growth Strategy
ZeroFox intends to deliver exceptional and innovative external
cybersecurity solutions that prioritize customer satisfaction and business resiliency. Embracing these priorities, we are pursuing the following growth strategies:
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Drive new customer acquisition and adoption through innovation. We intend to grow our
base of new customers by serving them with our artificial intelligence capabilities provided by the ZeroFox platform. This platform-based approach enables us to build trusted relationships while providing security outcomes on use cases
that our customers value.
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Expand high margin business. We intend to focus on and continue to grow our higher
margin enterprise platform subscription business in industry verticals that are experiencing the highest rates of cyberattacks.
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Expand relationships with partners. We also intend to continue to build our
relationships with our channel partners, including Value-Added Resellers (VARs), Original Equipment Manufacturers (OEMs) and distribution partners, as well as cyber insurer and legal breach response partners.
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Increase adoption and platform usage by current customers. As we enhance our platform’s
capabilities, we expect that our customers will choose to adopt and purchase additional platform modules and services to address additional external cybersecurity use cases and security pain points.
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Expand our global footprint. We intend to continue to grow our international customer
base by increasing our investments in our international go-to-market efforts, operations, partners and delivery capabilities.
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Expand our total addressable market through strategic acquisitions. We intend to
complement our organic growth investments with strategic acquisitions in complementary technologies and markets to successfully execute on our long-term vision and platform strategy. We have proven our capability to identify, acquire
and integrate targets to expand our TAM, enhance our solution offering, and accelerate our growth.
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ZeroFox Solutions
ZeroFox provides mission-critical external cybersecurity solutions to
customers around the world. Customers rely on us to address important cybersecurity problems and challenges that they face today and look for our guidance regarding the problems they will face tomorrow. The ZeroFox platform is a cloud-native
enterprise software-as-a-service application focused on providing external cybersecurity teams with comprehensive solutions to address external cybersecurity threats and risks. Our platform employs continuous digital identification and
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detection, comprehensive threat intelligence and persistent adversary disruption to
support a wide variety of cybersecurity use cases that address pervasive business challenges. Our customers’ adoption of the ZeroFox platform commonly begins with the purchase of one or two core components and grows over time. Our platform
features a comprehensive set of capabilities as visually depicted in the following diagram:
ZeroFox Protect:
ZeroFox Protect enables organizations to configure protective capabilities to continuously identify and protect their external assets. Our digital risk protection capabilities cast a digital net around owned assets across the internet
including digital representations for the organization’s brands, identities, systems, executives, accounts, domains, and mobile applications to secure their digital presence against targeted attacks, protect privacy, and decrease fraudulent
activity across the internet. These capabilities include:
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Account Protection: the protection of digital accounts to protect those accounts from suspicious activity, impersonation,
takeover, and compromise.
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Brand Protection: the intelligent identification of threats to brands to decrease the reach and efficacy of attacks.
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Executive Protection: the enabling of comprehensive control and protection for an executive’s digital footprint to ensure it is
free of impersonations, sensitive data leakage and other cyber risks.
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Domain Protection: the continuous scanning of the internet for malicious and infringing domains to decrease the effectiveness of
targeted attacks.
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Identity and Privacy Protection: identifying and protecting an individual’s digital footprint in order to detect and address
potential threats and compromises to the personal information and to ensure the individual’s footprint is free of impersonations, sensitive data leakage and other cyber risks.
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ZeroFox Predict:
ZeroFox Predict provides customers with a broad array of global threat intelligence solutions that assist with predicting emerging new threat vectors. We provide threat intelligence solutions that enable customers to directly search across
our data lake of global threat indicators, tactics, adversary intelligence, exploits, vulnerabilities, and security tools. Additionally, customers can request advanced cyber-criminal investigations or engagement, or customers can directly
import data into their ecosystem to power other security tools and workflows. ZeroFox Predict includes:
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Threat Hunting: a platform to search, in real-time, strategic, operational, and tactical global threat intelligence.
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Advanced DarkOps Investigations: our multilingual research and intelligence team allows for embedded interaction across the deep
and dark web forums as a specialized capability that can be leveraged for advanced adversary investigation and disruption.
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Global Data Feeds: aggregated data of intelligence collections across the internet to ingest relevant threats and indicators of
compromise findings into a customer’s technology stack.
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ZeroFox Detect: ZeroFox Detect, powered by proprietary artificial intelligence, gives customers real-time asset and vulnerability awareness for their external-facing internet digital footprint. This component of our platform provides technical
capabilities to execute continuous attack surface identification and detection, which empowers the customer to gain an up-to-date picture of its internet accessible digital footprint. The digital presence typically includes social media and
collaboration platform accounts, domains, internet facing infrastructure, such as port, data, content, and images. More specifically, this component includes the following identification and detection capabilities:
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Domains: continuous domain monitoring and analysis for malicious indicators is required to ensure capturing the domain when it
is hosting malicious content, code, or payloads.
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Digital Platform Accounts: a catalogue of owned digital accounts for brands, executives, individuals, locations, products, to
adequately know how and when to secure assets.
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Internet-accessible Infrastructure: ensures the mapping of the external internet facing infrastructure, externally-accessible
networks and digital infrastructure components.
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Public, Private, and Proprietary Data, Content, and Images: the collection and analysis of data, content, images, and other
information anywhere sensitive public, private, and proprietary information may reside on the internet to better secure the customer’s enterprise.
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ZeroFox Response: ZeroFox Response enables organizations to provide the required 24x7 level of support necessary to quickly respond to external attacks, incidents, data loss or exfiltration, or potential breaches. ZeroFox Response is a combined
offering built from the combined capabilities of the ZeroFox and IDX platforms. With the global increase in computer generated information and data that is stored in the cloud, nearly every organization is more vulnerable to some levels of
external cyber threats and risk. These threats and risk are often eventually exploited by persistent malicious actors and criminals around the world resulting in breaches and compromise of varying intensity and scale. ZeroFox Response enables
our customers to reduce overall enterprise risk by responding to these situations responsibly, in a timely manner, and in compliance with regulatory requirements. Capabilities include:
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Response: responding to a breach frequently requires operational rigor and constant communications with affected organizations
and individuals. We execute this often-regulatory requirement on behalf of our customers by providing a 24x7 call center, publicizing extensive FAQs tailored for the particular breach incident and maintaining required compliance
services. This capability is an offering on the IDX platform today.
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Protection: in addition to providing responses services, regulated enterprises are often required, to provide ongoing protection
services to compromised individuals to address their risks of harm. Our platform provides software to detect and address these risks, combined with complementary concierge-style services. This capability is a combined ZeroFox and IDX
offering.
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ZeroFox Disrupt:
ZeroFox Disrupt leverages our platform to report, block, and take down an attack’s core components across the internet. These malicious command and control threats often take a significant amount of time to comprehensively identify and then
remove from the internet. We support customers by decreasing this significant cost through automation and leveraging technically-enabled solutions to report, block, deny lists, sinkhole and take down the components of an attack across the
internet. By working with our global disruption network, we are able to block and redirect traffic from malicious and nefarious locations. Capabilities include:
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Takedowns: the scalable execution of content removal on relevant platforms on the customer’s behalf.
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Disruption-as-a-Service: collaborating with partners to block internet traffic from navigating to malicious locations across the
web.
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The ZeroFox Platform
The ZeroFox platform is powered by patented artificial intelligence
capabilities and is built on a modern cloud-native technology architecture that supports our core capabilities and solutions. Our engineering teams, which are aligned by scrum development methodology, deploy code updates and improvements to our
platform on a continual delivery basis. Additionally, our customers and partners alike can easily use and implement integrations to our platform with other vendors. This integrated ecosystem, which is built on top of our platform
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APIs, enables us to extend an organization’s technology investment in ZeroFox thereby
maximizing our customers’ investments in other cybersecurity categories such as endpoint, network, identity, security event management, security orchestration and automation, and IT service management. Our App Library has hundreds of connected
applications, or “apps”, that allow our customers to integrate our platform into their operational and security processes. We also provide our platform capabilities to customers via enterprise mobile apps available from the Google Play and
Apple App Stores. The following diagram depicts the type of data our platform collects and artificial intelligence we have implemented in the ZeroFox platform.
The ZeroFox platform’s transparent artificial intelligence-powered
engine curates content and distills the most critical issues of open source intelligence. We also leverage our research analysts to provide context and review of additional platforms, forums, and marketplaces in the form of human intelligence
to create a more holistic and complete view of the threat landscape. Our customers’ cybersecurity teams utilize this intelligence to make informed decisions regarding remediation actions.
The patented artificial intelligence-powered engines in the ZeroFox
platform enable automation and analysis-at-scale in several key areas. The ZeroFox platform has implemented artificial intelligence capabilities in machine learning, natural language processing, computer vision and deep learning. An example of
our computer vision capabilities includes embedded image identification where we can train our algorithms to find images within images. This is particularly useful when looking for objects like company logos and credit cards. An additional
example of our approach and implementation of advanced optical character recognition (OCR) enables us to extract characters and words regardless of language from images for further automated computer analysis. Our modular approach to artificial
intelligence design and implementation has enabled us to use our components individually or in combination with each other to help address external cybersecurity challenges.
We employ a proprietary technology backend and have optimized our
platform to provide a customer-centric turnkey user experience from a customer’s initial onboarding and configuration to ongoing use, reporting and analytics and maintenance. Our platform can be quickly configured, effectively optimizing our
customer’s experience by minimizing their time-to-value and time to implement enhanced security controls.
Operationally, our around-the-clock OnWatch managed security team
strives to become the natural extension of our customer’s security operations center. The ZeroFox platform is coupled with internal runbook integrations and workflows that allow for and enable global reach, response and capacity. OnWatch teams
are deployed in locations around the world to provide customers prompt follow-the-sun operational experience.
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We have extended the ZeroFox App Library to integrate with the
ZeroFox platform with the essential vendors within an organization’s security and information technology tech stack. These integrations add value to our customers by providing enhanced visibility and threat intelligence context. The following
diagram is a visual example of technologies that the ZeroFox platform through the ZeroFox App Library can integrate with in an organization.
A robust digital-first information security strategy warrants a
comprehensive approach that is aligned with known security standards such as NIST and ISO to support external cybersecurity demands. Security teams need an integrated digital risk protection suite with capabilities needed to secure the public
attack surface focusing on identification protection, intelligence, disruption and breach response. ZeroFox has been recognized as a cybersecurity leader by industry analysts, including the 2018 Forrester Digital Risk Protection Wave, and has
collected top industry awards such as Red Herring Top 100 North America, the SINET16 Champion, Dark Reading’s Top Security Startups to Watch, Best of Black Hat and the 2015 Security Tech Trailblazer of the Year.
Our Customers
As of April 30, 2022, the combined companies had over 2,100
customers, including 3 of the Fortune 10, protecting over 40,000,000 digital assets, including over 1,200 customers from our acquisition of IDX. We have key reference customers in many industry verticals to include but not necessarily limited
to education, energy, entertainment, financial services, government healthcare, media, retail, services, and technology that we believe validate our solutions in the market, and our customers range from small and medium-sized organizations to
Fortune 500 companies.
On a combined basis, excluding IDX’s contract with OPM, which will be
acquired as part of the Business Combination, no single customer accounted for more than three percent (3%) of our revenue in fiscal 2022. OPM will continue to be a meaningful revenue-generating customer and the details are included within the
audited financials in this filing. See “IDX History and Business Overview.”
Case Studies
Top Financial Institution
Customer Overview & External Cybersecurity Challenge: A large
financial institution with significant assets under management, thousands of employees, and several lines of business and offerings strives to be a financial services cybersecurity thought leader. This desire and objective has manifested itself
through thoughtful and robust cybersecurity programs and frameworks, consistent investments in best-in-class human talent and the implementation of best-of-breed innovative technologies to mitigate risk throughout the organization. Similar to
other large financial institutions, this organization was continuously targeted by external attackers with ongoing threats of impersonations, domain spoofing, attempted reconnaissance and exploitation of internet accessible systems, malicious
and fraudulent mobile applications, and phishing attacks.
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Solution: The financial industry thought leader conducted an
early-market evaluation of vendors in fiscal year 2014 that were focusing on niche areas in what would become the external cybersecurity market. ZeroFox was selected given our investments in threat intelligence, attack detection and disruption
and has repeatedly partnered with this organization to expand the usage of the platform, drive adoption of artificial intelligence and new global operation center capabilities and increase the number of subscriptions.
The Business Result for ZeroFox: This customer’s revenue grew six
hundred percent over the past seven years to be a multi-million-dollar annual account with a multi-year go-forward contract.
Leading Automotive Manufacturer
Customer Overview & External Cybersecurity Challenge: A global
automotive manufacturer with global manufacturing capabilities to include a global hybrid employee and contracted workforce prides itself on being an industry leader in enterprise risk management. As a global corporation, enterprise risk
management includes but is not limited to workforce safety, product quality assurance, customer safety and cybersecurity risk management. Even with robust security controls, an incident occurred, and millions of customer records were exposed
externally.
Solution: The company moved quickly to bring in external
cybersecurity assistance knowing there could be legal liability in addition to regulatory and compliances issues due to the incident. We were selected as the provider of choice given our platform’s deep technical capabilities, our proven
experience to manage cybersecurity incidents for large, complex organizations and our unique capability to provide both reactive and proactive external cybersecurity services.
The Business Result for ZeroFox: We closed an initial million-dollar
contract with this customer and see multiple opportunities for creating a more meaningful partnership with them in the future.
Mission Critical Organization
Customer Overview & External Cybersecurity Challenge: A mission
critical organization with a rich legacy in investing in best-of-breed cybersecurity technologies to protect sensitive information and intellectual property experienced an increased level of persistent external cyberattacks. The organization
acknowledged that these external cybersecurity attacks were growing in volume and sophistication and ultimately became aware of a successful breach of their security controls.
Solution: The organization executed on a commercially quick
competitive process to identify a solution provider: technology, services, or some combination thereof to assist them with the incident and breach. IDX was selected as the breach response provider for this organization and ZeroFox was
subsequently identified and selected as the external cybersecurity provider of record to further secure this organization’s internet accessible footprint with threat intelligence, digital risk protection services, and disruption capabilities.
The Business Result for ZeroFox: We closed an initial opportunity via
a short sales cycle for reactive services and then subsequently closed a meaningful proactive services upsell opportunity representing over forty times the initial deal value.
Acquisition Strategy and IDX Combination
ZeroFox has successfully completed strategic acquisitions that have
expanded our platform’s core capabilities. These acquisitions have provided ZeroFox with incremental value through the addition of human talent, technology and intellectual property, customers, and revenue.
IDX History and Business Overview
IDX was founded in 2003 and over the course of more than ten years
built an enterprise-grade digital privacy protection and breach response services business. In 2015, IDX was awarded a three-year, $330 million contract by the U.S. Office of Personnel Management (OPM) and the U.S. Department of Defense (DoD)
to provide protection services covering approximately 21,500,000 current and former federal government employees and contractors that were impacted by the breach of OPM personal background investigation records. Earning this award required IDX
to comply with rigorous government security standards, making the IDX data breach
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response business well-positioned to further serve organizations that experience
large-scale data breaches. IDX believes winning this award resulted in further market validation, increased visibility, and enhanced reputation for IDX as a leading data breach response provider in the United States by revenues.
In 2018, OPM expanded the value of contract award to approximately
$460,000,000 over a term of another 5.5 years making it one of the largest cybersecurity contracts awarded. This expanded contract was also awarded to IDX. IDX’s performance under this contract further validated IDX’s belief that it is a
leading platform provider for both government and commercial data breach response services in the United States by revenues.
Many of the IDX government awards are subject to a competitive bid
process and are awarded on the basis of technical merit, personnel qualifications, experience and price. Our future revenues and income could be materially affected by changes in government procurement policies and related oversight, and other
risks generally associated with government contracts. Our eligibility to perform under our federal government contracts requires us to maintain adequate security measures. We have implemented security technologies and procedures that we believe
adequately satisfy the requirements of our federal government contracts.
Synergies with IDX
ZeroFox’s combination with IDX will bring significant, tangible
strategic benefits to the combined value proposition for our customers. In many cases, IDX customers do not have adequate external cybersecurity solutions for their internet accessible attack surface, which creates opportunities for the
combined company to introduce IDX customers to the ZeroFox AI-powered protection platform to enhance their cybersecurity readiness and posture.
Likewise, with IDX, ZeroFox can now provide enhanced digital privacy
protection and data breach response services to enterprise customers. This expands the ZeroFox external cybersecurity value proposition to create powerful benefits for our customers by addressing full lifecycle risks and consolidating
everything needed to address external attacks and inevitable breaches under one trusted party and platform. This combined offering will provide new customers a single solution to address the entire external cybersecurity lifecycle.
IDX’s cloud-native and modular platform already has integrations with
the ZeroFox platform. Additionally, the IDX software development lifecycle aligns closely with ZeroFox’s development best practices, including an agile development methodology, continuous integration and continuous deployment processes, and the
use of microservices and container technologies in a cloud-native hosting environment. The combined platform provides New ZeroFox with competitive advantages by leveraging a highly scalable architecture, extensive security and compliance
certifications, and a flexible and customizable platform that can be rapidly configured to meet customer needs and easily integrated with our customers’ existing software applications.
Acquisition of Vigilante
On June 7, 2021, ZeroFox acquired Vigilante ATI, Inc. Vigilante
provides customers with a clear view of the cybercriminal underground economy through the Vigilante cloud-based platform. The platform clearly depicts potential indicators of attack and compromise on customers’ infrastructure, whether their
credentials, financial information, personally identifiable information, and other sensitive information is being traded, and helps contextualize tactics, exploits, and vulnerabilities that are leveraged against enterprise organizations. This
strategic tuck-in transaction accelerated ZeroFox’s ability to further deliver enhanced threat intelligence collection, analysis and hunting capabilities to large scale enterprise customers.
Acquisition of Cyveillance
On September 30, 2020, ZeroFox acquired the Cyveillance business unit
and related assets from Lookingglass Cyber Solutions, Inc. Cyveillance’s tradecraft and intellectual property are based on decades of experience in providing top enterprise organizations with threat intelligence, cybersecurity, brand, and
executive protection services. This transaction broadened our ability to deliver a suite of digital risk protection solutions powered by global threat intelligence to enterprise customers.
ZeroFox Sales and Marketing
Our sales team is bifurcated into two sub-organizations: a new
customer acquisition team and an existing customer account management team. These teams are further structured into named-account sales teams that focus on a broad target of customer verticals and regions ranging from enterprise to small and
medium-sized
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businesses. Most of our current business is currently in North America and as such,
the team is proportionate in size and focus to our customer base. Members of the account management team are focused on creating successful customer outcomes, renewing customer subscriptions, and expanding platform adoption to drive customer
upsell values.
In alignment with our corporate strategy, ZeroFox is a channel-first
organization. Our go-to-market strategy leverages our partner community to reach our desired customer cohorts. In North America, ZeroFox generally relies on a single tier value-added reseller and partner community. In other regions, ZeroFox may
employ a two-tiered approach by leveraging a network of distributors who manage the various channel partners within desired territories or regions.
ZeroFox’s comprehensive marketing strategy focuses on an inbound
marketing model designed to deliver high efficacy contact-to-opportunity conversion rates and efficient pipeline velocity. We execute field, partner, and demand programs to drive ongoing engagement with prospects and leverage our sales
development organization to mature those engagements into sales pipeline opportunities. Once prospects become customers, we continue engagement with solution-oriented content created by ZeroFox experts and executives through numerous
collaboration channels designed to drive increased customer revenue and optimize our customers’ long-term value. Additionally, we conduct webinars and podcasts, participate in cybersecurity industry events, and utilize our product marketing
team to drive market awareness through thought leadership. The sophistication and experience of the ZeroFox threat intelligence enables us to productize our thought leadership into daily and weekly threat intelligence reports, quarterly threat
landscape reports, and annual threat reports. Other tactics leveraged to maximize inbound traffic include paid media, content syndication, social media, outbound campaigns, public relations, and remarketing advertising. These tactics frequently
rely on the ZeroFox website to drive awareness, education, and opportunity conversion on the ZeroFox platform’s broad set of artificial intelligence capabilities. Furthermore, the website has been optimized to assist with this lead conversion
in mobile, tablet and traditional desktop engagements. Marketing automation workflows continuously engage prospects throughout the buyers’ journey with thought leadership and solution-centric content to advance their understanding of the
ZeroFox solution’s business value proposition.
Our global field and partner marketing strategy is designed to
maximize the leverage of partner ecosystems and build brand engagement at regional and territory levels to drive and accelerate pipeline growth. Additionally, we have strong participation in many significant cybersecurity conferences and trade
shows across many global geographies to expand our brand reach. In alignment with our sales approach, we also have a channel-first sales and marketing strategy. To support this strategy, we have a technology-enabled way to communicate and
collaborate with partners at all sales lifecycle stages, from demand generation through technical validation and close. We believe that we have a state-of-the-art partner portal that allows global partners to take advantage of all aspects of
our marketing strategy, content and accelerated readiness around rapid product innovations to drive demand within their customer base and ensure their technical and sales staff’s readiness.
Competition
The market for our platform and services is competitive and
characterized by rapid changes in technology, customer requirements, industry standards, and by frequent new product and service offerings and improvements. Today, we see competition from the following by general categories:
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digital risk protection providers such as Proofpoint, Mimecast and Recorded Future who primarily focus on select niche
sub-sector categories within security or take more of an investigative-focused approach;
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broad infrastructure security vendors such as CrowdStrike, Palo Alto Networks and Rapid7, through its acquisition of IntSights,
who are supplementing their traditional endpoint or network security solutions with threat intelligence solutions;
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identity protection providers that typically compete with IDX such as Norton LifeLock, Experian, and Transunion who are focusing
on driving consumer awareness and adoption of credit-related protection services; and
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managed security service and system integrator solution providers such as Secureworks (formerly Dell Secureworks), IBM, and
Accenture who are using people to augment their combined technology offerings.
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We believe that our external cybersecurity solutions offer
advantages as compared to products offered by our competitors based on the following factors:
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ability of our platform to address the entire external cybersecurity lifecycle with protection, prediction, detection, response
and disruption associated with cyberattacks and incursions;
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ability of our artificial-intelligence powered platform and human threat intelligence team to acquire global data sets at scale
on behalf of our customers;
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ability of our platform and related service capabilities to assist our customers from the discovery of a potential cyber breach
through notification and protection of those affected by addressing their risks of harm;
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ability of our platform to leverage artificial intelligence to analyze data efficiently and effectively at scale to help
customers achieve a wide variety of security protections;
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ability of our platform’s App Library integrations to drive enhanced value to customers through partner technology workflow
automation and enhanced data contextualization; and
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ability of our platform to drive in-platform policy orchestration enabling customers to automate ZeroFox-centric workflows.
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We offer full adversary kill chain disruption capability in the
market today by automating the process for removal of malicious or infringing content and we provide the ability to coordinate and/or integrate with several partners to disrupt cyberattacks.
Research and Development
We devote significant resources to improve and enhance our solutions
and maintain the effectiveness of our platform. We also work closely with our customers to gain valuable insights into their threat environments and security management practices to assist in designing new solutions and features that extend the
capabilities of our platform. Our engineering staff monitors and tests our software on a regular basis, and we maintain a regular Continuous Integration (CI) and Continuous Delivery (CD) release framework to update and enhance our platform and
its modular capabilities. Leveraging our on-demand platform model, we can seamlessly deploy real-time upgrades with no downtime.
Human Capital
ZeroFox’s corporate culture is built on the goal of creating a
diverse and inclusive environment where employees’ unique opinions and feedback are respected, desired and acted upon. As a team, employees constantly collaborate and work together to set policy, communicate openly and drive an environment of
transparency. For example, we frequently have global town hall meetings where the agenda is set by employees, hosted by employees that volunteer to emcee each event, and where multiple regions and business units are always recognizing their
achievements and successes. Additionally, each global town hall also has a segment, referred to as the ZeroFox Fellow Foxes segment, where employees get the opportunity to thank and recognize their peers anonymously or in an open forum in front
of the entire company for going above and beyond. These recognitions are commonly surprises and are sure to put smiles on many faces. Lastly, it’s not uncommon to see dozens of Fellow Foxes recognitions in a single town hall; Foxes love to work
hard and recognize their teammates.
The Fellow Foxes practice is an example of the framework and value
system that has been built to recognize and reward employees based upon meritocracy. We believe that most talent not only wants to be listened to but also challenged and rewarded where they can rise to their full potential and deliver their top
performance in a healthy, fun work environment. Our workforce’s ability to execute relentlessly in pursuit of company objectives is both a primary differentiator and a critical component contributing to our success. ZeroFox’s people team
designs and implements key initiatives and employs business-driven human resources programs to recruit, hire, empower, develop, assess, and retain industry talent. First, we aim to build an effective team by leveraging our global footprint to
find the right people, in the right geographies and place them into the right roles. Next, we empower employees to take ownership in their work while providing them with the tools, resources, and time to do their jobs well. We invest in our
staff, offering coaching, training, and other support to develop short- and long-term skills and provide them with opportunities for career growth. Our semi-annual performance management cycle, which is purposefully decoupled from compensation
discussions to encourage
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non-biased dialogue, encompasses both look back and look ahead elements to celebrate
success, make improvements and develop competencies to address future business needs. To ensure that ZeroFox retains a highly capable workforce that represents a variety of diverse backgrounds and complies with contractual obligations and local
compliance regulations, we regularly benchmark our program against industry standards, diversity objectives and key employee drivers.
As of April 30, 2022, ZeroFox employed 531 employees and 20
contractors. Our workforce is geographically distributed across the United States and various other locations across the globe. As of the same date, IDX had 73 active full-time employees and 83 contractors. None of the employees in either
company today, or going forward as New ZeroFox, is represented by a labor union and we have not experienced work stoppages. We consider our employee relations to be in good standing and we invest in them. We value our employees as a meaningful
asset to our company.
Employee Health & Safety / Covid-19
ZeroFox is committed to protecting the physical well-being of our
employees, families, and customers. To address the evolving complexities introduced by COVID-19, we have and will continue to take multiple steps to promote safety, realign workforce planning strategy, and support employee needs while
continuing to drive customer satisfaction. We regularly review and update our health and safety plan based on guidelines, rules and capabilities issued by local, regional, and countrywide healthcare organizations. At present, a large majority
of employees work from home. In select geographies some employees can optionally work out of a local office in a hybrid environment, and there is another group of employees that work primarily in the office. As the world reopens and employees
potentially transition back toward an office setting, our offices have reopened with modified configurations based on requirements and recommendations from local, state, national government, and health institutions. Concurrently, we have used a
phased approach that entails re-classifying ongoing work locations across all roles and implementing a flexible hybrid work model where appropriate. While onsite, we have protocols in place to help keep employees, customers, and other visitors
safe. We exercise an abundance of caution where safety is concerned and are ultimately prepared, resourced and equipped to exceed customer expectations, whether working onsite or remote.
Facilities
We are headquartered in the Washington D.C. metropolitan area with
our primary office in Baltimore, Maryland where we occupy over 10,000 square feet of office space pursuant to a lease that expires in February 2023 subject to the terms thereof. Our headquarters was built to reflect our corporate culture,
operational needs, and dedication to employee happiness. We lease additional offices in regions throughout the United States, including but not limited to approximately 15,000 square feet of office space in Portland, Oregon for IDX’s operations
and around the world, including in the United Kingdom, Chile and India. We believe that our current facilities are adequate to meet our current needs and that suitable additional alternative spaces will be available in the future on
commercially reasonable terms.
Since the beginning of the COVID-19 pandemic, we have shifted our
approach from almost entirely in-person to a flexible work environment that is comprised of in-person, hybrid in-person and remote, and 100% remote. We consider our 100% remote team part of our “Global Office” and that team is properly
supported and securely enabled for remote-only work. Our hybrid team has access to work in-person and remote from designated offices around the world, and our in-person teams have designated offices they report to for work.
Intellectual Property
The intellectual property rights we hold are a foundational and
integral asset in our broader business portfolio and are core to our long-term strategy to create shareholder value. We rely on intellectual property protection under law (patents, trademarks, copyrights, and trade secrets) and leverage our
rights through various agreements, including license agreements, confidentiality and non-disclosure agreements, and employee non-disclosure and assignment of inventions agreements.
We believe all these intellectual property rights enable ZeroFox to
be a leading innovator in, and provider of, cloud-based external cybersecurity software-as-a-service for organizations to protect against, detect and remediate external digital threats and risks — such as phishing, malware, scams, impersonator
accounts, piracy, counterfeit goods—present across the internet. From what we consider to be a market leadership position in innovation, we can attract both customers and employee talent.
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From inception, we anchored our business’ value proposition to the
rapid creation of intellectual property; today this objective remains central to our platform, capabilities technology, and go-to-market strategy. Since then, we have ambitiously expanded our intellectual property portfolio by creating new
inventions, tradecraft and proprietary know-how stemming from our operational experience and research and development efforts.
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ZeroFox has 27 issued patents, 23 of which are in the U.S., in addition to 1 patent application that has been granted
allowance as well as 9 pending patent applications; these include intellectual property relating to attack surface identification, threat intelligence and digital risk protection. The active patents are expected to expire between 2029
and 2041. In addition, ZeroFox owns dozens of trademark registrations throughout the world and numerous registered domain names for websites that we use in our business, such as www.zerofox.com.
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IDX has 2 issued patents and 6 pending patent applications (including continuations of the 2 issued patents) in the U.S.,
covering IP in breach response and privacy protection. The active patents are expected to expire between 2031 and 2039. In addition, IDX owns several software products, has 8 registered trademarks and 2 pending trademark registrations
in the U.S., multiple registered domain names and has invested heavily in its business processes and proprietary know-how.
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We will continue to invest in the innovation and development of our
intellectual property portfolio through business acquisitions, technology alliance and strategic licensing relationships, and ongoing research and development. Our intellectual property rights will be at risk because invalidation, circumvention
and third-party intellectual property claims, and litigation remain possible. In addition, our industry is competitive so the intellectual property created by our competitors could limit the adoption of our technologies and products.
We believe competitors may try to develop products that are similar
to ours and that they may infringe our intellectual property rights. Additionally, competitors or other third parties may also claim that our platforms and other solutions infringe their intellectual property rights. Third parties may in the
future assert claims of infringement, misappropriation, and other violations of intellectual property rights against us or our customers, with whom our agreements may obligate us to indemnify against these claims.
Despite our best efforts to protect and aggressively expand our
intellectual property rights, there is always the potential that they may not be respected in the future or may be invalidated, circumvented, or challenged. The cybersecurity industry is characterized by the existence of a large and expanding
number of patents and frequent claims and related litigation based on allegations of patent infringement or other violations of intellectual property rights. We believe our approach to constantly invest in intellectual property is a meaningful
component of our corporate strategy to mitigate intellectual property risk and liability. As an organization, we may elect to protect our intellectual property rights and challenge our competitor’s infringing use of such rights. Successful
claims of infringement by a third party could prevent us from offering certain products or features, require us to develop alternate, non-infringing technology, which could require time and during which we could be unable to continue to offer
our affected products or solutions, require us to obtain a license, which may not be available on reasonable terms or at all, or force us to pay damages, royalties, or other fees.
For additional information, see the section titled “Risk Factors—Risks Related to Our Intellectual Property.”
Backlog
ZeroFox enters into both single and multi-year subscription contracts
for its solutions. It generally invoices the entire amount at contract signing prior to commencement of the subscription period. Until such time as these amounts are invoiced, they are not recorded in deferred revenue or elsewhere in our
consolidated financial statements, and are considered backlog. As of April 30, 2022, we had $39.7 million in total deferred revenue, which excluded backlog of approximately $17.8 million. Of this amount, approximately $11.0 million is expected
to be billed in fiscal year 2023. We expect backlog will change from period to period for several reasons, including the timing and duration of customer agreements, varying billing cycles of subscription agreements, and the timing and duration
of customer renewals. Because revenue for any period is a function of revenue recognized from deferred revenue under contracts in existence at the beginning of the period, as well as new and renewing contracts during the period, backlog at the
beginning of any period is not necessarily indicative of future revenue performance.
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Government Regulation & Legal Affairs
As a provider of cloud-based external cybersecurity solutions, our
business is potentially subject to a variety of domestic and international laws and regulations relating to the collection, use, retention, protection, transfer, and processing of business data, personal data, and other sensitive information.
Certain aspects of our offerings may involve access to and use of personally identifiable information and other sensitive data. The nature of cybersecurity product and service offerings requires the collection of various types of data. In the
operation of our business, we may collect the types of data covered by these laws and regulations including personally identifiable information, information about an individual’s health and financial information about individuals. To the extent
we are in possession of such data and these various laws and regulations are determined to apply to us, this could require us to adopt additional operational, technological and security measures to protect and manage such information which
could increase our costs of operations. Our failure to comply with such laws and regulations could also result in monetary fines and reputational damage which would have a negative impact on our business. These laws and regulations include, but
are not limited to, the European Union General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act (“CCPA”), the California Privacy Rights Act (“CPRA”), the Electronic Communication Privacy Act (“ECPA”), Computer Fraud and
Abuse Act (“CFAA”), the Gramm-Leach-Bliley Act (“GLBA”), and the HIPAA/HITECH Act. In addition to these, other laws and regulations relating to cloud computing, cross-border data transfer restrictions, data collection and data localization may
apply to our business as we expand outside of the U.S. market.
In particular, ECPA provides standards for accessing electronic
communications while in storage or intercepting them in transit. The CFAA prohibits intentionally accessing a computer without, or in excess of, authorization. Interpretation of these laws and their scope continues to evolve, and their
potential applicability to our business remains uncertain and subject to future developments. If interpretation of these laws evolve in such a way as to have a direct impact on our business, such as impacting the manner in which we conduct data
collection as part of our security research efforts, it could result in additional compliance costs or changes to our operations. GLBA and its implementing regulations, restricts certain collection, processing, storage, use, and disclosure of
personal data, requires notice to individuals of privacy practices and provides individuals with certain rights to prevent the use and disclosure of certain nonpublic or otherwise legally protected information. These rules also impose
requirements for the safeguarding and proper destruction of personal data through the issuance of data security standards or guidelines. The HIPAA/HITECH Act, and even more stringent state health information privacy laws, impose mandatory
contractual terms and other obligations with respect to safeguarding the privacy, security, and transmission of protected health information and de-identified health information, on covered entities which include health care providers or health
care plans. Although we are not directly regulated by these laws, our business of providing security to our customers requires us to have access to and process data shared with us by our current or future customers who may be covered by these
laws and regulations. Accordingly, these customers may contractually require us to collect, store, protect and process their data in ways that are intended to help them fulfill their legal obligations under these laws and regulations. These
obligations may impact our business or impose additional operating costs.
Laws and regulations outside the U.S., and particularly in Europe,
often are more restrictive than those in the U.S. Applicable laws and regulations may require us to implement privacy and security policies, permit customers to access, correct, and delete personal information stored or maintained by us, inform
individuals of security breaches that affect their personal information, and, in some cases, obtain individuals’ consents to use personal information for certain purposes. In addition, some foreign governments require that personal information
collected in a country not be disseminated outside of that country without consent or other implemented safeguards.
For example, the European Union General Data Protection Regulation,
or GDPR, applies to the processing (which includes the collection and use) of certain personal data of data subjects in the European Economic Area, or EEA. As compared to previously effective data protection law in the European Union, the GDPR
imposes additional obligations and resulting risk upon our business and increases substantially the penalties to which we could be subject in the event of any non-compliance. Administrative fines under the GDPR can amount to 20,000,000 Euros or
four percent of our worldwide annual revenue for the prior fiscal year, whichever is higher. We may be required to incur, in the future, substantial expense in complying with the obligations imposed by the GDPR, potentially making significant
changes in our business operations, which may adversely affect our revenue and our business overall. Additionally, because there have been very few GDPR actions enforced against companies similar to ours, we are unable to predict how they will
be applied to us or our customers. Despite our efforts to comply with the GDPR, a regulator may determine that we have not done so and subject us to fines
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and public censure, which could harm our company financially and negatively affect
our reputation. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have been found to not provide adequate protection to such personal data, including the U.S. We have undertaken
certain efforts to conform transfers of personal data from the EEA to the U.S. and other jurisdictions based on our understanding of current regulatory obligations and the guidance of data protection authorities. Despite this, we may be
unsuccessful in establishing or maintaining conforming means of transferring such data from the EEA, in particular because of continued legal and legislative activity within the European Union that has challenged or called into question the
legal basis for existing means of data transfers to countries (including the U.S.) that have been found to not provide adequate protection for personal data.
The implementation of the GDPR has led other jurisdictions to either
amend existing laws or propose new data privacy and cybersecurity laws to resemble all or a portion of the requirements of the GDPR (e.g., for purposes of having an adequate level of data protection to facilitate data transfers from the EU).
Accordingly, the challenges we face in the EU will likely also apply to other jurisdictions outside the EU that adopt laws similar to the GDPR or regulatory frameworks of equivalent complexity. For example, the CCPA became enforceable on July
1, 2020. The CCPA has been characterized as the first “GDPR-like” privacy statute to be enacted in the U.S. because it contains several provisions similar to certain provisions of the GDPR. In addition, the CPRA was passed by California voters
in November 2020. The CPRA amends the CCPA by creating additional privacy rights for California consumers and additional obligations on businesses, which could subject us to additional compliance costs as well as potential fines, individual
claims, and commercial liabilities. The majority of the CPRA provisions will take effect on January 1, 2023. The CCPA and CPRA could mark the beginning of a trend toward more stringent privacy legislation in the U.S., as other states or the
federal government may follow California’s lead and increase protections for U.S. residents. For example, the Virginia Consumer Data Protection Act and the CCPA have already prompted several proposals for new federal and state privacy
legislation that, if passed, could increase our potential liability, add layers of complexity to compliance in the U.S. market, increase our compliance costs and adversely affect our business.
Our business is also subject to laws relating to import and export
control such as U.S. export licensing requirements, trade and economic sanctions administered by the U.S. Office of Foreign Assets Control (“OFAC”) and anti-bribery laws such as the U.S. Foreign Corrupt Practices Act (“FCPA”) and the U.K.
Anti-Bribery Act.
We believe that we are in material compliance with the laws and
regulations that are applicable to us.
Many of these laws and regulations, such as those related to data
protection and privacy, are frequently being revised and new laws in different jurisdictions are being adopted. Therefore, we must continually evolve our business practices to satisfy these regulatory obligations. We have policies and
procedures that we rely on to satisfy these requirements and are transparent with our customers regarding our business practices, product features and types of data that are collected when a customer uses ZeroFox security solutions.
In addition to the existing regulatory framework applicable to our
business, some governments are considering whether to take a more active role in regulating the cybersecurity industry and, in the U.S., there are efforts to have the federal government regulate digital platform companies. New regulations in
these two areas could impact our go-to-market model. Therefore, we keep abreast of these potential changes and how they may impact our business.
Aside from the efforts that we undertake to comply with these
obligations, most of our customers are subject to the same or similar regulatory oversight, and some of our customers have adopted more stringent requirements than required by law. Consequently, some customers either expect us to comply with
their own compliance-related initiatives or require us to contractually commit to meeting certain data privacy or cybersecurity provisions, such as signing a business associate agreement in the case of a healthcare covered entity. We believe
that our security solutions may help our customers in industries such as healthcare, government and finance fulfill their compliance obligations. See “Risk Factors - If we are not able to satisfy data
protection, security, privacy, and other government- and industry-specific requirements or regulations, our business, results of operations, and financial condition could be harmed.”
From time to time, ZeroFox may be subject to various legal
proceedings, investigations or claims that arise in the ordinary course of our business activities. As of the date of this filing, ZeroFox is not currently a party to any litigation, investigation or claim the outcome of which, if determined
adversely to it, would individually or in the aggregate be reasonably expected to have a material adverse effect on ZeroFox’s business, financial position, results of operations or cash flows.
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AND RESULTS OF OPERATIONS OF ZEROFOX
You should read the following discussion and
analysis of ZeroFox's financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included elsewhere in this proxy statement/prospectus. In addition to historical financial
information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from
those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this proxy statement/prospectus, particularly in the sections of this proxy
statement/prospectus titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Unless otherwise indicated or the context otherwise requires, references in this Management's Discussion and Analysis of Financial Condition
and Results of Operations of ZeroFox section to “ZeroFox,” “we,” “us,” “our,” and other similar terms refer to ZeroFox, Inc. and its consolidated subsidiaries before the Business Combination.
Overview
ZeroFox was founded in 2013 with the vision that the emergence and
adoption of social media, mobile applications and cloud computing by enterprises would fundamentally change the cybersecurity paradigm. Social media represents much more than a platform where individuals connect online. The adoption of social
media revolutionized the way people communicate with each other and, subsequently, how enterprises and organizations enable communication among employees, customers, partners, and prospects. Mobile applications accelerated the digital
transformation in which earlier versions of the web would need to become interactive and persist across multiple modern mediums. Furthermore, cloud computing’s continued evolution and adoption demonstrate how organizations are more comfortable
with data residing beyond their traditional security perimeter outside of the historical boundaries of IT governance and control.
We provide customers with an innovative and comprehensive platform
for external cybersecurity. Our ZeroFox platform, which is powered by patented artificial intelligence algorithms and cyber threat intelligence, is designed to dismantle external threats to brands, people and other assets across a customer’s
internet accessible attack surface. Our patented platform processes millions of pieces of content, rich media, posts, messages, global intelligence and threat actor activity across the digital landscape, including, without limitation, mobile
app stores, social media sites, dark web forums and discrete content sources. With the data we collect and process, we identify and remediate targeted phishing attacks, credential compromise, data exfiltration, brand hijacking, and executive
and location threats across the public-facing open web as well as the deep and dark web. We protect our customers’ most valued internet accessible assets.
We sell subscriptions to our ZeroFox Platform and corresponding
intelligence services to organizations of all sizes across multiple industries. We primarily sell subscriptions to our Platform through our direct sales teams that leverage our global network of channel partners on both a named account and
territory basis.
A substantial majority of our customers purchase subscription
agreements with a term of one year. Our subscription agreements are generally priced on the number of assets protected and the desired levels of services. Customers may extend the value of the Platform by adding disruption and threat
intelligence services. We generally recognize our subscription agreements ratably over the term of the agreement. We also generate revenue from our training and investigative services, which are generally priced on a fixed-fee basis and
recognized as incurred.
As of April 30, 2022, we had approximately 883 customers in 53
countries. One customer accounted for 5% of our revenue during the three months ended April 30, 2022. One customer accounted for 6% of our revenue during the year ended January 31, 2022. No single customer represented more than 7% of our
revenue in the years ended January 31, 2021 and 2020.
COVID-19
The COVID-19 pandemic has further accelerated the movement toward a
digital-first strategy for nearly every organization. Given unprecedented work from home arrangements and consumers’ increasing reliance on digital engagement for products and services, organizations and their security teams must implement new
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strategies that protect against external threats to ensure trust and reduce risk. We
believe that enterprises will face growing attacks on their external attack surface as modern IT infrastructure will be characterized by greater decentralization and collaboration that is dependent upon public networks.
We have shifted our approach from almost entirely in-person to a
flexible work environment that is composed of in-person, hybrid in-person and remote, and fully remote. Our fully remote global team is supported and enabled for remote-only work. Our hybrid team has access to work in-person from designated
offices and remote, and our in-person teams have designated offices they report to for work. The impact of the COVID-19 pandemic continues to rapidly evolve, and we will continue to monitor the situation and may take further actions that alter
our business operations or that we determine are in the best interests of our employees, customers, partners, and other constituents. We do not know the full extent to which the COVID-19 pandemic may impact our business and our financial
performance. For additional information related to risks related to the COVID-19 pandemic, see “Risk Factors—The COVID-19 pandemic could adversely affect our business, operating results, and financial condition.”
Russian Invasion of Ukraine
We are monitoring and responding to the escalating conflict in
Ukraine and the associated sanctions and other restrictions. The full impact of the conflict on our business operations and financial performance remains uncertain and will depend on future developments, including the severity and duration of
the conflict and its impact on regional and global economic conditions. We will continue to monitor the conflict and assess the related restrictions and other effects and pursue prudent decisions for our team members, customers, and business.
Recent Acquisitions
On September 30, 2020, we acquired the Cyveillance business unit and
particular assets from Lookingglass Cyber Solutions, Inc. (“Lookingglass Cyber Solutions”). Total consideration was $39.2 million, which consisted of $7.5 million in cash and $31.7 million in Series E Preferred Stock. The Cyveillance business
unit provides threat intelligence, brand, and executive protection services to enterprise organizations.
On June 7, 2021, we acquired Vigilante ATI, Inc.™ (“Vigilante”) a
provider of dark web threat intelligence collection and analysis capabilities. Total consideration was $7.4 million, which consisted of $3.8 million in cash and $3.8 million in a note payable, reduced by $0.2 million in net liabilities assumed.
Key Factors Affecting Performance
New Customer Acquisition
Our future growth depends in large part on our ability to acquire new
customers. To attract new customers, we have invested, and will continue to invest, in our sales and marketing efforts. Many organizations have not yet adopted external cybersecurity solutions, and our business and operating results will be
affected by the rate at which organizations adopt our solutions. We believe our platform addresses the evolving needs of organizations of all sizes and industries and coupled with our go-to-market strategy, presents significant opportunities
for growth.
Investing in Growth
We intend to continue to invest in our business so that we can
capitalize on our market opportunity. We intend to continue to invest in sales and marketing to grow our sales team, expand our brand recognition and optimize our channel partner network. We also intend to continue to invest in our research and
development team to build additional functionality and enhance existing functionality in our platform to extend our capabilities as our success is dependent on our ability to further our technological leadership. We also intend to evaluate
strategic acquisitions of businesses and technologies to expand and enhance the functionality of our platform.
Our investments in growth may adversely affect our operating results
in the near term; however, we expect that these investments will contribute to our long-term growth and success.
If these investments do not lead to expected revenue growth, our
operating losses may increase, and we may not achieve profitability and our growth rates may slow.
304
Retention and Expansion within Customers
Our ability to increase revenue depends in large part on our ability
to retain our existing customers and grow the value of their subscriptions. We focus on increasing sales to our existing customers by increasing the number of protected assets and corresponding intelligence services delivered on and through our
platform. We intend to expand existing capabilities and launch new features which we believe will contribute to increased adoption by our growing base of customers. Our ability to expand within our customer base, particularly large enterprise
and government customers, will depend on a number of factors, including platform performance, competitive offerings, pricing, overall changes in our customers’ spending levels, and the effectiveness of our efforts to help our customers realize
the benefits of our platform.
Key Business Metrics
We monitor the following key metrics to help us evaluate our
business, identify trends affecting our business, formulate business plans and make strategic directions:
Customers
We believe that the size of our customer base is an indicator of our
market adoption and that our net new customer additions are an indicator of the growth of our business. We focus our sales and marketing efforts on large enterprises and medium sized businesses. We define a customer as any entity that has
entered into a distinct subscription agreement for access to the ZeroFox platform for which the term has not ended or with which we are continuing to provide service and negotiating a renewal contract that expired within 90 days of the
applicable measurement date. We do not consider our channel partners as customers, and we treat managed service security providers, who may purchase our products on behalf of multiple companies, as a single customer.
|
|
| |
As of January 31,
|
| |
As of April 30,
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
Customers
|
| |
835
|
| |
692
|
| |
447
|
| |
883
|
| |
721
|
|
Period-over-period growth
|
| |
21%
|
| |
55%
|
| |
30%
|
| |
22%
|
| |
60%
|
Annual Recurring Revenue (“ARR”)
We believe that ARR is a key operating metric to measure our business
as changes in ARR reflect our ability to acquire net new customers and to maintain, retain and expand our relationships with our existing customers. We define ARR as the annualized contractual value of all recurring revenue related to contracts
in place at the end of the reporting date assuming any contract is renewed on its existing terms. We continue to include ARR from customers whose term has expired within 90 days of the applicable measurement date for which we are actively
negotiating renewal.
|
|
| |
As of January 31,
|
| |
As of April 30,
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
|
| |
(dollars in thousands)
|
||||||||||||
|
ARR
|
| |
$53,930
|
| |
$44,088
|
| |
$21,757
|
| |
$57,091
|
| |
$45,628
|
|
Period-over-period growth
|
| |
22%
|
| |
103%
|
| |
83%
|
| |
25%
|
| |
100%
|
Dollar-Based Net Retention
We believe that our ability to retain and expand our revenue
generated from our existing customers is an indicator of the long-term value of our customer relationships and our potential future business opportunities. Our dollar-based net retention rate measures the percentage change in our ARR derived
from our customer base at a point in time. We exclude public sector accounts and customers with less than $10,000 in ARR from our net retention. We calculate our dollar-based net retention rate as of the period end by starting with the ARR from
all subscription customers as of 12 months prior to such period end, or prior period ARR. We then calculate the ARR from these same subscription customers as of the current period end, or current period ARR. Current period ARR reflects customer
renewals, expansion and contraction and churn over the trailing 12 months. Current period ARR excludes ARR from new subscription customers in the trailing 12 months. We then divide the
305
current period ARR by the prior period ARR to arrive at our dollar-based net
retention rate. Our dollar-based net retention rate can fluctuate from period to period due to large customer contracts in any period, which may reduce our dollar-based net retention in future periods if our customers do not continue to
increase their subscriptions.
|
|
| |
As of January 31,
|
| |
As of April 30,
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
Dollar-based net retention
|
| |
100%
|
| |
92%
|
| |
104%
|
| |
100%
|
| |
102%
|
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we
believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe
that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance by excluding certain items that may not be indicative of our business,
results of operations or outlook. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for
financial information presented in accordance with GAAP.
Other companies, including companies in our industry, may calculate
similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. In particular, free cash flow is not a
substitute for cash used in operating activities. Additionally, the utility of free cash flow as a measure of our liquidity is limited as it does not represent the total increase or decrease in our cash balance for a given period.
A reconciliation is provided below for each non-GAAP financial
measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly
comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define non-GAAP gross profit and non-GAAP gross margin as GAAP
gross profit and GAAP gross margin, respectively, excluding stock-based compensation expense and amortization of acquired intangible assets. We believe non-GAAP gross profit and non-GAAP gross margin provide our management and investors
consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these measures eliminate the effects of certain variables unrelated to our overall operating performance.
The following table provides a reconciliation of our GAAP gross
profit to our non-GAAP gross profit and of our GAAP gross margin to our non-GAAP gross margin, for each of the periods presented:
|
|
| |
Year Ended January 31,
|
| |
Three Months Ended
April 30,
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
|
| |
(dollars in thousands)
|
||||||||||||
|
Revenue
|
| |
$47,433
|
| |
$28,538
|
| |
$16,390
|
| |
$13,591
|
| |
$10,987
|
|
Gross profit
|
| |
$31,076
|
| |
$18,892
|
| |
$10,625
|
| |
$9,342
|
| |
$7,372
|
|
Add: Stock-based compensation expense
|
| |
50
|
| |
3
|
| |
9
|
| |
10
|
| |
5
|
|
Add: Amortization of acquired intangible assets
|
| |
481
|
| |
140
|
| |
—
|
| |
128
|
| |
105
|
|
Non-GAAP gross profit
|
| |
$31,607
|
| |
$19,035
|
| |
$10,634
|
| |
$9,480
|
| |
$7,482
|
|
Gross margin
|
| |
66%
|
| |
66%
|
| |
65%
|
| |
69%
|
| |
67%
|
|
Non-GAAP gross margin
|
| |
67%
|
| |
67%
|
| |
65%
|
| |
70%
|
| |
68%
|
Non-GAAP Loss from Operations
We define non-GAAP loss from operations as GAAP loss from operations,
excluding stock-based compensation expense, amortization of acquired intangible assets, and costs incurred for the Business
306
Combination. We believe non-GAAP loss from operations provide our management and
investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as these measures eliminate the effects of certain variables unrelated to our overall operating performance.
The following table provides a reconciliation of our GAAP loss from
operations to our non-GAAP loss from operations, for each of the periods presented:
|
|
| |
Year Ended
January 31,
|
| |
Three Months Ended
April 30,
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
|
| |
(dollars in thousands)
|
||||||||||||
|
Loss from operations
|
| |
$(28,015)
|
| |
$(18,197)
|
| |
$(19,438)
|
| |
$(8,099)
|
| |
$(3,497)
|
|
Add: Stock-based compensation expense
|
| |
696
|
| |
450
|
| |
268
|
| |
374
|
| |
133
|
|
Add: Amortization of acquired intangible assets
|
| |
3,022
|
| |
918
|
| |
—
|
| |
789
|
| |
688
|
|
Add: Public company offering costs
|
| |
3,521
|
| |
—
|
| |
—
|
| |
775
|
| |
55
|
|
Non-GAAP loss from operations
|
| |
$(20,776)
|
| |
$(16,829)
|
| |
$(19,170)
|
| |
$(6,161)
|
| |
$(2,621)
|
Free Cash Flow
We define free cash flow as net cash used in operating activities
less purchases of property and equipment and capitalized internal-use software. We believe that free cash flow is a useful indicator of liquidity that provides meaningful information to management and investors about the amount of cash provided
or consumed by our operating activities that is available to be used for other strategic initiatives. Free cash flow does not represent the total increase or decrease in our cash balance for a given period and does not reflect our future
contractual commitments. In addition, other companies may calculate free cash flow differently or not at all, which reduces the usefulness of free cash flow as a tool for comparison.
The following table presents a reconciliation of net cash used in
operating activities to free cash flow:
|
|
| |
Year Ended
January 31,
|
| |
Three Months Ended
April 30,
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
|
| |
(dollars in thousands)
|
||||||||||||
|
Net cash used in operating activities
|
| |
$(18,072)
|
| |
$(15,058)
|
| |
$(18,633)
|
| |
$(7,164)
|
| |
$(4,311)
|
|
Less: Purchases of property and equipment
|
| |
(572)
|
| |
(264)
|
| |
(224)
|
| |
(97)
|
| |
(149)
|
|
Less: Capitalized software
|
| |
(674)
|
| |
(494)
|
| |
(580)
|
| |
(221)
|
| |
(130)
|
|
Free cash flow
|
| |
$(19,318)
|
| |
$(15,816)
|
| |
$(19,437)
|
| |
$(7,482)
|
| |
$(4,590)
|
Components of Our Results of Operations
Revenue
We generate substantially all of our revenue from subscription
agreements which includes access to our hosted platform, intelligence services and disruption capabilities. The majority of our customers are invoiced annually in advance of their subscription term. Our subscription agreements are “stand ready”
to permit platform access and provide our protection services over the contractual term. We recognize subscription revenue ratably over the term of the agreement. Professional services revenue includes training and investigative services.
Professional services are generally priced on a fixed-fee basis and revenue is recognized as the services are performed. Professional services have not been a material component of our operations.
Cost of Revenue
Costs of revenue consist primarily of third-party cloud
infrastructure expenses, fees paid to data providers and personnel-related costs such salaries, bonuses, benefits, and stock-based compensation associated with our customer support, intelligence services and professional services, software and
subscription services used to support our customers, amortization of our capitalized internal-use software, travel and related expenses, amortization of acquired technology and allocated overhead costs. Our allocated overhead costs include
depreciation and information technology expenses.
307
Operating Expenses
Our operating expenses consist of research and development, sales and
marketing and general and administrative expenses. Personnel related expenses, including salaries, bonuses, commissions, benefits, and stock-based compensation, are the most significant component of each of these categories. Operating expenses
also include allocated overhead costs.
Research and Development
Research and development expenses consist primarily of personnel
costs for our research, product and engineering teams, including salaries, bonuses, benefits, and stock-based compensation. Research and development expenses also include software and subscription services and third-party cloud infrastructure
incurred in the design and development of our hosted platform and allocated overhead costs.
We expect research and development expenses to increase in absolute
dollars as we continue to increase our investments in our platform and services. However, we anticipate research and development expenses to decrease as a percentage of our revenue over time although our research and development expenses may
fluctuate as a percentage of our revenue from period-to-period depending on the timing of these expenses and the capitalization of expenses that qualify as internal-use software.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel costs for
our sales and marketing teams, including salaries, commissions, bonuses, benefits, and stock-based compensation. Sales and marketing expenses also include conferences, branding and other marketing events, software and subscription services,
travel and related expenses, amortization of acquired customer relationships and allocated overhead costs. We capitalize and amortize sales commissions from the initial acquisition of a customer subscription agreement to sales and marketing
expense over the estimated customer life and any such expenses paid for the renewal of a customer’s subscription are capitalized and amortized over the term of the renewal.
We expect sales and marketing expenses to increase in absolute
dollars as we continue to invest in our sales and marketing organization to drive additional revenue, further penetrate our market and expand our global customer base. However, we anticipate sales and marketing expenses to decrease as a
percentage of our revenue over time although our sales and marketing expenses may fluctuate as percentage of our revenue from period-to-period depending on the timing of these expenses.
General and Administration
General and administrative expenses consist primarily of personnel
costs for our executive, finance, legal, human resources and information technology teams, including salaries, bonuses, benefits, and stock-based compensation. General and administrative expenses also include professional fees for external
accounting, legal and other advisory services, insurance, software and subscription services, travel and related expenses, facilities related expenses, amortization of acquired trade names and allocated overhead costs.
Following the closing of the proposed Business Combination, we expect
to incur additional expenses as the result of operating as a public company, including costs related to additional reporting and compliance requirements applicable to a listed company, and increased expenses for insurance, accounting, legal and
other professional services. We expect general and administrative expenses to increase in absolute dollars; however, we anticipate general and administrative expenses to decrease as a percentage of our revenue over time.
Interest Expense
Interest expense consists primarily of contractual interest expense,
as well as amortization of debt discount and issuance costs related to our term loans and our convertible notes issued in conjunction with our Series D Preferred Stock.
Other Income (Expense), Net
Other income (expense), net consists primarily of unrealized and
realized gains and losses related to changes in foreign currency exchange rates.
308
Provision for Income Taxes
Provision for income taxes consists of income taxes in foreign
jurisdictions where we conduct business and certain state income taxes in the United States. We maintain a full valuation allowance for domestic and certain foreign deferred tax assets, including net operating loss carryforwards. Based on our
history of losses, we expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized.
Results of Operations
The following table sets forth our results of operations for the
periods presented:
|
|
| |
Year Ended January 31,
|
| |
Three Months Ended
April 30,
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
|
| |
(dollars in thousands)
|
||||||||||||
|
Revenue
|
| |
$47,433
|
| |
$28,538
|
| |
$16,390
|
| |
$13,591
|
| |
$10,987
|
|
Cost of revenue(1)
|
| |
16,357
|
| |
9,646
|
| |
5,765
|
| |
4,249
|
| |
3,615
|
|
Gross profit
|
| |
31,076
|
| |
18,892
|
| |
10,625
|
| |
9,342
|
| |
7,372
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development(1)
|
| |
12,810
|
| |
5,942
|
| |
5,582
|
| |
3,961
|
| |
2,389
|
|
Sales and marketing(1)
|
| |
29,873
|
| |
21,466
|
| |
18,852
|
| |
8,534
|
| |
6,449
|
|
General and administrative(1)
|
| |
16,408
|
| |
9,681
|
| |
5,629
|
| |
4,946
|
| |
2,031
|
|
Total operating expenses
|
| |
59,091
|
| |
37,089
|
| |
30,063
|
| |
17,441
|
| |
10,869
|
|
Loss from operations
|
| |
(28,015)
|
| |
(18,197)
|
| |
(19,438)
|
| |
(8,099)
|
| |
(3,497)
|
|
Interest expense, net
|
| |
(3,585)
|
| |
(2,233)
|
| |
(1,854)
|
| |
(1,386)
|
| |
(698)
|
|
Loss on extinguishment of debt
|
| |
—
|
| |
(1,418)
|
| |
(1,274)
|
| |
—
|
| |
—
|
|
Change in fair value of warrant liability
|
| |
(7,375)
|
| |
(806)
|
| |
(75)
|
| |
(663)
|
| |
(31)
|
|
Loss before income taxes
|
| |
(38,975)
|
| |
(22,654)
|
| |
(22,641)
|
| |
(10,148)
|
| |
(4,226)
|
|
(Benefit from) provision for income taxes
|
| |
(536)
|
| |
86
|
| |
98
|
| |
55
|
| |
15
|
|
Net loss after tax
|
| |
$(38,439)
|
| |
$(22,740)
|
| |
$(22,739)
|
| |
$(10,203)
|
| |
$(4,241)
|
|
(1)
|
Includes stock-based compensation expense as follows:
|
|
|
| |
Year Ended January 31,
|
| |
Three Months Ended
April 30,
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
|
| |
(in thousands)
|
||||||||||||
|
Cost of revenue
|
| |
$50
|
| |
$3
|
| |
$9
|
| |
$10
|
| |
$5
|
|
Research and development
|
| |
97
|
| |
72
|
| |
85
|
| |
55
|
| |
23
|
|
Sales and marketing
|
| |
222
|
| |
130
|
| |
87
|
| |
85
|
| |
40
|
|
General and administrative
|
| |
327
|
| |
245
|
| |
87
|
| |
224
|
| |
65
|
|
Total stock-based compensation expense
|
| |
$696
|
| |
$450
|
| |
$268
|
| |
$374
|
| |
$133
|
309
The following tables discloses the components of our consolidated
statements of loss/operations as a percentage of revenue for each of the periods presented:
|
|
| |
Year Ended January 31,
|
| |
Three Months Ended
April 30,
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
|
| |
(as a percentage of total revenue)
|
||||||||||||
|
Revenue
|
| |
100%
|
| |
100%
|
| |
100%
|
| |
100%
|
| |
100%
|
|
Cost of revenue(1)
|
| |
34
|
| |
34
|
| |
35
|
| |
31
|
| |
33
|
|
Gross profit
|
| |
66
|
| |
66
|
| |
65
|
| |
69
|
| |
67
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development(1)
|
| |
27
|
| |
21
|
| |
34
|
| |
29
|
| |
22
|
|
Sales and marketing(1)
|
| |
63
|
| |
75
|
| |
115
|
| |
63
|
| |
59
|
|
General and administrative(1)
|
| |
35
|
| |
34
|
| |
34
|
| |
37
|
| |
18
|
|
Total operating expenses
|
| |
125
|
| |
130
|
| |
183
|
| |
129
|
| |
99
|
|
Loss from operations
|
| |
(59)
|
| |
(64)
|
| |
(118)
|
| |
(60)
|
| |
(32)
|
|
Interest expense, net
|
| |
(8)
|
| |
(8)
|
| |
(12)
|
| |
(10)
|
| |
(6)
|
|
Loss on extinguishment of debt
|
| |
—
|
| |
(5)
|
| |
(8)
|
| |
—
|
| |
—
|
|
Change in fair value of warrant liability
|
| |
(16)
|
| |
(3)
|
| |
—
|
| |
(5)
|
| |
—
|
|
Loss before income taxes
|
| |
(83)
|
| |
(80)
|
| |
(138)
|
| |
(75)
|
| |
(38)
|
|
Income taxes
|
| |
(1)
|
| |
—
|
| |
1
|
| |
—
|
| |
1
|
|
Net loss after tax
|
| |
-82%
|
| |
-80%
|
| |
-139%
|
| |
-75%
|
| |
-39%
|
|
(1)
|
Includes stock-based compensation expense as follows:
|
|
|
| |
Year Ended January 31,
|
| |
Three Months Ended
April 30,
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
|
| |
(as a percentage of total revenue)
|
||||||||||||
|
Cost of revenue
|
| |
0%
|
| |
0%
|
| |
0%
|
| |
0%
|
| |
0%
|
|
Research and development
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Sales and marketing
|
| |
—
|
| |
—
|
| |
1
|
| |
1
|
| |
—
|
|
General and administrative
|
| |
1
|
| |
1
|
| |
1
|
| |
2
|
| |
1
|
|
Total stock-based compensation expense
|
| |
1%
|
| |
1%
|
| |
2%
|
| |
3%
|
| |
1%
|
Comparison of the Three Months Ended April 30, 2022 and 2021
Revenue
|
|
| |
Three Months Ended
April 30,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Revenue
|
| |
$13,591
|
| |
$10,987
|
| |
$2,604
|
| |
24%
|
Revenue increased $2.6 million, or 24%, from $11.0 million for the
three months ended April 30, 2021 to $13.6 million for the three months ended April 30, 2022, primarily due to increased customer adoption for our subscription services. Our customer base grew from 732 as of April 30, 2021 to 883 as of
April 30, 2022.
310
Cost of Revenue, Gross Profit, and Gross Margin
|
|
| |
Three Months Ended
April 30,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Cost of revenue
|
| |
$4,249
|
| |
$3,615
|
| |
$634
|
| |
18%
|
|
Gross profit
|
| |
$9,342
|
| |
$7,372
|
| |
$1,970
|
| |
27%
|
|
Gross margin
|
| |
69%
|
| |
67%
|
| |
|
| |
|
Cost of revenue increased $0.6 million, or 18%, from $3.6 million for
the three months ended April 30, 2021 to $4.2 million for the three months ended April 30, 2022, primarily due to increases of $0.2 million for cloud infrastructure and third-party data charges, $0.1 million for independent research analysts
following the Vigilante acquisition, and $0.1 million for personnel-related expenses. These increases were driven by growth for our subscription services.
Research and Development
|
|
| |
Three Months Ended
April 30,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Research and development
|
| |
$3,961
|
| |
$2,389
|
| |
$1,572
|
| |
66%
|
Research and development costs increased $1.6 million, or 66%, from
$2.4 million for the three months ended April 30, 2021 to $4.0 million for the three months ended April 30, 2022, primarily due to an increase of $1.5 million in personnel-related expenses.
Sales and Marketing
|
|
| |
Three Months Ended
April 30,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Sales and marketing
|
| |
$8,534
|
| |
$6,449
|
| |
$2,085
|
| |
32%
|
Sales and marketing costs increased $2.1 million, or 32%, from $6.4
million for the three months ended April 30, 2021 to $8.5 million for the three months ended April 30, 2022, primarily due to increases of $1.2 million in personnel-related expenses and $0.6 million in marketing activities and travel-related
expenses.
General and Administrative
|
|
| |
Three Months Ended
April 30,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
General and administrative
|
| |
$4,946
|
| |
$2,031
|
| |
$2,915
|
| |
144%
|
General and administrative costs increased $2.9 million, or 144%,
from $2.0 million for the three months ended April 30, 2021 to $4.9 million for the three months ended April 30, 2022, primarily due to increases of $1.7 million in professional fees related to compliance and reporting requirements of the
Business Combination, $0.5 million in personnel-related expenses, and $0.3 million in productivity tools.
311
Interest Expense, Net and Other Expense, Net
The increase in interest expense of $0.7 million is due to increased
borrowings under debt facilities. The increase in the change in the fair value of warrant liability reflects the adjustments to record outstanding warrants at their fair value.
Provision for Income Taxes
|
|
| |
Three Months Ended
April 30,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Provision for incomes taxes
|
| |
$55
|
| |
$15
|
| |
$40
|
| |
267%
|
The increase in provision for income taxes of $0.04 million is due to
estimated income taxes incurred by our foreign subsidiaries.
Comparison of the Years Ended January 31, 2022 and 2021
Revenue
|
|
| |
Year Ended
January 31,
|
| |
Change
|
||||||
|
|
| |
(dollars in thousands)
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
$
|
|
Revenue
|
| |
$ 47,433
|
| |
$ 28,538
|
| |
$ 18,895
|
| |
66%
|
Revenue increased $18.9 million, or 66%, from $28.5 million for the
year ended January 31, 2021 to $47.4 million for the year ended January 31, 2022, primarily due to increased customer adoption for our subscription services and the full year effect of revenue from customers acquired in the Cyveillance
acquisition. Our customer base grew from 692 customers as of January 31, 2021 to 835 customers as of January 31, 2022.
Cost of Revenue, Gross Profit, and Gross Margin
|
|
| |
Year Ended
January 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Cost of revenue
|
| |
$ 16,357
|
| |
$9,646
|
| |
$6,711
|
| |
70%
|
|
Gross profit
|
| |
$ 31,076
|
| |
$ 18,892
|
| |
$ 12,184
|
| |
64%
|
|
Gross margin
|
| |
66%
|
| |
66%
|
| |
|
| |
|
Cost of revenue increased $6.7 million, or 70%, from $9.6 million for
the year ended January 31, 2021 to $16.4 million for the year ended January 31, 2022, primarily due to an increase of $4.4 million in personnel costs.
312
Research and Development
|
|
| |
Year Ended
January 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Research and development
|
| |
$12,810
|
| |
$ 5,942
|
| |
$ 6,868
|
| |
116%
|
Research and development costs increased $6.9 million, or 116%, from
$5.9 million for the year ended January 31, 2021 to $12.8 million for the year ended January 31, 2022 primarily due to increases of $4.9 million in personnel-related expenses and $1.2 million in intelligence research activities.
Sales and Marketing
|
|
| |
Year Ended
January 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Sales and marketing
|
| |
$ 29,873
|
| |
$ 21,466
|
| |
$ 8,407
|
| |
39%
|
Sales and marketing expenses increased $8.4 million, or 39%, from
$21.5 million for the year ended January 31, 2021 to $29.9 million for the year ended January 31, 2022, primarily due to increases of $3.5 million in personnel-related expenses, $1.8 million in sales commissions, including amortized commission
expenses, and $1.7 million of amortization expense from acquired customer relationships related to the Cyveillance and Vigilante acquisitions.
General and Administrative
|
|
| |
Year Ended
January 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
General and administrative
|
| |
$ 16,408
|
| |
$ 9,681
|
| |
$ 6,727
|
| |
69%
|
General and administrative expenses increased $6.7 million, or 69%,
from $9.7 million for the year ended January 31, 2021 to $16.4 million for the year ended January 31, 2022, primarily related to personnel-related costs of $1.4 million and an increase in professional fees related to compliance and reporting
requirements related to the Business Combination of $6.4 million, offset by a $1.5 million decrease in the fair value of contingent consideration associated with the Cyveillance.
Interest Expense, Net and Other Expense, Net
|
|
| |
Year Ended
January 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Interest expense, net
|
| |
$ 3,585
|
| |
$ 2,233
|
| |
$1,352
|
| |
61%
|
|
Loss on extinguishment of debt
|
| |
$—
|
| |
$ 1,418
|
| |
$ (1,418)
|
| |
(100)%
|
|
Change in fair value of warrant liability
|
| |
$ 7,375
|
| |
$806
|
| |
$6,569
|
| |
815%
|
The increase in interest expense of $1.4 million is due to increased
borrowings under debt facilities. The increase in the change in fair value of warrant liability reflects the adjustments to record outstanding warrants at their fair value.
(Benefit from) Provision for Income Taxes
|
|
| |
Year Ended
January 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
(Benefit from) provision for incomes taxes
|
| |
$ (536)
|
| |
$ 86
|
| |
$ (622)
|
| |
(723)%
|
313
The benefit from taxes is primarily related to the deferred
benefit of $0.6 million related to the acquisition of Vigilante. The deferred tax benefit is driven by the current year reversal of the deferred tax liability established from the purchase price accounting for intangibles created in the
Vigilante acquisition.
Comparison of the Years Ended January 31, 2021 and 2020
Revenue
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Revenue
|
| |
$28,538
|
| |
$16,390
|
| |
$12,148
|
| |
74%
|
Revenue increased $12.1 million, or 74%, from $16.4 million for the
year ended January 31, 2020 to $28.5 million for the year ended January 31, 2021, primarily due to increased customer adoption for our subscription services. The increase is primarily due to an increase in customers, including customers
acquired in the Cyveillance acquisition.
Cost of Revenue, Gross Profit, and Gross Margin
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Cost of revenue
|
| |
$9,646
|
| |
$5,765
|
| |
$3,881
|
| |
67%
|
|
Gross profit
|
| |
$18,892
|
| |
$10,625
|
| |
$8,267
|
| |
78%
|
|
Gross margin
|
| |
66%
|
| |
65%
|
| |
|
| |
|
Cost of revenue increased $3.9 million, or 67%, from $5.8 million for
the year ended January 31, 2020 to $9.6 million for the year ended January 31, 2021, primarily due to an increase of $3.5 million in personnel costs. Gross margin increased by 1% to 66% due to revenue growth outpacing our costs to deliver our
platform and services to our customer base.
Research and Development
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Research and development expenses
|
| |
$5,942
|
| |
$5,582
|
| |
$360
|
| |
6%
|
Research and development costs increased $0.4 million, or 6%, from
$5.6 million for the year ended January 31, 2020 to $5.9 million for the year ended January 31, 2021, primarily due to an increase of $0.4 million in personnel-related expenses.
Sales and Marketing
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Sales and marketing expenses
|
| |
$21,466
|
| |
$18,852
|
| |
$2,614
|
| |
14%
|
Sales and marketing expenses increased $2.6 million, or 14%, from
$18.9 million for the year ended January 31, 2020 to $21.4 million for the year ended January 31, 2021, primarily due to increases of $1.2 million in personnel-related expenses, $1.2 million in sales commissions, including amortized commission
expenses, and $0.8 million of amortization expense from acquired customer relationships related to the Cyveillance acquisition offset by $1.0 million decrease in travel related costs resulting from reduced travel during the COVID-19 pandemic.
314
General and Administrative
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
General and administrative expenses
|
| |
$9,681
|
| |
$5,629
|
| |
$4,052
|
| |
72%
|
General and administrative expenses increased $4.1 million, or 72%,
from $5.6 million for the year ended January 31, 2020 to $9.7 million for the year ended January 31, 2021, primarily related to personnel-related costs of $1.8 million and an increase in the fair value of contingent consideration associated
with the Cyveillance acquisition of $1.4 million.
Interest Expense, Net and Other Expense, Net
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Interest expense, net
|
| |
$2,223
|
| |
$1,854
|
| |
$379
|
| |
20%
|
|
Loss on extinguishment of debt
|
| |
$1,418
|
| |
$1,274
|
| |
$144
|
| |
11%
|
|
Change in fair value of warrant liability
|
| |
$806
|
| |
$75
|
| |
$731
|
| |
973%
|
The increase in interest expense of $0.4 million is due to increased
borrowings under debt facilities. The loss on extinguishment of debt reflects the costs associated with the refinancing of debt facilities in June 2019 and January 2021. The increase in the change in fair value of warrant liability reflects the
adjustments to record outstanding warrants at their fair value.
Provision for Income Taxes
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Provision for income taxes
|
| |
$86
|
| |
$98
|
| |
$(12)
|
| |
(12)%
|
The provision for income taxes increased primarily related to the
increase in foreign taxes related to operations in international subsidiaries.
Critical Accounting Estimates
Our management’s discussion and analysis of financial condition and
results of operations is based upon our financial statements and notes to our financial statements, which were prepared in accordance with GAAP. The preparation of the financial statements requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. Our management evaluates our estimates on an ongoing basis, including those related to the allowance for doubtful accounts, the carrying value and useful lives
of long-lived assets, the fair value of financial instruments, the recognition and disclosure of contingent liabilities, income taxes, and stock-based compensation. We base our estimates and judgments on our historical experience, knowledge of
factors affecting our business and our belief as to what could occur in the future considering available information and assumptions that are believed to be reasonable under the circumstances.
The accounting estimates we use in the preparation of our financial
statements will change as new events occur, more experience is acquired, additional information is obtained and our operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and
refinements in estimation methodologies are reflected in our reported results of operations and, if material, the effects of changes in estimates are disclosed in the notes to our financial statements. By their nature, these estimates and
judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these estimates.
315
The critical accounting estimates, assumptions, and judgments that
we believe have the most significant impact on our consolidated financial statements are described below.
Revenue Recognition
Description:
We recognize revenue in accordance with ASC 606, Revenue from
Contracts with Customers. Revenue is recognized when a customer obtains control of promised services in an amount that reflects the consideration we expect to be entitled to receive in exchange for those services. In recognizing revenue, we
apply the following five steps:
|
•
|
Identify contracts with customers
|
|
•
|
Identify the performance obligations in the contract
|
|
•
|
Determine the transaction price
|
|
•
|
Allocate the transaction price to performance obligations in the contract
|
|
•
|
Recognize revenue when or as performance obligations are satisfied
|
Judgements and Uncertainties:
We apply judgment in determining the customer’s ability and intent to
pay, including the customer’s historical payment experience or credit and financial information pertaining to the customer.
Our contracts may contain multiple performance obligations which are
accounted separately if they are capable of being distinct or are distinct in the context of the contract. Contracts with multiple performance obligations require an allocation of the transaction price to each performance obligation based on
the stand-alone selling price (SSP) of each performance obligation, using the relative selling price method of allocation. We apply judgment in determining SSP for our performance obligations utilizing our observable standalone sales, sales of
bundled items when standalone sales are not available, and our overall pricing methodology.
Subscription Revenue—Subscription revenue consists of revenue from
subscriptions to access our Platform together with related data and support service offerings. Revenue is recognized over time on a ratable basis over the contract term beginning on the date that our service is made available to the customer.
Customers have the option to purchase additional subscription and
support services at a stated price. These options generally do not provide a material right, as they are priced at our SSP.
Professional Services Revenue—All of our professional services are
considered distinct performance obligations when sold on a stand-alone basis. Revenue is generally recognized at the point in time when the professional service is delivered.
Sensitivity of Estimate to Change:
For the three months ended April 30, 2022 and 2021, subscription
revenue accounted for 94% and 95% of total revenue, respectively. For the years ended January 31, 2022, 2021, and 2020, subscription revenue accounted for 95%, 97%, and 97% of total revenue, respectively. For the three months ended April 30,
2022 and 2021, and for the years ended January 31, 2022, 2021, and 2020, no single customer exceeded 7% of total revenue.
Deferred Contract Acquisition Costs
Description:
Contract acquisition costs are related to sales commissions earned
for incremental costs to obtain a contract. We amortize the initial commissions over the longer of the customer relationship or over the same period as the initial revenue arrangement to which these costs relate.
Judgements and Uncertainties:
The critical accounting estimate for deferred contract acquisition
costs is the amortizable life of the asset. We have estimated the period of benefit for customer relationships to be 4 years. Management monitors trends in customer attrition and the typical term of service arrangements to determine if the
estimated amortizable life estimate should be updated.
316
Sensitivity of Estimate to Change:
The impact to our financial statements for change of one year to the
estimated life of our customer relationships would be approximately $0.3 million. We do not expect the useful life estimate to deviate materially period to period.
Stock-Based Compensation
Description:
We account for stock-based compensation in accordance with ASC 718,
Compensation—Stock Compensation. ASC 718 requires that the cost of awards of equity instruments offered in exchange for employee services, including employee stock options and restricted stock awards, be measured based on the grant-date fair
value of the award. We determine the fair value of options granted using the Black-Scholes model which requires the input of subjective assumptions. We recognize the fair value of stock option awards, net of estimated forfeitures, over the
period which an employee is required to provide service in exchange for the award, generally the vesting period. The fair value of restricted stock awards is based on the estimated price of our common stock on the date of grant. We recognize
the fair value of restricted stock awards, net of estimated forfeitures, as expense over the requisite service period of the awards.
Judgments and Uncertainties:
The critical accounting estimates related to stock-based compensation
are the assumptions utilized in the Black-Scholes valuation model and our estimate of award forfeitures.
The assumptions used by Management in the Black-Scholes model are as
follows:
|
•
|
Fair value of common stock. Our common stock is not publicly traded. As such, we estimate the fair value of our common stock, as
discussed below in the section titled “Common Stock Valuations.”
|
|
•
|
Expected term. The expected term represents the period of time that options granted are expected to remain unexercised. We
calculate the expected term using the simplified method, which equals the midpoint of the options’ vesting term and contractual period.
|
|
•
|
Expected Volatility. As our common stock is not publicly traded, we estimate the expected volatility based on historical
volatilities of comparable public traded companies. The Company expects to continue to use this methodology until such time as the Company’s stock becomes publicly traded and there is a sufficient amount of historical data to reasonably
calculate the volatility of the Company’s stock.
|
|
•
|
Risk-free interest rate. We use the U.S. Treasury yield for a period that corresponds to the expected term of the award.
|
|
•
|
Divided yield. We do not currently issue dividends, and do not expect to issued dividends in the foreseeable future.
Accordingly, our dividend yield is zero.
|
|
|
| |
As of January 31,
|
| |
As of April 30,
|
|||||||||
|
Assumptions
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
Weighted-average risk-free rate
|
| |
1.42%
|
| |
1.83%
|
| |
2.42%
|
| |
1.42%
|
| |
1.58%
|
|
Weighted-average expected term of the option (in years)
|
| |
6.06
|
| |
6.04
|
| |
6.08
|
| |
6.11
|
| |
6.10
|
|
Weighted-average expected volatility
|
| |
38.09%
|
| |
37.84%
|
| |
40.03%
|
| |
38.84%
|
| |
37.46%
|
|
Weighted-average dividend yield
|
| |
0.00%
|
| |
0.00%
|
| |
0.00%
|
| |
0.00%
|
| |
0.00%
|
The Company estimates the rate of option forfeiture by monitoring the
rate of employee turnover and average tenure at separation of employment.
Sensitivity of Estimate to Change:
These estimates involve inherent uncertainties and the application of
management’s judgement. If the Company had made different assumptions, the Company’s stock-based compensation expense and its net loss could have been materially different.
317
An increase in risk-free interest rate will reduce the estimated
fair value of a stock option grant, while decrease in these factors will have an opposite effect.
Likewise, a decrease in volatility and expected term will decrease
the estimated fair value of a stock option grant, while an increase in these factors will have an opposite effect. The Company utilizes a consistent group of peer companies unless one or more of those companies cease to be publicly traded or
are no longer similar to the Company’s business. In cases where a peer group company is no longer able to be used, the Company identifies a replacement peer company for its volatility calculation.
The Company does not expect to change the dividend yield assumption
in the near future.
A decrease in the Company’s estimate of option forfeiture will
increase the amount of stock option expense recognized in a period while an increase will have the opposite effect.
Common Stock Valuations
Description:
Our board of directors, with input from management and third-party
valuation specialists, determines the fair value of our common stock underlying our stock-based awards. The Company believes that its Board of Directors has the relevant experience and expertise to determine the fair value of its common stock.
The Company’s Board of Directors intends all stock options granted to be exercisable at a price per share not less than the fair value per share of the common share underlying those stock options on the date of grant.
In the absence of a public market for the Company’s common stock, the
valuation of the Company’s stock shares has been determined using a combination of valuation methodologies with varying weightings applied to each methodology. The valuation was performed in accordance with the guidelines outlined in the
American Institute of Certified Public Accountants Practice Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation
Our warrant liabilities and contingent consideration are recorded at
fair value based on our common stock valuation.
Judgments and Uncertainties:
Because our common stock is not publicly traded, our board of
directors considered numerous objective and subjective factors to determine the fair value of our common stock including:
|
•
|
the results of contemporaneous independent third-party valuations of our common stock;
|
|
•
|
the prices, rights, preferences, and privileges of our Convertible Redeemable Preferred Stock relative to those of our common
stock;
|
|
•
|
the lack of marketability of our common stock;
|
|
•
|
actual operating and financial results;
|
|
•
|
current business conditions and projections;
|
|
•
|
the likelihood of achieving a liquidity event, such as an initial public offering, sale of the Company, or successful business
combination, given prevailing market conditions; and
|
|
•
|
precedent transactions involving our shares.
|
Sensitivity of Estimate to Change:
The assumptions underlying these valuations represented management’s
best estimate, which involved inherent uncertainties and the application of management’s judgment. The probability of a liquidity event and the derived discount rate are significant assumptions used to estimate the fair value of the Company’s
commons stock. If the Company had used different assumptions or estimates, the fair value of the Company’s common stock, its stock-based compensation expense, and changes in fair value for warrant liabilities and contingent consideration could
have been materially different.
318
Business Combinations
Description:
We account for acquisitions using the acquisition method of
accounting. The fair value of purchase consideration is allocated to the tangible and intangible assets acquired, and liabilities assumed, based on their estimated fair values. The excess of the fair value of purchase consideration over the
values of the identifiable assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to
intangible assets.
We perform our annual goodwill impairment assessment on November 1,
or when an assessment of qualitative factors indicates an impairment may have occurred. The qualitative assessment includes an evaluation of events and circumstances including long-term growth projections, profitability, industry, market and
macroeconomic conditions. The quantitative assessment includes an analysis that compares the fair value of a reporting unit to its carrying value including goodwill recorded by the reporting unit.
Judgments and Uncertainties:
Significant estimates in valuing certain identifiable assets include,
but are not limited to, the selection of valuation methodologies, future expected cash flows, discount rates, and useful lives.
For goodwill, management applies judgement to determine the number of
reporting units and if circumstances or events indicate if an impairment may exist. We have determined that the Company operates as a single reporting unit. The estimate of the fair value of the related reporting unit includes several
judgments, each with inherent uncertainties such as estimated future cash flows of the reporting unit and the discount rate applied to those estimated future cash flows.
Sensitivity of Estimate to Change:
Our estimates of fair value are based upon assumptions believed to be
reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
The impact to our financial statements for a change of one year to
the estimated lives our acquired intangible assets would be approximately $0.6 million.
We completed our most recent annual goodwill impairment assessment on
November 30, 2021, and there was no impairment of goodwill at the assessment date.
Liquidity and Capital Resources
We have financed operations primarily through the sale of equity
securities, borrowings under various security and loan agreements, and payments from customers. Our operating losses have been significant, as reflected in our accumulated deficit of $167.0 million and $156.8 million as of April 30, 2022, and
January 31, 2022, respectively.
We believe that our cash on hand, the proceeds from the Convertible
Notes Financing and Common Equity PIPE Financing we expect to receive upon the completion of the Business Combination, and additional facilities with our current lenders will be sufficient to meet our cash requirements for at least the 12
months following the date of this proxy statement/prospectus. Future capital requirements will depend on many factors including, but not limited to, cash collected from customers, additional borrowing, acceleration of sales and marketing costs
to facilitate revenue expansion, and the continued adoption of our subscription products.
319
Cash Flows
The following table presents a summary of our cash flows for the
periods presented:
|
|
| |
Year Ended January 31,
|
| |
Three Months Ended
April 30,
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
| |
2022
|
| |
2021
|
|
|
| |
(dollars in thousands)
|
||||||||||||
|
Cash, cash equivalents, and restricted cash-beginning of year
|
| |
$13,864
|
| |
$22,898
|
| |
$9,382
|
| |
$10,374
|
| |
$13,864
|
|
Net cash used in operating activities
|
| |
(18,072)
|
| |
(15,058)
|
| |
(18,633)
|
| |
(7,164)
|
| |
(4,311)
|
|
Net cash used in investing activities
|
| |
(5,038)
|
| |
(7,993)
|
| |
(804)
|
| |
(318)
|
| |
(317)
|
|
Net cash provided by financing activities
|
| |
19,698
|
| |
14,074
|
| |
33,018
|
| |
7,258
|
| |
8
|
|
Foreign exchange translation adjustment
|
| |
(78)
|
| |
(57)
|
| |
(65)
|
| |
60
|
| |
(42)
|
|
Cash, cash equivalents, and restricted cash-beginning of year
|
| |
$10,374
|
| |
$13,864
|
| |
$22,898
|
| |
$10,210
|
| |
$9,202
|
Operating Activities
Our largest source of cash is payments from customers. Our primary
uses of cash stem from personnel-related expense, third-party hosting expense, data source expense, and overhead expense, which is primarily comprised of IT support, facilities, and insurance expense. Cash used in operating activities
primarily consists of our net losses from operations adjusted for non-cash expenses, including stock-based compensation expense, depreciation and amortization expense, and changes in period operating assets and liabilities.
We have used cash to develop our platform, build our go-to-market
capabilities and establish an administrative and support infrastructure to accommodate our future growth and expansion activities. In 2013, when we started our company, the market for digital risk protection was nascent and emerging and few
providers and/or solutions existed to address digital risk protection. From our inception, we have invested, primarily in personnel, to develop a technology platform and to educate the market regarding the external cybersecurity risks
businesses face in this evolving digital economy and the protections we offer to mitigate or eliminate those risks. As such, we have incurred significant costs to hire, train and retain key personnel in engineering, sales, marketing and
executive positions to establish a foundation for sustained growth.
We expect that the cash available from the Common Equity PIPE
Financing and Convertible Notes Financing, together with any remaining funds available from the Trust Account after redemptions, will be sufficient to meet our liquidity requirements for at least the 12 months following the consummation of
the Business Combination. If we are not able to consummate the Business Combination, there can be no assurance that we could raise additional funds to maintain sufficient liquidity.
We deploy a subscription-based software-as-a-service business
model whereby existing customers account for the majority of our revenue. The costs to renew and expand revenue from existing customers is significantly less than the costs to acquire new customers. Additionally, as we continue to grow in the
markets we serve today, we will be able to leverage our platform and the scale from our engineering, support and administrative functions across a larger customer and revenue base. We have incurred operating losses since our inception, and we
have historically funded our operations through the issuance of redeemable convertible preferred stock and debt. We expect to continue to incur operating losses for at least the next two years as we continue to build out our capabilities
until we are able to generate positive operating cash flows from the scale achieved from our revenue growth and operating efficiencies; however, we may face significant risks associated with the successful execution of our business plan,
including rising customer acquisition costs, increased competition and market risk.
Cash used in operating activities for the three months ended
April 30, 2022, was $7.2 million which consisted of our net loss of $10.2 million adjusted by $2.4 million of non-cash expenses and $0.6 million of net cash inflows from changes in operating assets and liabilities. Cash used in operating
activities for the three months ended April 30, 2021, was $4.3 million which consisted of our net loss of $4.2 million adjusted by $1.0 million of non-cash expenses and $1.1 million of net cash outflows from changes in operating assets and
liabilities.
Cash used in operating activities during the year ended January 31,
2022 was $18.1 million, consisting of our net loss of $38.4 million adjusted by $11.8 million of non-cash expenses and $8.5 million of net cash inflows from changes in operating assets and liabilities. Cash used in operating activities during
the year ended January 31, 2021 was $15.1 million, consisting of our net loss of $22.7 million adjusted by $5.6 million of
320
non-cash expenses and $2.0 million of net cash inflows from changes in operating
assets and liabilities. Cash used in operating activities during the year ended January 31, 2020 was $18.6 million, consisting of our net loss of $22.7 million adjusted by $2.6 million of non-cash expenses and $1.5 million of net cash inflows
from changes in operating assets and liabilities.
Investing Activities
Cash used in investing activities for the three months ended
April 30, 2022, was $0.3 million which consisted of $0.2 million capitalized software development costs and $0.1 million capital expenditures for property and equipment. Cash used in investing activities for the three months ended April 30,
2021, was $0.3 million which consisted of $0.1 million capital expenditures for property and equipment, $0.1 million capitalized software development costs, and $0.04 million related to additional expenses related to business acquisitions.
Cash used in investing activities during the year ended January 31,
2022 was $5.0 million, consisting of $3.8 million in net cash paid for the acquisition of Vigilante and $1.2 million in capital expenditures and capitalized software development costs. Cash used in investing activities during the year ended
January 31, 2021 was $8.0 million, consisting of $7.2 million in net cash paid for the acquisition of Cyveillance and $0.8 million in capital expenditures and capitalized software development costs. Cash used in investing activities during the
year ended January 31, 2020 was $0.8 million for capital expenditures and capitalized software development costs.
Financing Activities
Financing activities for the three months ended April 30, 2022
provided $7.3 million of cash which primarily consisted of $7.4 million of net proceeds from new borrowings, partially offset by a repayment of debt of $0.2 million. There were no material financing activities for the three months ended
April 30, 2021.
Financing activities for the year ended January 31, 2022 provided
$19.7 million of cash proceeds, consisting of $20.0 million of net proceeds from new borrowings. Financing activities for the year ended January 31, 2021 provided $14.1 million of cash proceeds, consisting of $37.1 million of net proceeds from
new borrowings offset by $23.0 million of debt repayments. Financing activities for the year ended January 31, 2020 provided $33.0 million of cash proceeds, consisting of $21.1 million of proceeds from the sale of redeemable convertible
preferred stock, $8.4 million of proceeds from the issuance of convertible notes and $14.7 million of net proceeds from new borrowings offset by $11.2 million of debt repayment.
Debt Obligations
The following table presents a summary of our debt obligations for
the periods presented:
|
|
| |
As of April 30, 2022
|
|||||||||||||||
|
Lender
|
| |
Stated
Interest
Rate
|
| |
Gross
Balance
|
| |
Unamortized
Debt Discount
|
| |
Unamortized
Deferred Debt
Issuance Costs
|
| |
Discount
on Note
Payable
|
| |
Net
Carrying
Value
|
|
|
| |
(dollars in thousands)
|
|||||||||||||||
|
Stifel Bank
|
| |
4.50%
|
| |
$15,000
|
| |
$84
|
| |
$500
|
| |
$—
|
| |
$14,416
|
|
Orix Growth Capital, LLC
|
| |
10.00%
|
| |
37,500
|
| |
410
|
| |
1,058
|
| |
—
|
| |
36,032
|
|
InfoArmor
|
| |
5.50%
|
| |
3,047
|
| |
—
|
| |
—
|
| |
198
|
| |
2,849
|
|
PIPE Investors
|
| |
5.00%
|
| |
5,093
|
| |
—
|
| |
—
|
| |
—
|
| |
5,093
|
|
|
| |
|
| |
$60,640
|
| |
$494
|
| |
$1,558
|
| |
$198
|
| |
$58,390
|
|
|
| |
|
| |
|
| |
|
| |
Current portion of
long-term debt
|
| |
$6,031
|
|||
|
|
| |
|
| |
|
| |
|
| |
Long-term debt
|
| |
52,359
|
|||
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$58,390
|
321
|
|
| |
As of January 31, 2022
|
|||||||||||||||
|
Lender
|
| |
Stated
Interest
Rate
|
| |
Gross Balance
|
| |
Unamortized
Debt Discount
|
| |
Unamortized
Deferred Debt
Issuance Costs
|
| |
Discount
on Note
Payable
|
| |
Net
Carrying
Value
|
|
|
| |
(dollars in thousands)
|
|||||||||||||||
|
Stifel Bank
|
| |
4.50%
|
| |
$15,000
|
| |
$96
|
| |
$574
|
| |
$—
|
| |
$14,330
|
|
Orix Growth Capital, LLC
|
| |
10.00%
|
| |
30,000
|
| |
349
|
| |
608
|
| |
—
|
| |
29,043
|
|
InfoArmor
|
| |
5.50%
|
| |
3,281
|
| |
—
|
| |
—
|
| |
213
|
| |
3,068
|
|
PIPE Investors
|
| |
5.00%
|
| |
5,032
|
| |
—
|
| |
—
|
| |
—
|
| |
5,032
|
|
|
| |
|
| |
$53,313
|
| |
$445
|
| |
$1,182
|
| |
$213
|
| |
$51,473
|
|
|
| |
|
| |
|
| |
|
| |
Current portion of
long-term debt
|
| |
$5,970
|
|||
|
|
| |
|
| |
|
| |
|
| |
Long-term debt
|
| |
45,503
|
|||
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$51,473
|
|
|
| |
As of January 31, 2021
|
|||||||||||||||
|
Lender
|
| |
Stated
Interest
Rate
|
| |
Gross
Balance
|
| |
Unamortized
Debt Discount
|
| |
Unamortized
Deferred Debt
Issuance Costs
|
| |
Discount
on Note
Payable
|
| |
Net
Carrying
Value
|
|
|
| |
(dollars in thousands)
|
|||||||||||||||
|
Stifel Bank
|
| |
4.50%
|
| |
$10,000
|
| |
$109
|
| |
$45
|
| |
$—
|
| |
$9,846
|
|
Orix Growth Capital, LLC
|
| |
10.00%
|
| |
20,000
|
| |
782
|
| |
489
|
| |
—
|
| |
18,729
|
|
|
| |
|
| |
$30,000
|
| |
$891
|
| |
$534
|
| |
$—
|
| |
$28,575
|
Material Cash Requirements
Our material cash requirements are associated with repayment of
debt and obligations associated with non-cancelable contracts for the purchase of goods and third-party services and operating leases. We expect to satisfy these cash requirements through cash available from the Common Equity PIPE Financing
and Convertible Notes Financing, together with any remaining funds available from the Trust Account after redemptions.
The following table summarizes current and long-term material cash
requirements as of April 30, 2022:
|
|
| |
Payments Due By Period
|
||||||||||||
|
|
| |
Total
|
| |
Less than 1
year
|
| |
1-3 years
|
| |
3-5 years
|
| |
Thereafter
|
|
|
| |
(in thousands)
|
||||||||||||
|
Operating leases(1)
|
| |
$1,646
|
| |
$909
|
| |
$737
|
| |
$—
|
| |
$—
|
|
Purchase commitments(2)
|
| |
4,251
|
| |
2,834
|
| |
1,417
|
| |
—
|
| |
—
|
|
Debt repayments
|
| |
60,640
|
| |
6,031
|
| |
44,609
|
| |
10,000
|
| |
—
|
|
Total
|
| |
$66,537
|
| |
$9,774
|
| |
$46,763
|
| |
$10,000
|
| |
$—
|
The following table summarizes current and long-term material cash
requirements as of January 31, 2022:
|
|
| |
Payments Due By Period
|
||||||||||||
|
|
| |
Total
|
| |
Less than 1
year
|
| |
1-3 years
|
| |
3-5 years
|
| |
Thereafter
|
|
|
| |
(in thousands)
|
||||||||||||
|
Operating leases(1)
|
| |
$1,948
|
| |
$1,035
|
| |
$913
|
| |
$—
|
| |
$—
|
|
Purchase commitments(2)
|
| |
5,878
|
| |
3,453
|
| |
2,425
|
| |
—
|
| |
—
|
|
Debt repayments
|
| |
53,313
|
| |
5,970
|
| |
36,343
|
| |
11,000
|
| |
—
|
|
Total
|
| |
$61,139
|
| |
$10,458
|
| |
$39,681
|
| |
$11,000
|
| |
$—
|
|
(1)
|
Relates to our office facilities.
|
|
(2)
|
Relates to non-cancelable purchase commitments to purchase products and services entered into in the normal course of business.
|
322
Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency
To date, the majority of our sales contracts have been denominated in
U.S. dollars (USD) with a limited number of contracts denominated in foreign currencies. Revenue denominated in USD was approximately 89%, 86% and 85% for the years ended January 31, 2022, 2021 and 2020, respectively, and 89% and 90% for three
months ended April 30, 2022 and 2021, respectively. Operating expenses within the United States are primarily denominated in U.S. dollars, while operating expenses incurred outside the United States are primarily denominated in each country’s
respective local currency.
The functional currency of our foreign subsidiaries is each country’s
respective local currency. Assets and liabilities of the foreign subsidiaries are translated into USD at the exchange rates in effect at the reporting date, and income and expenses are translated at average exchange rates during the period,
with the resulting translation adjustments directly recorded as a component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are recorded in other income (expense), net in the consolidated
statements of operations. As the impact of foreign currency exchange rates has not been material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to
foreign currency becomes more significant.
We do not believe a hypothetical 10% increase or decrease in foreign
exchange rates would have had a material impact on our financial statements.
Interest Rate Risk
As of April 30, 2022 and January 31, 2022, we had $60.6 million and
$53.3 million, respectively, of outstanding borrowings under term loans. Our loans have fixed interest rates and variable interest rates that would subject us to interest rate fluctuations.
We do not believe a hypothetical 10% increase or decrease in interest
rates would have had a material impact on our financial statements.
Emerging Growth Company
Upon the consummation of the Business Combination, we will be an
emerging growth company, as defined in the Jumpstart Our Business Startups, “JOBS,” Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting
standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period 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.
323
RESULTS OF OPERATIONS OF IDX
IDX’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS FROM OPERATIONS
The following discussion and analysis of the
financial condition and results of operations of IDX should be read together with its unaudited condensed interim consolidated financial statements as of March 31, 2022 and 2021, and its audited consolidated financial statements as of
December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020, and 2019, in each case together with related notes thereto, included elsewhere in this proxy statement/prospectus.
The following discussion contains forward-looking
statements that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside of IDX’s control. Actual results may differ significantly
from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in the sections
entitled “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements” and “Market and Industry Information” included elsewhere in this proxy statement/prospectus. Certain amounts may not foot due to rounding.
Overview
IDX was founded in 2003 with a mission to address the growing threat
from data breaches and resulting identity theft and fraud. The Company created a software and services platform to help protect individuals from data breaches and resulting identity crime and to remediate the negative effects of such breaches.
As organizations began to experience cybersecurity breaches of
growing frequency and severity, the Company expanded its offerings by providing organizations with data breach response services that leveraged IDX’s identity protection offerings for individuals. As new laws and regulations were passed that
required breach notification and protections for affected individuals, the IDX business grew to serve both governmental and commercial entities of different sizes.
The Business
IDX believes it has a leading position in the United States by
revenues as a provider of data breach response services, and associated identity and privacy protection services, to both government and commercial entities. IDX acquires new customers for its data breach services through cyber insurers (and
their approved privacy attorneys) where IDX services are pre-approved, through direct relationships with organizations that choose to select a data breach response service provider, where IDX enters into a master services agreement (MSA) with
them for current and future services, as well as through government channels as a result of approved listings with the General Services Administration (GSA) for federal agencies with the National Association of State Procurement Officials
(NASPO) for state and local agencies.
IDX provides identity and privacy protection services through its
proprietary, cloud-native platform for the protection of individuals impacted by data breaches, as well as through other channels, for proactively addressing the risks associated with privacy and identity risks to the affected individuals and
the breached organization. This platform was designed to improve scalability and usability, while concurrently supporting rapid development of new capabilities, and compliance with increasingly rigorous security standards based on the National
Institute of Standards and Technology (NIST) Special Publication 800-53 Rev 4. Typically, IDX tests its own security controls, and in some cases contracts out testing to third parties as part of yearly FISMA security risk assessments, HIPAA
security risk analysis for business associates, and SOC 2 type 2 certifications.
IDX has a substantial customer base for data breach services in the
public sector. The largest component of revenue from the public sector results from a multiyear contract with the U.S. Office of Personnel Management (“OPM”), described below.
In 2015, OPM and the Department of Defense (“DoD”) awarded IDX a
three-year, $330 million contract to provide identity protection and breach response services covering approximately 21.5 million current and former federal employees and contractors that were affected by the OPM data breach of background
investigation records. IDX believes winning this award resulted in further market validation, increased visibility, and enhanced
324
reputation for IDX as a leading data breach response provider in the United States by
revenues. Earning this award required the Company to comply with rigorous government security standards, and when combined with receiving “very good” and “excellent” Contractor Performance Assessment Reports (CPAR) ratings, the IDX data breach
response business was well positioned to address large-scale data breaches.
In 2018, IDX won a rebid of the contract with OPM and the DoD worth
at least $460 million, assuming all option periods and the extension period are exercised, for the period ending June 30, 2024 to provide identity protection services for certain employees and prospective employees of the U.S. government
affected by a breach of OPM systems (“OPM Contract”). IDX believes the OPM Contract was and remains as of March 31, 2022 the largest data breach response arrangement in the history of such contracts in the United States, and further cemented
IDX as a leading provider in the United States by revenues of data breach response services to both governmental and commercial entities. In addition, IDX is listed on the General Services Administration (GSA) SIN 520.20 for Data Breach
Response and Identity Protection Services facilitating data breach response contracts with numerous other government agencies.
The OPM Contract is structured as a Base Period from July 1, 2019
to June 30, 2020, followed by a series of options as follows: Option Period I from July 1, 2020 to June 30, 2021, Option Period II from July 1, 2021 to June 30, 2022, Option Period III from July 1, 2022 to June 30, 2023, and Option Period IV
from July 1, 2023 to December 31, 2023. OPM has an option to extend the OPM Contract from January 1, 2024 to June 30, 2024, as well as an option to add a transition-out period. To date, OPM has exercised Option Period I, Option Period II, and
Option Period III. IDX plans to pursue the rebid of the OPM Contract in 2024 for an extension through 2027. For more information, see a copy of the OPM Contract filed as exhibits to the registration statement of which this proxy
statement/prospectus forms a part.
IDX generates the largest component of its commercial revenue from
organizations that require response services for data breach incidents. The response services typically include notifications of individuals impacted by the breach, call center support, and a customized webpage for providing information to (and
providing privacy and identity protection software and services for) the affected population. In addition to revenue from data breach incident response services, IDX also provides identity and privacy services on a subscription basis to
organizations, which they can offer as a benefit for their employees or customers.
Impact of COVID-19 On the Business
IDX operates in geographic locations that have been impacted by
coronavirus disease 2019 (“COVID-19”). The pandemic has affected, and could further affect, IDX’s operations, and the operations of its customers as a result of various factors, including but not limited to quarantines, local, state, and
federal government public health orders, facility and business closures, and travel and logistics restrictions. IDX anticipates governments and businesses will likely take additional actions or extend existing actions to respond to the risks of
the COVID-19 pandemic. IDX continues to actively monitor the impacts and potential impacts of the COVID-19 pandemic on IDX’s customers, supply chain, and operations. For further information, please see “Risk
Factors—The COVID-19 pandemic could adversely affect our business, operating results, and financial condition.”
IDX instituted a global work-from-home policy in March 2020 and
to-date have not experienced significant disruptions as a result. IDX has not requested relief under the Coronavirus Aid, Relief, and Economic Security Act, and it therefore had no effect on its financial statements.
Key Factors Affecting Performance
New customer acquisition
IDX believes that its future growth depends in part on its ability to
acquire new customers for its data breach services and consumer identity and privacy protection membership services to its strategic partners’ members, employer groups’ employees, and retail customers. Historically, IDX has sourced a
significant proportion of new data breach services customers as a result of relationships with cyber insurers. IDX makes on-going investments in developing and maintaining these relationships, as well as relationships with privacy attorneys
that represent many of their cyber insurers. Additionally, IDX invests in direct marketing to prospective customers for data breach services, as well as IDX’s identity and privacy membership services for employee benefits and strategic partner
customer protection.
325
Customer Retention
IDX’s revenue growth is also fostered by its ability to retain
customers that perceive on-going need for data breach response services, as well as cross-selling membership services for customers’ employees or their customers. Notably, IDX has multi-year contracts with some government entities, including
the OPM Contract. The possible retention and renewal of the OPM Contract may also be a factor in maintaining revenue growth. For more information on the OPM Contract, see “Business of ZeroFox—IDX History and
Business Overview.”
Investing in Business Growth
IDX also invests in initiatives to support the growth of its
business. IDX’s research and development organization, composed of employees and contractors, uses an agile development philosophy in an effort to enhance its existing identity and privacy platform while adding new features and products,
usability enhancements, customer integrations and APIs, and security certifications. IDX’s sales and marketing teams invest in business growth through channel expansion with dedicated sales teams and associated marketing demand generation
programs.
IDX also invests in growth of its business with government entities
by building relationships with consultants experienced in the government procurement process and maintenance of its listings on relevant GSA schedules, as well as by investing in relationships with key government agency stakeholders and
congressional representatives. In this regard, IDX from time to time will work with consultants who specialize in government contract bidding strategies, provide advice on optimal maintenance and use of the U.S. Government GSA schedule, and
provide strategic, relationship-building and legislative affairs services with members of Congress and their staffs.
Key Business Metrics
IDX monitors the following key metrics to measure performance,
identify trends, formulate business plans, and make strategic decisions.
Breach Revenue, Consumer Membership Services & Total Revenue
The table below presents IDX’s key performance indicators for the
periods indicated.
|
|
| |
Years Ended December 31,
|
| |
$ Change
|
| |
$ Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
2019
|
| |
2021 vs. 2020
|
| |
2020 vs. 2019
|
|
|
| |
(in thousands, except customer and member data)
|
||||||||||||
|
Breach revenue(1)(3)
|
| |
$102,719
|
| |
$100,667
|
| |
$100,556
|
| |
$2,052
|
| |
$111
|
|
Consumer membership services(1)
|
| |
3,353
|
| |
2,869
|
| |
2,548
|
| |
484
|
| |
321
|
|
Total revenue
|
| |
$106,072
|
| |
$103,536
|
| |
$103,104
|
| |
$2,536
|
| |
$432
|
|
Breach customers(2)
|
| |
1,230
|
| |
820
|
| |
586
|
| |
410
|
| |
234
|
|
Consumer members(2)
|
| |
168
|
| |
134
|
| |
91
|
| |
34
|
| |
43
|
|
|
| |
Three Months Ended March 31,
|
| |
$ Change
|
|||
|
|
| |
2022
|
| |
2021
|
| |
2022 vs. 2021
|
|
|
| |
(in thousands, except customer and member data)
|
||||||
|
Breach revenue(1)(3)
|
| |
$26,367
|
| |
$26,162
|
| |
$205
|
|
Consumer membership services(1)
|
| |
1,107
|
| |
794
|
| |
313
|
|
Total revenue
|
| |
$27,474
|
| |
$26,956
|
| |
$518
|
|
Breach customers(2)
|
| |
1,042
|
| |
750
|
| |
292
|
|
Consumer members(2)
|
| |
174
|
| |
136
|
| |
38
|
|
(1)
|
IDX defines breach revenue as revenues related to breach contracts, which typically have a term of 15 months (three-month call
center period followed by 12 months of monitoring) and are non-recurring. IDX defines consumer membership services as recurring monthly and yearly ongoing identity and privacy services provided to strategic partners’ members, employer
groups’ employees, and retail customers.
|
326
|
(2)
|
IDX defines a breach customer as an agency or organization from which it has recognized breach revenue in a reporting period. IDX
defines consumer members, in this instance, as strategic partners and employer groups receiving consumer membership services (non-breach and non-retail customers).
|
|
(3)
|
Effective January 1, 2020, IDX adopted ASC 606, “Revenue from Contracts with Customers”
(“ASC 606”), under the modified retrospective method. See notes to the consolidated financial statements included elsewhere in this proxy statement/prospectus for more information related to the impact of adoption of ASC 606.
|
IDX has continued to see an increase each quarter and year in the
number of its breach customers, with an increase of 292 in the three months ended March 31, 2022 and 2021, respectively, and 410 in 2021 compared to 2020. Although annual revenue growth in the three months ended March 31, 2022 and 2021,
respectively, and 2020 compared to 2019 was relatively flat, the number of unique breach customers and consumer members significantly increased. This is a direct result of the increase in breach incidents occurring, which IDX believes were
spurred by the increased online and remote presence of businesses in response to the COVID-19 lockdown. IDX has continued to see this trend into 2022 and expects this trend to continue into future years. IDX is party to a few contracts with
non-standard terms that have a disproportionate effect when analyzing a per-unit metric based on total breach revenue and total number of breach customers. In addition, IDX management believes that IDX’s adoption of ASC 606 for 2022, 2021, and
2020 makes it difficult to provide a meaningful comparison with respect to a per-unit value as compared to 2019. Therefore, IDX management believes a per-unit metric is not a meaningful indicator of its business.
Components of Results from Operations
Revenue
IDX recognizes revenue when control of the promised goods or services
is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for its goods or services. For arrangements with multiple performance obligations, the Company allocates revenue to
each performance obligation on a relative fair value basis based on management’s estimate of Stand-Alone Selling Price (SSP).
IDX’s breach services revenue consists of contracts with various
combinations of notification, project management, communication services, and ongoing identity protection services. Performance periods generally range from one to three years, and payment terms are generally either thirty or sixty days
throughout the term. Contracts generally do not contain significant financing components. The Company’s breach services contracts are structured as either fixed or variable. In fixed contracts, IDX charges customers a fixed total price or fixed
per-impacted individual price for the total package of services. For variable breach services contracts, IDX charges the breach communications component, which includes notifications and call center support, at a fixed total fee, and charges
for ongoing identity protection services as incurred using a fixed price per enrollment. The Company generally does not offer rights of return for Enterprise Security products, and the distribution channel does not hold inventory. As a result,
historical returns and related reserves have been insignificant.
IDX provides identity and privacy protection services memberships
through its Employer Groups and Strategic Partners as well as directly to individual end-users through its retail business. Consumer membership services consist of multiple bundled identity and privacy product offerings and provide members with
ongoing monitoring services. For consumer membership services, IDX recognizes revenue ratably over the service period, which is typically one year. Payments from Employer Groups and Strategic Partners are generally collected monthly, and
payments from end-users are collected up front.
IDX evaluates arrangements with governmental entities containing
“fiscal funding” or “termination for convenience” provisions, when such provisions are required by law, to determine the probability of possible cancellation. For more information, see “Risk Factors—Risks
Related to Government Contracting Matters”. IDX considers multiple factors, including its history with the government entity in similar transactions and budgeting and approval processes undertaken by the governmental entity. If IDX
determines upon execution of these arrangements that the likelihood of cancellation is remote, it then recognizes revenues for such arrangements once all relevant criteria have been met. If IDX cannot make such a determination, it recognizes
revenues upon the earlier of cash receipt or approval of the applicable funding provision by the governmental entity for such arrangements.
Cost of Services
Cost of services consists of fees to outsourced service providers for
credit monitoring, call center operation, notification mailing, insurance, and other miscellaneous services and internal labor costs. For periods prior to January 1, 2020, under ASC 605, Revenue Recognition—Multiple Element Arrangements,
incremental direct
327
costs were capitalized as setup costs and amortized ratably over the contractual
period. Beginning January 1, 2020, notification costs are being expensed as fulfillment costs and recognized at a point in time. Call center costs, also fulfillment costs, are being capitalized and amortized over time. Sales commissions, which
are incremental costs to obtain contracts, are generally recognized ratably over the contractual period of the applicable agreement. These costs are within capitalized contract costs and recognized in relation to revenue recorded over the
combined service and membership terms. The remainder of cost of services is expensed as incurred.
Gross Profit
Gross profit, calculated as total revenue less total cost of
services, is affected by various factors, including the timing of breach incidents, renewals from existing customers, costs associated with fulfilling contracts such as notification, call center, and monitoring costs, the extent to which IDX
expands its customer support organization, and the extent to which it can negotiate any preferential pricing from its vendors. Because of these factors, IDX’s services revenue and gross profit may fluctuate over time.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily
of employee compensation and related expenses, including salaries, bonuses and benefits for IDX’s sales and marketing employees, sales commissions that are recognized as expenses over the period of benefit, marketing programs, travel and
entertainment expenses, and allocated overhead costs. IDX capitalizes its sales commissions and recognizes them as expenses over the estimated period of benefit.
General and Administrative
General and administrative costs include
salaries, stock-based compensation expenses, and benefits for personnel involved in IDX’s executive, finance, legal, human resources, and administrative functions, as well as third-party professional services and fees, and overhead expenses.
IDX expects that general and administrative expenses will increase in absolute dollars as IDX hires additional personnel and enhances its systems, processes, and controls to support the growth in IDX’s business as well as increased compliance
and reporting requirements as a public company.
Research and Development
Research and development expenses primarily
consist of personnel costs and contractor fees related to the bundling of other third-party software products that are offered as one combined package within the Company’s product offerings. Personnel costs include salaries, bonuses and
stock-based compensation and related employer-paid payroll taxes, as well as an allocation of facilities, benefits, and information technology costs. Research and development costs are expensed as incurred.
Interest and Other Expense
Interest and other expense consist primarily of
term loan interest expense and the amortization of warrant and loan fees, which are recorded as a reduction to debt on the consolidated balance sheets.
Income Tax Expense (Benefit)
Income Tax Expense (benefit) consists of federal
and state income taxes in the United States. IDX maintains a partial valuation allowance on its state net operating losses and credits.
328
Results of Operations
Comparison of Three-Month Period Ended March 31,
2022 and 2021
The following table sets forth IDX’s consolidated statements of
operations in dollar amounts and as a percentage of total revenue for each period presented:
|
|
| |
Three-Month Period Ended
March 31,
(Unaudited)
|
| |
|
||||||||||||
|
|
| |
2022
|
| |
2021
|
| |
2022 vs 2021
|
|||||||||
|
|
| |
|
| |
Percentage of
Revenue
|
| |
|
| |
Percentage of
Revenue
|
| |
Change in
Dollars
|
| |
Change in
Percentage
|
|
|
| |
(in thousands)
|
|||||||||||||||
|
Revenue
|
| |
$27,474
|
| |
100%
|
| |
$26,956
|
| |
100%
|
| |
$518
|
| |
2%
|
|
Cost of services
|
| |
21,265
|
| |
77%
|
| |
20,702
|
| |
77%
|
| |
563
|
| |
3%
|
|
Gross profit
|
| |
6,209
|
| |
23%
|
| |
6,254
|
| |
23%
|
| |
(45)
|
| |
(1)%
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
1,450
|
| |
5%
|
| |
1,127
|
| |
4%
|
| |
323
|
| |
29%
|
|
Sales and marketing
|
| |
1,896
|
| |
7%
|
| |
1,971
|
| |
7%
|
| |
(75)
|
| |
(4)%
|
|
General and administrative
|
| |
2,823
|
| |
10%
|
| |
1,102
|
| |
4%
|
| |
1,721
|
| |
156%
|
|
Total operating expenses
|
| |
6,169
|
| |
22%
|
| |
4,200
|
| |
16%
|
| |
1,969
|
| |
47%
|
|
Operating income
|
| |
40
|
| |
0%
|
| |
2,054
|
| |
8%
|
| |
(2,014)
|
| |
(98)%
|
|
Interest and other expense
|
| |
392
|
| |
1%
|
| |
166
|
| |
1%
|
| |
226
|
| |
136%
|
|
(Loss) income before provision for income taxes
|
| |
(352)
|
| |
(1)%
|
| |
1,888
|
| |
7%
|
| |
(2,240)
|
| |
(119)%
|
|
Income tax (benefit) expense
|
| |
(94)
|
| |
0%
|
| |
545
|
| |
2%
|
| |
(639)
|
| |
(117)%
|
|
Net (loss) income
|
| |
$(258)
|
| |
(1)%
|
| |
$1,343
|
| |
5%
|
| |
$(1,601)
|
| |
(119)%
|
Revenue
Total revenue increased by $518 thousand or 2% in the three-month
period ended March 31, 2022 compared to the same period in 2021. Breach revenue accounted for 96% and 97% of total revenue in the three-month periods ended March 31,2022 and 2021, respectively. The increase was due primarily to an increase in
breach deals and increase in Consumer membership services. Consumer membership services increased by $312 thousand or 39% in the three-month period ended March 31, 2022 compared to the same period in 2021.
Cost of Services
Total cost of services increased by $563 thousand or 3% in the
three-month period ended March 31, 2022 compared to the same period in 2021. The increase was due primarily to an increase in breach deals.
Gross Profit
Gross profit decreased by $45 thousand or 1% in the three-month
period ended March 31, 2022 compared to the same period in 2021.
Operating Expenses
|
|
| |
Three-Month Period Ended
March 31,
(Unaudited)
|
|||
|
|
| |
2022
|
| |
2021
|
|
|
| |
(in thousands)
|
|||
|
Research and development
|
| |
$1,450
|
| |
$1,127
|
|
Sales and marketing
|
| |
1,896
|
| |
1,971
|
|
General and administrative
|
| |
2,823
|
| |
1,102
|
|
Total operating expenses
|
| |
$6,169
|
| |
$4,200
|
329
Research and Development
Research and development expenses increased by $323 thousand or 29%
in the three-month period ended March 31,2022 compared to the same period in 2021, as IDX continued to invest in its products and services, which included increased personnel costs and contractor fees.
Sales and Marketing
Sales and marketing costs decreased by $75 thousand or 4% in the
three-month period ended March 31, 2022 compared to the same period in 2021. The decrease was primarily related to an online advertising pilot program which ended after Q1 2021.
General and Administrative
General and administrative costs increased by $1.721 million or 156%
in the three-month period ended March 31, 2022 compared to the same period in 2021. This increase is primarily a result of an increase in accounting, audit, and legal fees of $1.684 million which relate to the proposed transaction. The Company
incurred significantly more in audit fees during the three-month period ended March 31, 2022 compared to the same period in 2021 due to professional fees related to compliance and reporting requirements of the Business Combination.
Interest and Other Expense
Interest and other expense increased by $226 thousand or 136% for the
three-month period ended March 31, 2022 compared to the same period in 2021. The increase is primarily the result of an increase in fair value of the Company’s convertible debt.
Provision for Income Taxes
Income tax expense decreased by $639 thousand or 117% for the
three-month period ended March 31, 2022 compared to the same period in 2021. This is the result of a decrease in net income, which is primarily the result of an increase in accounting, audit, and legal fees.
Cash Flows
The following table summarizes IDX’s cash flows for the periods
indicated:
|
|
| |
Three-Month Period Ended
March 31,
(Unaudited)
|
|||
|
|
| |
2022
|
| |
2021
|
|
|
| |
(in thousands)
|
|||
|
Net cash (used in) provided by operating activities
|
| |
$(2,254)
|
| |
$420
|
|
Net cash used in investing activities
|
| |
(36)
|
| |
(69)
|
|
Net cash provided by (used in) financing activities
|
| |
$2
|
| |
$(9)
|
Operating Activities
Net cash used in operating activities during the three-month period
ended March 31, 2022 was $2.254 million. IDX’s net loss for the three-month period ended March 31, 2022 of $258 thousand was adjusted for non-cash charges of $287 thousand and net cash outflows of $2.283 million from changes in operating assets
and liabilities. Changes in working capital amounts resulted primarily from an increase in accounts receivable of $1.125 million, an increase in other receivables and prepaids of $426 thousand, and a decrease in accrued expenses and other
liabilities of $794 thousand.
The $2.674 million decrease in net cash (used in) provided by
operating activities is primarily due to $1.632 million in payments for transaction expenses, and the $1.125 million increase in accounts receivable is primarily due to an increase in breach deals in the three-month period ended March 31, 2022
compared to the same period prior year.
330
Net cash provided by operating activities during the three-month
period ended March 31, 2021 was $420 thousand. IDX’s net income for the three-month period ended March 31, 2021 of $1.343 million was adjusted for non-cash charges of $133 thousand and net cash outflows of $1.056 million from changes in
operating assets and liabilities. Changes in working capital amounts resulted in net cash outflows primarily from a decrease in deferred revenue of $2.514 million, a result of fewer breach deals launching in the three-month period ended March
31, 2021. This was offset by an increase in accounts payable of $898 thousand and an increase in accrued expenses and other liabilities of $896 thousand primarily due to an increase in notification costs and prepayments invoiced during the
three-month period ended March 31, 2021.
Investing Activities
Net cash used in investing activities during the three-month period
ended March 31, 2022 and 2021, were $36 thousand and $69 thousand, respectively, for purchases of property and equipment.
Financing Activities
Net cash provided by financing activities of $2 thousand during the
three-month period ended March 31, 2022 was due to proceeds from option exercises. Net cash used in financing activities for the three-month period ended March 31, 2021 was $9 thousand and primarily due to proceeds from option exercises offset
by principal payments on capital lease obligations.
Comparison of 2021 and 2020
The following tables set forth IDX’s consolidated statements of
operations in dollar amounts and as a percentage of total revenue for each period presented:
|
|
| |
Years Ended December 31,
|
| |
|
||||||||||||
|
|
| |
2021
|
| |
2020
|
| |
2021 vs 2020
|
|||||||||
|
|
| |
|
| |
Percentage of
Revenue
|
| |
|
| |
Percentage of
Revenue
|
| |
Change in
Dollars
|
| |
Change in
Percentage
|
|
|
| |
(in thousands)
|
|||||||||||||||
|
Revenue(1)
|
| |
$106,072
|
| |
100%
|
| |
$103,536
|
| |
100%
|
| |
$2,536
|
| |
2%
|
|
Cost of services
|
| |
82,745
|
| |
78%
|
| |
77,900
|
| |
75%
|
| |
4,845
|
| |
6%
|
|
Gross profit
|
| |
23,327
|
| |
22%
|
| |
25,636
|
| |
25%
|
| |
(2,309)
|
| |
(9)%
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
4,941
|
| |
5%
|
| |
4,113
|
| |
4%
|
| |
828
|
| |
20%
|
|
Sales and marketing
|
| |
7,181
|
| |
7%
|
| |
6,988
|
| |
7%
|
| |
193
|
| |
3%
|
|
General and administrative
|
| |
6,873
|
| |
6%
|
| |
4,341
|
| |
4%
|
| |
2,532
|
| |
58%
|
|
Total operating expenses
|
| |
18,995
|
| |
18%
|
| |
15,442
|
| |
15%
|
| |
3,553
|
| |
23%
|
|
Operating income
|
| |
4,332
|
| |
4%
|
| |
10,194
|
| |
10%
|
| |
(5,862)
|
| |
(58)%
|
|
Interest and other expense
|
| |
3,143
|
| |
3%
|
| |
1,457
|
| |
1%
|
| |
1,686
|
| |
116%
|
|
Income before provision for income taxes
|
| |
1,189
|
| |
1%
|
| |
8,737
|
| |
8%
|
| |
(7,548)
|
| |
(86)%
|
|
Income tax expense
|
| |
1,716
|
| |
2%
|
| |
2,083
|
| |
2%
|
| |
(367)
|
| |
(18)%
|
|
Net (loss) income
|
| |
$(527)
|
| |
(1)%
|
| |
$6,654
|
| |
6%
|
| |
$(7,181)
|
| |
(108)%
|
|
(1)
|
Effective January 1, 2020, IDX adopted ASC 606, “Revenue from Contracts with Customers”
(“ASC 606”), under the modified retrospective method. See notes to the consolidated financial statements included elsewhere in this proxy statement/prospectus for more information related to the impact of adoption of ASC 606.
|
Revenue
Total revenue increased by $2.536 million in 2021 compared to 2020.
Breach revenue accounted for 97% of IDX’s total revenue in 2021 and 2020. The increase was due primarily to an increase in the number of breaches in 2021 compared to 2020.
Cost of Services
Total cost of services increased by $4.845 million or 6% in 2021
compared to 2020. The increase was due primarily to an increase in breach revenue.
331
Gross Profit
Gross margin decreased from 24.8% in 2020 to 22.0% in 2021. This is
due to the increase in cost of services associated with new breach contracts during 2021.
Operating Expenses
Research and Development
Research and development expenses increased by $828 thousand or 20%
in 2021 compared to 2020 as IDX continued to invest in the Company’s products and services, which included increased personnel costs, contractor fees, and software expenses.
Sales and Marketing
Sales and marketing cost increased by $193 thousand or 3% in 2021
compared to 2020.
General and Administrative
General and administrative costs increased by $2.532 million or 58%
in 2021 compared to 2020. This increase is due almost entirely to increased legal and accounting expenses incurred as part of the proposed transaction, which includes expense related to PCAOB audits, the Business Combination Agreement, and
preparation for the S-4 filing.
Interest and Other Expense
Interest and other expense increased by $1.686 million, or 116%, in
2021 compared to 2020. The increase in 2021 compared to 2020 is primarily the result of a $1.943 million increase in the fair value of warrant liabilities partially offset by a $502 thousand decrease in interest expense on term loans. In
December 2020, IDX paid both term loans in full and obtained a new loan from one of IDX’s existing lenders. The interest rate for the new term loan is lower than the combined rates of the previous loans.
Provision for Income Taxes
Income tax expense decreased by $367 thousand or 18% in 2021 compared
to 2020. The decrease in 2021 is a result of lower operating income for 2021 compared to 2020. The decrease resulting from lower operating income was partially offset by an increase in state income tax expense in 2021, resulting from increased
state income tax exposure. The Effective Tax Rate (ETR) in 2021 was 144% which differs from the statutory rate due to transaction expenses, changes in fair market value of convertible debt and warrants, and state taxes and also contributes to
the increase from prior year. The Effective Tax Rate (ETR) in 2020 was 24% which differs from the statutory rate due to state taxes, permanent items and change in the valuation allowance related to Oregon NOLs.
Cash Flows
The following table summarizes IDX’s cash flows for the periods
indicated:
|
|
| |
Years Ended December 31,
|
|||
|
|
| |
2021
|
| |
2020
|
|
|
| |
(in thousands)
|
|||
|
Net cash provided by operating activities
|
| |
$3,368
|
| |
$7,615
|
|
Net cash used in investing activities
|
| |
(125)
|
| |
(15)
|
|
Net cash provided by (used in) financing activities
|
| |
$0.412
|
| |
$(567)
|
Operating Activities
Net cash provided by operating activities during 2021 was $3.368
million, which resulted from a net loss of $527 thousand, as adjusted for non-cash charges of $3.182 million and net cash inflows of $712 thousand from changes in operating assets and liabilities. Non-cash charges primarily consisted of $712
thousand in change in fair value of debt and $1.943 million in change in fair value of warrant liabilities resulting from an increase in the per share valuation of the Company’s common stock.
332
The $4.247 million decrease in net cash provided by operating
activities is primarily the result of the following: 1) a $1.318 million increase in accounts receivable from new customer contracts; 2) $1.181 million in payments for transaction expenses; 3) $828 thousand in additional research and
development expenses representing additional investment in the Company’s platform; and 4) an incremental $637 thousand in cash payments issued for income taxes.
Net cash provided by operating activities during 2020 was $7.615
million, which resulted from net income of $6.654 million as adjusted for non-cash charges of $(253) thousand and net cash inflows of $1.213 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of
$(899) thousand in deferred tax expense. Cash provided by operating activities during 2020 benefited from the change in deferred revenue of $(454) thousand, offset by a change in accounts receivable of $766 thousand and a change in capitalized
contract costs of $796 thousand.
Investing Activities
Net cash used in investing activities during 2021 and 2020 were due
to purchases of property and equipment of $125 thousand and $15 thousand, respectively.
Financing Activities
Net cash provided by financing activities of $0.412 thousand in 2021
was primarily due to proceeds from option exercises of $70 thousand offset by $68 thousand of principal payments on capital lease obligations. Net cash used in financing activities of $567 thousand during 2020 was primarily due to principal
payments on long-term debt that has since been paid in full of $1.092 million. A cash outflow of $9.408 million occurred in 2020 from the extinguishment of debt and was offset by a cash inflow of $10 million from IDX’s new long-term debt.
Comparison of 2020 and 2019
The following tables set forth IDX’s consolidated statements of
operations in dollar amounts and as a percentage of total revenue for each period presented:
|
|
| |
Years Ended December 31,
|
| |
|
||||||||||||
|
|
| |
2020
|
| |
2019
|
| |
2020 vs 2019
|
|||||||||
|
|
| |
|
| |
Percentage of
Revenue
|
| |
|
| |
Percentage of
Revenue
|
| |
Change in
Dollars
|
| |
Change in
Percentage
|
|
|
| |
(in thousands)
|
|||||||||||||||
|
Revenue(1)
|
| |
$103,536
|
| |
100%
|
| |
$103,104
|
| |
100%
|
| |
$432
|
| |
0%
|
|
Cost of services
|
| |
77,900
|
| |
75%
|
| |
83,388
|
| |
81%
|
| |
(5,488)
|
| |
(7)%
|
|
Gross profit
|
| |
25,636
|
| |
25%
|
| |
19,716
|
| |
19%
|
| |
5,920
|
| |
30%
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
4,113
|
| |
4%
|
| |
3,839
|
| |
4%
|
| |
274
|
| |
7%
|
|
Sales and marketing
|
| |
6,988
|
| |
7%
|
| |
6,897
|
| |
7%
|
| |
91
|
| |
1%
|
|
General and administrative
|
| |
4,341
|
| |
4%
|
| |
4,452
|
| |
4%
|
| |
(111)
|
| |
(2)%
|
|
Total operating expenses
|
| |
15,442
|
| |
15%
|
| |
15,188
|
| |
15%
|
| |
254
|
| |
2%
|
|
Operating income
|
| |
10,194
|
| |
10%
|
| |
4,528
|
| |
4%
|
| |
5,666
|
| |
125%
|
|
Interest and other expense
|
| |
1,457
|
| |
1%
|
| |
1,799
|
| |
2%
|
| |
(342)
|
| |
(19)%
|
|
Income before provision for income taxes
|
| |
8,737
|
| |
8%
|
| |
2,729
|
| |
3%
|
| |
6,008
|
| |
220%
|
|
Income tax expense (benefit)
|
| |
2,083
|
| |
2%
|
| |
(424)
|
| |
0%
|
| |
2,507
|
| |
(591)%
|
|
Net income
|
| |
$6,654
|
| |
6%
|
| |
$3,153
|
| |
3%
|
| |
$3,501
|
| |
111%
|
|
(1)
|
Effective January 1, 2020, IDX adopted ASC 606, “Revenue from Contracts with Customers”
(“ASC 606”), under the modified retrospective method. See notes to the consolidated financial statements included elsewhere in this proxy statement/prospectus for more information related to the impact of adoption of ASC 606.
|
Revenue
Total revenue increased by $432 thousand in 2020 compared to 2019.
Breach revenue accounted for 97% and 98% of IDX’s total revenue in 2020 and 2019, respectively.
333
Cost of Services
Total cost of services decreased by $5.488 million or 7%, in 2020
compared to 2019. The decrease was due primarily to more efficient purchasing of various third-party costs and the change in cost of services related to the adoption of ASC 606, which resulted in the acceleration of $4.901 million in
capitalized contract costs being included as an adjustment to retained earnings as of January 1, 2020.
Gross Profit
Favorable changes in cost of services resulted in an increase in
gross margin to 24.8% in 2020 compared to 19.1% in 2019.
Operating Expenses
Research and Development
Research and development expenses increased by $274 thousand or 7% in
2020 compared to 2019 as IDX continued to invest the Company’s products and services, which included increased personnel costs and contractor fees.
Sales and Marketing
Sales and marketing cost increased by $91 thousand or 1% in 2020
compared to 2019.
General and Administrative
General and administrative costs decreased by $111 thousand or 2% in
2020 compared to 2019.
Interest and Other Expense
Interest and other expense decreased by $342 thousand, or 19%, in
2020 compared to 2019. The decrease in 2020 compared to 2019 is primarily the result of decreased interest expense on term loans. In December 2020, IDX paid both term loans in full and obtained a new loan from one of IDX’s existing lenders. As
a result of the new term loan, IDX expects 2021 interest expense to be less than what it was in 2020.
Provision for Income Taxes
Income tax expense increased by $2.507 million or 591% in 2020
compared to 2019. The increase in 2020 is a result of the Company adopting ASC 606 as of January 1, 2020. The adoption resulted in an acceleration of profit, therefore increasing taxable income. The Effective Tax Rate (ETR) in 2020 was 24%
which differs from the statutory rate due to state taxes, permanent items and change in the valuation allowance related to Oregon NOLs. The ETR in 2019 was a benefit of 16%. This differs from the statutory rate due to the release of the
valuation allowance on all assets except Oregon R&D credits and a piece of the Oregon NOL, as well as the benefit of R&D credits.
Cash Flows
The following table summarizes IDX’s cash flows for the periods
indicated:
|
|
| |
Years Ended December 31,
|
|||
|
|
| |
2020
|
| |
2019
|
|
|
| |
(in thousands)
|
|||
|
Net cash provided by operating activities
|
| |
$7,615
|
| |
$5,802
|
|
Net cash used in investing activities
|
| |
(15)
|
| |
(48)
|
|
Net cash used in financing activities
|
| |
$(567)
|
| |
$(1,936)
|
Operating Activities
Net cash provided by operating activities during 2020 was
$7.615 million, which resulted from net income of $6.654 million as adjusted for non-cash charges of $(253) thousand and net cash inflows of $1.213 million from changes in operating assets and liabilities. Non-cash charges primarily consisted
of $899 thousand in deferred tax expense. Cash provided by operating activities during 2020 benefited from the change in deferred revenue of $(454) thousand, offset by a change in accounts receivable of $766 thousand and a change in capitalized
contract costs of $796 thousand.
334
Net cash provided by operating activities during 2019 was
$5.802 million, which resulted from net income of $3.153 million adjusted for non-cash charges of $14 thousand and net cash inflows of $2.634 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $791
thousand of deferred tax expense. Cash provided by operating activities during 2019 was the result of an increase in deferred revenue of $9.543 million, an increase in accounts receivable of $2.043 million, and an increase in accounts payable
of $4.604 million, offset by a decrease in accrued expenses and other liabilities of $8.866 million and a decrease in capitalized contract costs of $4.663 million.
Investing Activities
Net cash used in investing activities during 2020 and 2019 were due
to purchases of property and equipment of $15 thousand and $48 thousand, respectively.
Financing Activities
Net cash used in financing activities of $567 thousand and
$1.936 million during 2020 and 2019, respectively, was primarily due to principal payments on long-term debt that has since been paid in full of $1.092 million and $2.033 million. A cash outflow of $9.408 million occurred in 2020 from the
extinguishment of debt and was offset by a cash inflow of $10 million from IDX’s new long-term debt.
Contractual Obligations
The Company has entered a non-cancellable purchase commitment of $16
million related to three months of outsourced credit and other monitoring services provided to the Company’s largest customer as of March 31, 2022. As of December 31, 2021, the non-cancellable purchase commitment was $32 million related to six
months of outsourced credit and other monitoring services. This commitment amount and length is determined by the customer’s exercise of annual option periods. As of the date of issuance of the Company’s most recently audited financial
statements, December 31, 2021, and as of March 31, 2022, Option Period II has been exercised.
The following table summarizes IDX’s contractual obligations and
commitments as of March 31, 2022:
|
(in thousands)
|
| |
Total
|
| |
Less than
1 year
|
| |
1-3 years
|
|
Operating leases
|
| |
$596
|
| |
$498
|
| |
$98
|
|
Purchase commitments
|
| |
16,207
|
| |
16,207
|
| |
—
|
|
Total
|
| |
$16,803
|
| |
$16,705
|
| |
$98
|
The following table summarizes IDX’s contractual obligations and
commitments as of December 31, 2021:
|
(in thousands)
|
| |
Total
|
| |
Less than
1 year
|
| |
1-3 years
|
|
Operating leases
|
| |
$743
|
| |
$532
|
| |
$211
|
|
Purchase commitments
|
| |
32,414
|
| |
32,414
|
| |
—
|
|
Total
|
| |
$33,157
|
| |
$32,946
|
| |
$211
|
Off-Balance Sheet Arrangements
Leases
Rental payments under operating leases are recognized on a
straight-line basis over the term of the lease including any periods of free rent. Rental expense for operating leases was $101 and $98 thousand for the three months ended March 31, 2022 and 2021, respectively. Rental expense for operating
leases was $424 thousand, $408 thousand, and $377 thousand for 2021, 2020, and 2019, respectively. Additionally, the Company had a sublease for one of IDX’s suites. The sublease ended February 29, 2020. Sublease income is included in general
and administrative expenses on the consolidated statements of operations.
With the Company’s operating lease agreements terminating on October
31, 2020, the Company signed the Fourth Amendment to its Lease on April 23, 2020. The lease extension extended the term by two months through December 31, 2020. The extension was only for two of three leases. The Fifth Amendment to the
Company’s Lease was executed on October 9, 2020. This amendment was for two years and two months commencing on January 1, 2021 and ending February 28, 2023. IDX’s landlord provided an abatement for January 1, 2021 through February 28, 2021 as
part of its lease renewal.
335
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of March 31, 2022 are:
|
|
| |
Operating
Leases
|
|
|
| |
(in thousands)
|
|
Fiscal Year:
|
| |
|
|
2022 (remaining quarters)
|
| |
$399
|
|
2023
|
| |
$149
|
|
2024
|
| |
$48
|
|
Total minimum lease payments
|
| |
$596
|
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 2021 are:
|
|
| |
Operating
Leases
|
|
|
| |
(in thousands)
|
|
Fiscal Year:
|
| |
|
|
2022 (remaining quarters)
|
| |
$532
|
|
2023
|
| |
$163
|
|
2024
|
| |
$48
|
|
Total minimum lease payments
|
| |
$743
|
Critical Accounting Policies and Estimates
IDX’s financial statements are prepared in accordance with GAAP. The
preparation of these financial statements requires IDX to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, as well as related disclosures. IDX evaluates its estimates and assumptions
on an ongoing basis. Estimates are based on historical experience and various other assumptions that IDX believes to be reasonable under the circumstances. Actual results could differ from these estimates. The critical accounting policies,
assumptions, and judgements that IDX believes have the most significant impact on its consolidated financial statements are described below.
Revenue Recognition
Revenues are derived from sales of breach response services and
identity and privacy protection services. IDX satisfies performance obligations to recognize revenue for two performance obligations, one at a point in time and the other ratably over the expected term with the customer.
Revenue is recognized when all of the following criteria are met:
Identification of the contract, or contracts, with a customer—A contract with a customer to account for exists when (i) IDX enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies
the payment terms related to these goods or services, (ii) the contract has commercial substance and the parties are committed to perform, and (iii) IDX determines that collection of substantially all consideration to which it will be
entitled in exchange for goods or services that will be transferred is probable based on the customer’s intent and ability to pay the promised consideration.
Identification of the performance obligations in the contract—Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from
the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately
identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, IDX applies judgment to determine whether promised goods or services are capable of being distinct and distinct in the
context of the contract. If these criteria are not met the promised goods or services are accounted for as a combined performance obligation.
Determination of the transaction price—The transaction price is determined based on the consideration to which IDX will be entitled in exchange for transferring goods or services to the customer.
336
Allocation of the transaction price to the performance
obligations in the contract—IDX allocates the transaction price to each performance obligation based on the amount of consideration expected to be received in exchange for transferring goods and services to
the customer. IDX allocates the transaction price by using an estimated selling price for services provided to determine which portion of its contracts’ total transaction price should be recognized at a point-in-time and which portion should
be recognized over-time. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation on a relative standalone selling price based on the observable selling price of
products and services.
Recognition of revenue when, or as, IDX satisfies performance
obligations—IDX satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at or over the time the related performance obligation is
satisfied by transferring a promised good or service to a customer.
On January 1, 2020, the Company adopted the new revenue standard, ASC
606 Revenue Recognition – Contracts with Customers (“Topic 606”), on a modified retrospective basis, applying the practical expedient to all uncompleted contracts as of January 1, 2020. The Company has also adopted the practical expedient for
contract modifications, which allows it to reflect the aggregate effect of all modifications occurring prior to January 1, 2020, as of the date of adoption. As a result, the consolidated financial statements for the years ended December 31,
2021 and December 31, 2020 are presented under the new revenue recognition guidance, while prior period amounts are not adjusted and continue to be reported under the prior revenue recognition guidance.
Significant Judgments
Significant judgments and estimates are required under Topic 606. Due
to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances. The Company’s contracts with
customers often include promises to transfer multiple services, including project management services, notification services, call center services, and monitoring services. Determining whether services are distinct performance obligations that
should be accounted for separately requires significant judgment.
The Company is required to estimate the total consideration expected
to be received from contracts with customers, including any variable consideration. Once the estimated transaction price is established, amounts are allocated to performance obligations on a relative SSP basis. The Company’s breach business
derives revenue from two main performance obligations: (i) notification and (ii) combined call center and monitoring services, described further in Note 6 in the notes to the consolidated financial statements included in this proxy
statement/prospectus.
At contract inception, the Company assesses the products and services
promised in the contract to identify each performance obligation and evaluate whether the performance obligations are capable of being distinct and are distinct within the context of the contract. Performance obligations that are not both
capable of being distinct and distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue. Determining whether products and services are
considered distinct performance obligations requires significant judgment. In determining whether products and services are considered distinct performance obligations, the Company assesses whether the customer can benefit from the products and
services on their own or together with other readily available resources and whether our promise to transfer the product or service to the customer is separately identifiable from other promises in the contract.
Judgment is required to determine the SSP for each distinct
performance obligation. The Company rarely sells its individual breach services on a standalone basis, and accordingly, the Company is required to estimate the range of SSPs for each performance obligation. In instances where the SSP is not
directly observable because the Company does not sell the service separately, the Company reviews information that includes historical discounting practices, market conditions, cost-plus analysis, and other observable inputs to determine an
appropriate SSP. The Company typically has more than one SSP for individual performance obligations due to the stratification of those items by classes of customers, size of breach, and other circumstances. In these instances, the Company may
use other available information such as service inclusions or exclusions, customizations to notifications, or varying lengths of call center or monitoring services in determining the SSP.
If a group of agreements are so closely related to each other that
they are, in effect, part of a single arrangement, such agreements are deemed to be one arrangement for revenue recognition purposes. The Company exercises judgment to evaluate the relevant facts and circumstances in determining whether the
separate agreements should be accounted for separately or as, in substance, a single arrangement. The Company’s judgments about whether a group
337
of contracts comprises a single arrangement can affect the allocation of
consideration to the distinct performance obligations, which could have an effect on results of the Company’s operations for the periods involved.
Generally, the Company has not experienced significant returns or
refunds to customers. The Company’s estimates related to revenue recognition may require significant judgment and the change in these estimates could have an effect on the Company’s results of operations during the periods involved.
Contract Balances
The timing of revenue recognition may differ from the timing of
invoicing to customers and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on the consolidated balance sheets. The Company records a contract asset when revenue is recognized prior to
invoicing and records a deferred revenue liability when revenue is expected to be recognized subsequent to invoicing. For the Company’s breach services agreements, customers are typically invoiced at the beginning of the arrangement for the
entire contract. When the breach agreement includes variable components related to as-incurred monitoring services, customers are invoiced monthly for the duration of the enrollment or call center period. Large contracts are typically billed
50% upfront and due upon receipt with the remaining 50% invoiced subsequently with Net 30 terms.
Contract assets are presented as other receivables within the
consolidated balance sheets and primarily relate to the Company’s rights to consideration for work completed but not billed on service contracts. Contract assets are transferred to receivables when the Company invoices the customer. Contract
liabilities are presented as deferred revenue and relate to payments received for services that are yet to be recognized in revenue.
During the three months ended March 31, 2022 the Company recognized
$2.490 million of revenue that was included in deferred revenue at the end of the preceding year. All other deferred revenue activity is due to the timing of invoices in relation to the timing of revenue, as described above. The Company expects
to recognize as revenue approximately 69% of its March 31, 2022 deferred revenue balance in the remaining quarters of 2022, 11% in the three months ended March 31, 2023 and the remainder thereafter.
During the year ended December 31, 2021, the Company recognized
$7.505 million of revenue that was included in deferred revenue at the end of the preceding year. All other deferred revenue activity is due to the timing of invoices in relation to the timing of revenue, as described above. The Company expects
to recognize as revenue approximately 78% of its December 31, 2021 deferred revenue balance in the year ended December 31, 2022 and the remainder thereafter.
In instances where the timing of revenue recognition differs from
that of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing the
Company’s services, not to facilitate financing arrangements.
Government Contracts
The Company evaluates arrangements with governmental entities
containing “fiscal funding” or “termination for convenience” provisions, when such provisions are required by law, to determine the probability of possible cancellation. The Company considers multiple factors, including the history with the
customer in similar transactions and budgeting and approval processes undertaken by the governmental entity. If the Company determines upon execution of these arrangements that the likelihood of cancellation is remote, it then recognizes
revenues for such arrangements once all relevant criteria have been met. If such a determination cannot be made, revenues are recognized upon the earlier of cash receipt or approval of the applicable funding provision by the governmental entity
for such arrangements.
Contract Costs
The Company capitalizes costs to obtain a contract or fulfill a
contract. These costs are recorded as capitalized contract costs on the consolidated balance sheets. Costs to obtain a contract for a new customer are generally amortized on a straight-line basis over the estimated period of benefit. The
Company determines the estimated period of benefit by taking into consideration the contractual term. The Company periodically reviews the carrying amount of the capitalized contract costs to determine whether events or changes in circumstances
have occurred that could affect the period of benefit. Amortization expense associated with costs to fulfill a contract is recorded to cost of services on the Company’s consolidated statements of income, and amortization expense associated with
costs to obtain a contract (sales commissions) is recorded to sales and marketing expense.
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For periods prior to January 1, 2020, under ASC 605, Revenue Recognition – Multiple Element Arrangements, incremental direct costs were capitalized as setup costs and amortized ratably over the contractual period. Beginning January 1, 2020, notification costs
are being expensed as fulfillment costs and recognized at a point in time. Call center costs, also fulfillment costs, are being capitalized and amortized over time. Sales commissions, which are incremental costs to obtain contracts, are
generally recognized ratably over the contractual period of the applicable agreement.
Income Taxes
The Company provides for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax effect of differences between recorded assets and liabilities and their respective tax basis along with operating loss 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 reverse. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period the rate change becomes effective. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained in the event of a tax audit.
Recognized income tax positions are measured at the largest amount
that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense.
$105,196 in penalties and interest have been accrued to expense as of March 31, 2022 and $84,194 and $32,043 in penalties and interest have been accrued to expense as of December 31, 2021 and 2020 and are discussed further in Note 11 Income
Taxes in the notes to the consolidated financial statements included in this proxy statement/prospectus. No interest or penalties have been accrued or charged to expense as of or for the year ended December 31, 2019.
Deferred tax assets are reduced by a valuation allowance when, in
management’s opinion, it is more likely than not that some portion or all the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. The Company’s valuation allowance is based on available evidence, including its current year and prior year operating losses, evaluation of positive and negative evidence with respect to certain specific
deferred tax assets including evaluating sources of future taxable income to support the realization of the deferred tax assets.
The Company’s income tax returns are generally subject to examination
by taxing authorities for a period of three years from the date they are filed. Tax authorities may have the ability to review and adjust net operating loss or tax credit carryforwards that were generated prior to these periods if utilized in
an open tax year. As of March 31, 2022 and December 31, 2021, the Company’s income tax returns for the years ended December 31, 2016 through 2021 are subject to examination by the Internal Revenue Service and applicable state and local taxing
authorities.
Quantitative and Qualitative Disclosures about
Market Risk
IDX’s operations are in the United States, and it is exposed to
market risk in the ordinary course of its business.
Interest Rate Risk
As of March 31, 2022 and December 31, 2021, IDX had no short or
long-term investments.
Foreign Currency Exchange Risk
To date, all of IDX’s sales contracts have been denominated in U.S.
dollars, and therefore its revenue is not subject to foreign currency risk. Operating expenses are incurred within the United States and are denominated in U.S. dollars.
Emerging Growth Company (“EGC”) Status
IDX is an emerging growth company (“EGC”), as defined in the JOBS
Act. Under the JOBS Act, EGCs can delay adopting new or revised accounting standards applicable to public companies issued after the enactment of the JOBS Act until those standards apply to private companies. IDX has elected to use this
extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date IDX (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
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result, IDX’s consolidated financial statements may or may not be comparable to the
financial statements of issuers who comply with new or revised accounting pronouncements as of public companies’ effective dates, which may make IDX’s common stock less attractive to investors.
Recent Accounting Pronouncements
See Notes 2x. Standards Issued and Adopted and 2y. Standards Issued
but Not Yet Effective to the consolidated financial statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this proxy statement/prospectus..
Liquidity and Capital Resources
Sources and Uses of Funds
As of March 31, 2022, IDX had $15.697 million of cash and cash
equivalents. As of December 31, 2021, IDX had $17.986 million of cash and cash equivalents. IDX believes that existing cash and cash equivalents will be sufficient to support working capital and capital expenditure requirements for at least the
next twelve months. Since inception, IDX has financed operations primarily through credit facilities and positive cash flow related to its OPM Contract. Principal uses of cash are cost of services provided to its customers such as notification
printing and monitoring and personnel related expenses. In August 2016, IDX and ITGS, Inc., as co-borrowers, entered into a credit facility with Comerica Bank (“Lender”) (the “Comerica Credit Facility”), which was amended and restated in
December 2020 and further amended in July 2021. The current Comerica Credit Facility provides for a secured term loan facility in an aggregate principal amount of $10 million. IDX’s obligations under the Comerica Credit Facility are secured by
substantially all its assets. As of March 31, 2022 and December 31, 2021, there was $10 million in principal amount outstanding under the Comerica Credit Facility.
Interest is payable monthly and accrues at the prime referenced rate
plus 1.5% per year, which was 5.00% as of March 31, 2022 and 4.75% as of Decemebr 31, 2021. The outstanding principal amount of the term loan is payable in thirty-six equal monthly installments beginning on July 1, 2022 and continuing through
the maturity date in June 2025. IDX may prepay the term loan, in whole or in part, at any time, without penalty or premium. Any amounts, once repaid, may not be reborrowed.
The Comerica Credit Facility contains customary affirmative and
negative covenants for this type of facility, including, among others, restrictions on dispositions, any change in control, mergers or consolidations, acquisitions, investments, incurrence of debt, granting of liens, payments of dividends or
distributions and certain transactions with affiliates, in each case subject to certain exceptions. The Comerica Credit Facility also contains a minimum EBITDA financial covenant requiring that IDX generate minimum EBITDA of not less than
$3 million during any trailing twelve-month period.
The events of default under the Comerica Credit Facility include,
among others, subject to grace periods in certain instances, payment defaults, covenant defaults, bankruptcy and insolvency defaults, cross-defaults to other indebtedness, judgment defaults, a material adverse change default and a default in
the event that the contract with the OPM Contract is canceled or terminated. Upon the occurrence and during the continuance of an event of default, Lender may declare all outstanding principal and accrued and unpaid interest under the credit
facility immediately due and payable, increase the applicable interest rate by 5%, and may exercise other rights and remedies provided under the Comerica Credit Facility. IDX intends to repay and terminate the credit facility at the Closing.
ID Experts Holdings, Inc. is a party to that certain Convertible
Promissory Note Purchase Agreement, dated as of December 18, 2018, by and among ID Experts Holdings, Inc. and certain ID Experts Holdings, Inc. shareholders, pursuant to which it has issued certain convertible promissory notes.
From time to time, IDX may explore additional financing sources and
means to lower its cost of capital, which could include equity, equity-linked and debt financing. IDX cannot assure you that any additional financing will be available to it on acceptable terms, or at all. If IDX raises additional funds by
issuing equity or equity-linked securities, the ownership of the existing shareholders will be diluted. If IDX raises additional financing by the incurrence of indebtedness, IDX may be subject to increased fixed payment obligations and could be
subject to additional restrictive covenants, such as limitations on its ability to incur additional debt, and other operating restrictions that could adversely impact IDX’s ability to conduct business. Any future indebtedness IDX incurs may
result in terms that could be unfavorable to equity investors. There can be no assurances that IDX will be able to raise additional capital. The inability to raise capital would adversely affect IDX’s ability to achieve its business objectives.
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Stifel Loan and Security Agreement
On January 7, 2021, ZeroFox entered into a loan and security
agreement with Stifel Bank, which was most recently amended on February 10, 2022 (as amended, the “Stifel Loan Agreement”). The Stifel Loan Agreement provides ZeroFox with the ability to borrow up to
$15 million in formula revolving line advances which bear interest at a variable annual rate equal to the greater of (i) 1.00% above the prime rate then in effect or (ii) 4.50%. The Stifel Loan Agreement requires monthly, interest-only payments
and quarterly fees in arrears equal to 0.25% per annum of the unused portion of the revolving line of credit. As of January 31, 2022, ZeroFox has drawn down on all $15 million available for advance under the Stifel Loan Agreement.
Borrowings under the Stifel Loan Agreement are secured by a
continuing first priority lien on all issued and outstanding shares of capital stock of ZeroFox’s subsidiaries (except for any foreign subsidiaries, for which 65% of such capital stock is pledged) and on all other assets, including intellectual
property, of ZeroFox.
Pursuant to the Stifel Loan Agreement, ZeroFox is subject to certain
affirmative and negative covenants during the term of the agreement, including certain financial covenants and limitations on ZeroFox’s ability to incur additional debt, pay dividends and make certain investments. Obligations under the Stifel
Loan Agreement are subject to acceleration upon the occurrence of specified events of default, including failure to make timely payments or to comply with the aforementioned covenants.
In connection with entering into the Stifel Loan Agreement, ZeroFox
issued a warrant to Stifel Bank to purchase 107,408 shares of its Series E Preferred Stock at an exercise price of $1.86205 per share. The warrant remains outstanding and is exercisable at any time until its expiration on January 7, 2031. In
connection with the second amendment to the Stifel Loan Agreement, on December 8, 2021 ZeroFox issued a second warrant to Stifel Bank to purchase an additional 161,113 shares of its Series E Preferred Stock at the same exercise price. This
second warrant expires on December 8, 2031. It is expected that these warrants will be exercised for an aggregate of 154,254 shares of New ZeroFox Common Stock prior to the Closing.
Orix Loan and Security Agreement
On January 7, 2021, ZeroFox entered into a subordinated loan facility
with ORIX Growth Capital, LLC (“Orix”), which was amended most recently on February 10, 2022 (as amended, the “Orix Loan Agreement”). Under this term loan facility,
ZeroFox may borrow up to $37.5 million.
Outstanding principal under the Orix Loan Agreement bears interest at
a variable annual rate equal to the greater of (i) 6.75% above the highest prime rate then in effect or (ii) 10.00% and requires accrued interest to be paid monthly in arrears together with equal monthly payments of principal. As of January 31,
2022, ZeroFox has drawn down on $30 million available for disbursement under the Orix Loan Agreement.
Obligation under the Orix Loan Agreement are subordinated in all
respects to ZeroFox’s obligations under the Stifel Loan Agreement and are secured by an all-assets lien, which includes the capital stock of ZeroFox’s subsidiaries (except for any foreign subsidiaries, for which 65% of such capital stock is
pledged).
Pursuant to the Orix Loan Agreement, ZeroFox is subject to certain
affirmative and negative covenants during the term of the agreement, including certain financial covenants and limitations on ZeroFox’s ability to incur additional debt, pay dividends and make certain investments. Obligations under the Orix
Loan Agreement are subject to acceleration upon the occurrence of specified events of default, including failure to make timely payments or breach of covenant.
In connection with entering into the Orix Loan Agreement, ZeroFox
issued a warrant to Orix to purchase 644,451 shares of its Series E Preferred Stock at an exercise price of $1.86205 per share. The warrant remains outstanding and is exercisable at any time until its expiration on January 7, 2031. In
connection with the fourth amendment to the Orix Loan Agreement, on February 10, 2022, ZeroFox issued a second warrant to Orix to purchase an additional 161,112 shares of its Series E Preferred Stock at the same exercise price. This second
warrant expires on February 10, 2032. It is expected that these warrants will be exercised for an aggregate of 462,764 shares of New ZeroFox Common Stock prior to the Closing. Additionally, on February 10, 2022, ZeroFox borrowed the remaining
$7.5 million under the Orix Loan Agreement.
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PIK Promissory Notes
On December 16, 2021, ZeroFox issued the ZeroFox PIK Promissory Notes
to related parties for an aggregate purchase price of $5.0 million. Such ZeroFox PIK Promissory Notes accrue interest that will be paid-in-kind at a rate of 5.0% per annum and mature upon the earlier of the Closing and the one-year anniversary
of the date of issuance. If the Closing occurs, the repayment of the original principal amount of the ZeroFox PIK Promissory Notes may be offset against amounts owed by such related parties under their respective Common Equity Subscription
Agreements.
Unsecured Note
In connection with its acquisition of all of the outstanding shares
of VigilanteATI, Inc. (the “Vigilante Acquisition”) from InfoArmor, Inc. (“InfoArmor”), on June 7, 2021 ZeroFox issued an unsecured promissory note to InfoArmor, as
the purchase price consideration for Vigilante Acquisition, in the original principal amount of $3.75 million (the “InfoArmor Note”). The InfoArmor Note carries a 5.5% interest rate, matures on June 7,
2025 and is subordinated in all respects to the Stifel Loan Agreement and the Orix Loan Agreement. Under the InfoArmor Note, ZeroFox is required to make quarterly payments of principal and accrued interest.
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The following table sets forth certain information, as of the date of
this proxy statement/prospectus, concerning the persons who are expected to serve as directors and executive officers of New ZeroFox following the consummation of the Business Combination and assuming the election of the nominees at the
Shareholder Meeting as set forth in “Proposal No. 9 – The Director Election Proposal.”
|
Name
|
| |
Age
|
| |
Position
|
|
James C. Foster
|
| |
43
|
| |
Chief Executive Officer and Chairman of the Board
|
|
Kevin T. Reardon
|
| |
49
|
| |
Chief Operating Officer
|
|
Timothy S. Bender
|
| |
53
|
| |
Chief Financial Officer
|
|
Michael Price
|
| |
43
|
| |
Chief Technology Officer
|
|
John R. Prestridge, III
|
| |
62
|
| |
Chief Marketing Officer
|
|
Scott O’Rourke
|
| |
47
|
| |
Chief Revenue Officer
|
|
Thomas P. FitzGerald
|
| |
56
|
| |
General Counsel and Corporate Secretary
|
|
Peter Barris
|
| |
70
|
| |
Director
|
|
Sean Cunningham
|
| |
64
|
| |
Director
|
|
Adam Gerchen
|
| |
40
|
| |
Director
|
|
Todd P. Headley
|
| |
59
|
| |
Director
|
|
Thomas F. Kelly
|
| |
69
|
| |
Director
|
|
Samskriti King
|
| |
48
|
| |
Director
|
|
Corey M. Mulloy
|
| |
51
|
| |
Director
|
Under the Proposed Certificate of Incorporation and Proposed Bylaws,
we will have a classified board of directors following the Closing, with three directors in Class I (Peter Barris, Corey M. Mulloy and Sean Cunningham), each to initially serve for a term expiring at the first annual meeting of shareholders
following the Closing expected to be held in 2023, two directors in Class II (Samskriti King and Thomas F. Kelly), each to initially serve for a term expiring at the second annual meeting of shareholders following the Closing expected to be
held in 2024, and three directors in Class III (James C. Foster, Todd Headley, and Adam Gerchen), each to initially serve for a term expiring at the third annual meeting of shareholders following the Closing expected to be held in 2025. At each
such annual meeting and each succeeding annual meeting, directors shall be elected for a term of three years.
Directors
James C. Foster
is a co-founder of ZeroFox where he has served as Chairman and Chief Executive Officer since 2013. From 2010 to 2012, Mr. Foster served as a Senior Vice President at Accuvant, Inc. where he was responsible for accelerating growth and
profitability following the acquisition of Ciphent, Inc. in 2010. From 2006 to 2010, Mr. Foster was the founder and Chief Executive Officer of Ciphent, Inc. before its sale to Accuvant. Mr. Foster has a history of working in high-growth
cybersecurity startups including Guardent (acquired by Verisign) and Foundstone (acquired by McAfee). Earlier in his career, Mr. Foster worked in various roles supporting the United States Department of Defense and its contractor base. He
holds a B.S. in software applications from Capitol University and is a Fellow at The Wharton School of Business at the University of Pennsylvania. Mr. Foster has authored or co-authored over a dozen books relating to cybersecurity including
Buffer Overflow Attacks, Writing Security Tools and Exploits, and Sockets Shellcode Porting. We believe Mr. Foster is qualified to serve on the New ZeroFox Board due to, among other things, the experience he brings as the founder, Chief
Executive Officer and current Chairman of the board of directors of ZeroFox.
Peter Barris
has served as a member of the ZeroFox board of directors since 2014. From 1999 to 2017, Mr. Barris was the Managing General Partner of New Enterprise Associates (“NEA”), a venture capital firm with over $20 billion of assets under management.
After retiring in 2019, Mr. Barris has served as NEA’s chairman. Under his leadership, NEA invested in transformative technology companies including CareerBuilder, Tableau, Diapers.com, Groupon, Jet.com, Juniper Networks, Macromedia,
Salesforce.com, TiVo, and Workday. Mr. Barris also serves on the board of directors of Groupon, Inc. (Nasdaq: GRPN), Sprout Social, Inc. (Nasdaq: SPT), Berkshire Grey, Inc. (Nasdaq: BGRY) and NextNav Inc. (Nasdaq: NN) and is currently a
director of several private companies. Prior to joining NEA, Mr. Barris was President and Chief Operating Officer of Legent Corporation and Senior Vice President of the Systems Software Division of UCCEL Corporation. Prior to his
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time at Legent Corporation, Mr. Barris spent almost a decade at General Electric
Company (NYSE: GE) in a variety of management positions, including Vice President and General Manager at GE Information Services. He is Vice-Chair of the Northwestern University Board of Trustees and serves on the board of trustees of In-Q-Tel
and the Brookings Institution. Mr. Barris has also served on the Executive Committee of the Board of the National Venture Capital Association and was a founding member of Venture Philanthropy Partners, a philanthropic organization in the
Washington, D.C. area. Mr. Barris received a B.S.E.E. from Northwestern University and an M.B.A. from the Tuck School of Business at Dartmouth. We believe Mr. Barris is qualified to serve on the New ZeroFox Board due to, among other things, his
service on the ZeroFox board of directors and his many years of experience leading and investing in transformative technology companies and his public company board experience.
Corey M. Mulloy
joined ZeroFox as a director in 2015. He is a partner at Highland Capital Partners, which he joined in 1997. While at Highland, Mr. Mulloy has worked closely with the founders of several portfolio companies, including seven that completed
public offerings and twenty that exited through acquisition transactions. Prior to Highland, Mr. Mulloy worked as a financial analyst at Robertson, Stephens & Co., L.L.C., an investment bank, and The Whitman Group. Mr. Mulloy previously
served on the board of directors of Gigamon, Inc. (listed on NYSE until 2018: GIMO) and serves as a director of a number of private companies. Mr. Mulloy has served on the Swarthmore College Board of Managers since 2020 and the College’s
Investment Committee since 2007. Mr. Mulloy received a B.A. in economics from Swarthmore College and an M.B.A. from Harvard Business School. We believe Mr. Mulloy is qualified to serve on the New ZeroFox Board due to, among other things, his
service on the ZeroFox board of directors, his many years of leadership in investment banking working with portfolio companies that completed public offerings and his public company board experience.
Todd P. Headley
joined ZeroFox as a director in 2014. Mr. Headley previously served as a director of Qualys, Inc. (NASDAQ: QLYS) from 2015 to 2018, LogRhythm, Inc. from 2014 to 2018, Phantom Cyber from 2015 to 2018 and was the Chief Financial Officer of
Sourcefire, Inc. (listed on NASDAQ until 2013: FIRE) from 2003 until its acquisition by Cisco Systems, Inc. in 2013. Prior to Sourcefire, Mr. Headley held key financial management positions in four venture-backed technology start-ups:
Riverbed Technologies, Roadshow, BioNetrix and POMS. Mr. Headley also currently serves on the Executive Board of the Virginia Tech University APEX Center for Entrepreneurs. From 1992-2003 Mr. Headley held key financial management positions in
several venture-backed technology start-ups, four of which were successfully acquired. Mr. Headley began his career in 1985 in public accounting with Arthur Andersen LLP. He is a CPA and holds a B.S. in accounting from Virginia Tech. We
believe Mr. Headley is qualified to serve on the New ZeroFox Board due to, among other things, his service on the ZeroFox board of directors, his many years serving as director of public companies in the technology space and his extensive
financial management and accounting background.
Samskriti King
joined ZeroFox as a director in 2021. Since 2019, Ms. King has been the Chief Executive Officer of Veracode, Inc., a leading provider of application security testing. She was one of the earliest employees of Veracode when the company was
founded over 15 years ago and also served as Veracode’s Chief Strategy Officer, Executive Vice President for Product Strategy and Corporate Development and Vice President of Product Marketing and Service Delivery. Prior to Veracode, Ms. King
held leadership positions in cybersecurity and technology companies including Verisign and Razorfish. Ms. King currently serves as a director of Progress Software Corporation (NASDAQ: PRGS) and is a member of the Board of Trustees of the
Massachusetts Technology Leadership Council. She earned her B.S. in computer science from the University of Strathclyde in Glasgow, Scotland, where she earned the prestigious Charles Babbage Award, awarded to the student with the highest
academic achievement in the graduating class. Ms. King received her M.S.E. in computer and information science from the University of Pennsylvania. We believe Ms. King is qualified to serve on the New ZeroFox Board due to, among other things,
her chief executive leadership running an application security testing business and current public company board experience.
Thomas F. Kelly
has served as President and Chief Executive Officer of IDX since 2017. From 2016 to 2017, Mr. Kelly served as a cybersecurity industry consultant. In the prior twenty years, Mr. Kelly was Chief Executive Officer of several software and
security companies including AccelOps between 2015 and 2016 (acquired by Fortinet, 2016), Moxie Software, MontaVista Software (acquired by Cavium, 2009), BlueStar Solutions (acquired by Affiliated Computer Services, 2004) and Blaze Software
(IPO then acquired, 2000). In the prior 25 years of his career, Mr. Kelly held executive leadership operating roles at several companies including Cirrus Logic, Cadence Design Systems, and Frame Technology (acquired by Adobe, 1995). Mr. Kelly
has served
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on numerous corporate boards over his career including at FEI, Epicor Software, and
Blaze Software, and currently is on the board of directors of Fabrinet (NYSE: FN). Mr. Kelly received a B.S. in economics from Santa Clara University, and serves on several community and academic advisory boards. We believe Mr. Kelly is
qualified to serve on the New ZeroFox Board due to, among other things, his operational experience as Chief Executive Officer of IDX and extensive public company leadership and public company board experience.
Sean Cunningham
joined IDX as a director in 2016. Mr. Cunningham is currently Managing Director of ForgePoint Capital, which he joined in 2015. Prior to ForgePoint Capital, Mr. Cunningham led cybersecurity investment strategy at Intel Capital, most recently
as Director of Venture Investments for over 15 years. Mr. Cunningham’s prior roles at Intel since 1994 also included the role of Marketing Director. Prior to Intel, Mr. Cunningham held various leadership positions at Sequent Computers and at
ISC Systems. Mr. Cunningham also serves on the board of directors of a number of other private companies, including DeepSee.ai, Cloudentity, Anitian, and ReversingLabs. Mr. Cunningham has also served on the Gonzaga University School of
Business Entrepreneurship Advisory Board. Mr. Cunningham holds a B.B.A. in finance and an M.B.A. from Gonzaga University. We believe Mr. Cunningham is qualified to serve on the New ZeroFox Board due to, among other things, his experience as a
venture capital investor in cybersecurity technology and guiding successful companies.
Adam Gerchen is
the current Chief Executive Officer of L&F and serves on its board of directors and has served in both roles since 2020. Mr. Gerchen has also served as co-founder and Chief Executive Officer of Keller Lenkner, a law firm that has
developed unique arbitration strategies and other innovations in mass actions since 2018. Additionally, in order to serve the large number of firm clients, and address the complexity of various areas of law, Mr. Gerchen also built a separate
servicing business at Keller Lenkner in 2018 that combines client origination, intake, customer relationship management, IT, and settlement administration. From 2016 to 2017, Mr. Gerchen served as President of Burford Capital Limited (LSE:
BUR) (“Burford”), the leading global finance firm focused on law. Previously, Mr. Gerchen co-founded and served as Chief Executive Officer of Gerchen Keller Capital (“GKC”) from 2013 until GKC’s sale in 2016 to Buford. Prior to its
acquisition, GKC grew into the largest private investment and advisory firm focused exclusively on legal and regulatory risk, raising $1.4 billion of institutional capital. Across both organizations, products developed for and deployed into
the legal sector included single-case litigation finance, portfolio funding, risk management & insurance, claim monetization, post-settlement, bankruptcy & insolvency, international arbitration, and patent and intellectual property.
Mr. Gerchen holds a B.A. in economics from Brown University and a J.D. from Harvard Law School. We believe Mr. Gerchen is qualified to serve on the New ZeroFox Board due to, among other things, his chief executive experience running L&F
and two other successful investment firms.
Executive Officers
For information about James C. Foster, please see “Directors” above.
Kevin T. Reardon
joined ZeroFox in 2020 as Chief Operating Officer. From 2016 to 2019, Mr. Reardon led Consulting, Strategy and Field Engineering for Symantec Corporation and helped transition the company on its sale to Broadcom, Inc. From 2015 to 2016,
Mr. Reardon was Chief Information Security Officer for Blue Coat Systems, which was acquired by Symantec. From 2006 to 2015, Mr. Reardon was at McAfee Security and Intel Security in various senior leadership roles for Operations, Consulting,
Strategy and the Office of the Chief Technology Officer. Mr. Reardon holds a B.S. in computer information systems from the University of Scranton.
Timothy S. Bender joined ZeroFox in 2016 as Chief Financial Officer. From 2012 to 2016, Mr. Bender served as Chief Financial Officer of Motionsoft, Inc., a provider of business and management solutions for member-based organizations in the fitness
industry. From 2001 to 2012, Mr. Bender served as Vice President, Accounting and Corporate Controller of Vocus, Inc. (listed on Nasdaq until 2014: VOCS). Mr. Bender holds a B.S.B.A. in accounting from Geneva College and is a CPA (currently
inactive).
Michael Price
joined ZeroFox in 2015 as its Chief Technology Officer, where he is responsible for leading and setting the vision for its technology. He oversees all aspects of engineering, research and development. Prior to ZeroFox, Mr. Price founded the
mobile vulnerability intelligence company, Vulnr, serving as its Chief Executive Officer. From 2011 to 2013, Mr. Price served as the Vice President of Engineering of Appthority, and from 2001 to 2010 Mr. Price worked at McAfee, where he
focused initially on enterprise vulnerability management and later served as the regional lead for McAfee Labs in Latin America. Mr. Price holds a B.S. in Security and Risk Analysis from The Pennsylvania State University. He is presently a
graduate student at The
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Citadel, where he studies Intelligence and Security and also currently serves on a
volunteer basis in support of State of Maryland and United States Armed Forces cybersecurity efforts.
John R. Prestridge, III joined ZeroFox in 2020 as its Chief Marketing Officer. He is a senior enterprise marketing, product, and sales executive with decades of experience delivering results for B2B software companies. From 2017 to 2020, Mr. Prestridge was
Senior Vice President of North America and Global Chief Marketing Officer for EasyVista, Inc., a global information technology service management (ITSM) software company, and from 2009 to 2017, he was Vice President of Marketing and Product
Strategy for SunView Software, Inc. Mr. Prestridge also held senior leadership roles in solutions and product marketing at Citrix Systems over his eight year tenure there.
Scott O’Rourke
became the global leader of ZeroFox sales and Chief Revenue Officer in 2017. Prior to taking this role, Mr. O’Rourke was responsible for establishing the ZeroFox Commercial Sales team in 2015 and leading all US-based sales efforts since 2016.
Before joining ZeroFox, Mr. O’Rourke held numerous sales leadership roles, including serving as the Vice President of Enterprise Sales at Trustwave and sales positions at Interactions Corporation, Verizon and AT&T. Mr. O’Rourke received a
B.S. in civil engineering from Virginia Tech and an M.B.A. in finance from Johns Hopkins University.
Thomas P. FitzGerald joined ZeroFox in 2021 as its General Counsel and Corporate Secretary. From 2013 to 2020, Mr. FitzGerald worked as an attorney at Cisco Systems, Inc. supporting the networking and security businesses, most recently of which he served
as Senior Director, Legal where he managed the team of attorneys primarily responsible for Cisco’s Security Business Group. Mr. FitzGerald was the Vice President and Deputy General Counsel of Sourcefire, Inc. (listed on NASDAQ until 2013:
FIRE) from 2009 until its acquisition by Cisco in 2013. From 1998 to 2009, Mr. FitzGerald worked in private practice at various national law firms in which his practice focused on emerging growth technology companies. Mr. FitzGerald received
a B.A. in economics from Trinity College and a J.D. from American University.
Corporate Governance Guidelines and Code of Business Conduct and
Ethics
Upon consummation of the Business Combination, the New ZeroFox Board
will adopt Corporate Governance Guidelines that address items such as the qualifications and responsibilities of its directors and director candidates and corporate governance policies and applicable standards. In addition, the New ZeroFox
Board will adopt a Code of Business Conduct and Ethics that applies to all of its employees, officers and directors, including its Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. The full text
of the New ZeroFox Board’s Corporate Governance Guidelines and its Code of Business Conduct and Ethics will be posted on New ZeroFox’s website, following consummation of the Business Combination. New ZeroFox intends to make any legally required
disclosures regarding amendments to, or waivers of, provisions of its code of ethics on its website rather than by filing a Current Report on Form 8-K.
Board Composition
When considering whether directors and director nominees have the
experience, qualifications, attributes and skills, taken as a whole, to enable the New ZeroFox Board to satisfy its oversight responsibilities effectively in light of its business and structure, the New ZeroFox Board expects to focus primarily
on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth above in order to provide an appropriate mix of experience and skills relevant to the size and
nature of its business.
Director Independence
Upon the Closing, the New ZeroFox Board is expected to determine that
each of the directors on the New ZeroFox Board other than James C. Foster and Thomas F. Kelly will qualify as independent directors, as defined under the rules of the Nasdaq Stock Market, and the New ZeroFox Board will consist of a majority of
“independent directors,” as defined under the rules of the SEC and the Nasdaq Stock Market relating to director independence requirements. In addition, New ZeroFox will be subject to the rules of the SEC and the Nasdaq Stock Market relating to
the membership, qualifications, and operations of the audit committee, as discussed below.
346
Role of Board in Risk Oversight
The New ZeroFox Board will have extensive involvement in the
oversight of risk management related to New ZeroFox and its business and will accomplish this oversight through the regular reporting to the New ZeroFox Board by the audit committee. The audit committee will represent the New ZeroFox Board by
periodically reviewing New ZeroFox’s accounting, reporting and financial practices, including the integrity of its financial statements, the surveillance of administrative and financial controls and its compliance with legal and regulatory
requirements. Through its regular meetings with management, including the finance, legal, internal audit and information technology functions, the audit committee will review and discuss all significant areas of New ZeroFox’s business and
summarize for the New ZeroFox Board all areas of risk and the appropriate mitigating factors. In addition, the compensation committee and the nominating and corporate governance committee will review and report to the New ZeroFox Board with
regard to areas of risk management that such Board committees oversee.
Committees of the Board
The New ZeroFox Board will direct the management
of New ZeroFox’s business and affairs, as provided by Delaware law, and will conduct its business through meetings of the New ZeroFox Board and its standing committees. New ZeroFox will have a standing audit committee, compensation committee
and nominating and corporate governance committee, each of which will operate under a written charter.
In addition, from time to time, special committees
may be established under the direction of the New ZeroFox Board when the Board deems it necessary or advisable to address specific issues. Following the Business Combination, current copies of New ZeroFox’s committee charters will be posted on
its website, as required by applicable SEC and Nasdaq Stock Market rules. The information on or available through any of such website is not deemed incorporated in this proxy statement/prospectus and does not form part of this proxy
statement/prospectus.
Audit Committee
Upon the Closing, New ZeroFox’s audit committee is
expected to consist of Todd P. Headley, Peter Barris and Sean Cunningham. The New ZeroFox Board is expected to determine that each of these individuals will satisfy the independence requirements of the Sarbanes-Oxley Act of 2002, as amended, or
the Sarbanes-Oxley Act, Rule 10A-3 under the Exchange Act and the applicable listing standards of the Nasdaq Stock Market. Each member of New ZeroFox’s audit committee will satisfy the requirements for financial literacy under the applicable
Nasdaq Stock Market rules. In arriving at this determination, the New ZeroFox Board will examine each audit committee member’s scope of experience and the nature of their prior and/or current employment.
The New ZeroFox Board will determine that
Mr. Headley qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of the Nasdaq Stock Market rules. In making this determination, the New ZeroFox Board will
consider Mr. Headley’s formal education and previous and current experience in financial and accounting roles. Both New ZeroFox’s independent registered public accounting firm and management periodically will meet privately with New ZeroFox’s
audit committee.
The audit committee’s responsibilities will include, among other
things:
|
•
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appointing, compensating, retaining, evaluating, terminating and overseeing New ZeroFox’s independent registered public
accounting firm;
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•
|
discussing with New ZeroFox’s independent registered public accounting firm their independence from management;
|
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•
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reviewing with management and New ZeroFox’s independent registered public accounting firm the scope and results of their audit;
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•
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pre-approving all audit and permissible non-audit services to be performed by New ZeroFox’s independent registered public
accounting firm;
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•
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overseeing the financial reporting process and discussing with management and New ZeroFox’s independent registered public
accounting firm the interim and annual financial statements that New ZeroFox files with the SEC;
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•
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reviewing and monitoring New ZeroFox’s accounting principles, accounting policies, financial and accounting controls and
compliance with legal and regulatory requirements; and
|
347
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•
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establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal
controls or auditing matters.
|
Compensation Committee
Upon the Closing, New ZeroFox’s compensation committee is expected to
consist of Corey M. Mulloy and Samskriti King. The New ZeroFox Board is expected to determine that Mr. Mulloy and Ms. King are non-employee directors, as defined in Rule 16b-3 promulgated under the Exchange Act. The New ZeroFox Board also is
expected to determine that Mr. Mulloy and Ms. King are “independent” as defined under the applicable Nasdaq listing standards, including the standards specific to members of a compensation committee. The compensation committee’s
responsibilities will include, among other things:
|
•
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reviewing and approving corporate goals and objectives relevant to the compensation of New ZeroFox’s Chief Executive Officer,
evaluating the performance of New ZeroFox’s Chief Executive Officer in light of these goals and objectives and setting or making recommendations to the New ZeroFox Board regarding the compensation of New ZeroFox’s Chief Executive
Officer;
|
|
•
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reviewing and setting or making recommendations to New ZeroFox's Board regarding the compensation of the other executive
officers;
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•
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making recommendations to New ZeroFox's Board regarding the compensation of New ZeroFox's directors;
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•
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reviewing and approving or making recommendations to New ZeroFox's Board regarding New ZeroFox's incentive compensation and
equity-based plans and arrangements; and
|
|
•
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appointing and overseeing any compensation consultants.
|
Nominating and Corporate Governance Committee
Upon the Closing, New ZeroFox's nominating and corporate governance
committee is expected to consist of Adam Gerchen and Peter Barris. The New ZeroFox Board is expected to determine that each of Adam Gerchen and Peter Barris is “independent” as defined under the applicable listing standards of Nasdaq and SEC
rules and regulations.
The nominating and corporate governance committee’s
responsibilities will include, among other things:
|
•
|
identifying individuals qualified to become members of New ZeroFox's Board, consistent with criteria approved by New ZeroFox's
Board;
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•
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recommending to New ZeroFox's Board the nominees for election to New ZeroFox's Board at annual meetings of New ZeroFox's
shareholders;
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•
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overseeing an evaluation of New ZeroFox's Board and its committees; and
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•
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developing and recommending to New ZeroFox's Board a set of corporate governance guidelines.
|
New ZeroFox’s Board may from time to time establish other
committees.
Compensation Committee Interlocks and Insider Participation
None of the expected New ZeroFox executive officers currently serves,
or has served during the last year, as a member of the board of directors or compensation committee of any entity, that has one or more executive officers who are expected to serve as a member of the New ZeroFox Board.
Related Person Transactions Policy of New ZeroFox
Upon the Closing, it is anticipated that the New ZeroFox Board will
adopt a written Related Person Transactions Policy that will set forth New ZeroFox’s policies and procedures regarding the identification, review, consideration and oversight of “related person transactions.” New ZeroFox’s audit committee will
approve only those transactions that it determines are fair to us and in New ZeroFox’s best interests.
348
A “Related Person Transaction” is a transaction, arrangement or
relationship (or any series of similar transactions, arrangements or relationships) in which New ZeroFox or any of its subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person
had, has or will have a direct or indirect material interest. A “Related Person” means:
|
•
|
any person who is, or at any time since the beginning of New ZeroFox’s last fiscal year was, one of New ZeroFox’s executive
officers or a member or nominee to become a member of New ZeroFox's Board;
|
|
•
|
any person who is known by New ZeroFox 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, 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, nominee for director, executive officer or beneficial owner of more than 5% of our voting stock; or
|
|
•
|
any firm, corporation or other entity in which any of the foregoing persons is employed as an executive officer or is a general
partner, managing member or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest.
|
It is also anticipated that New ZeroFox will have policies and
procedures designed to minimize potential conflicts of interest arising from any dealings it may have with its 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 New ZeroFox’s Related Person Transactions Policy, the audit committee will have the responsibility to review related person transactions.
Limitation on Liability and Indemnification Matters
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their shareholders for monetary damages for breaches of directors’ fiduciary duties, subject to certain exceptions. New ZeroFox’s Proposed Certificate of Incorporation includes a provision that
eliminates the personal liability of directors for monetary damages for any breach of fiduciary duty as a director to the fullest extent permitted by the DGCL as the same exists or as may hereafter be amended from time to time. The effect of
these provisions is to eliminate the rights of New ZeroFox and its shareholders, through shareholders’ derivative suits on New ZeroFox's behalf, to recover monetary damages from a director for breach of fiduciary duty as a director, including
breaches resulting from grossly negligent behavior. However, exculpation does not apply to any director if the director has acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived
an improper benefit from his or her actions as a director.
New ZeroFox’s Proposed Certificate of Incorporation will permit and
the Proposed Bylaws will obligate New ZeroFox to indemnify, to the fullest extent permitted by the DGCL, any director or officer of New ZeroFox who was or is a party or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she is or was a director or officer of New ZeroFox or is or was
serving at the request of New ZeroFox as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with any such Proceeding. New ZeroFox will not be obligated to indemnify a person in connection with a Proceeding (or part thereof) initiated by such person unless the
Proceeding (or part thereof) was, or is, authorized by the New ZeroFox Board, and the New ZeroFox Board determines to provide the indemnification, or is otherwise required by applicable law. In addition, the Proposed Bylaws require New ZeroFox,
to the fullest extent permitted by law, to pay, in advance of the final disposition of a Proceeding, expenses (including attorneys’ fees) actually and reasonably incurred by an officer or director of New ZeroFox in defending any Proceeding,
upon receipt of a written request therefor (together with documentation reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not
entitled to be indemnified under the Proposed Bylaws or the DGCL.
New ZeroFox expects to enter into an indemnification agreement with
each of its directors and executive officers that provides for indemnification to the maximum extent permitted by Delaware law.
349
New ZeroFox believes that these indemnification and advancement
provisions and insurance are useful to attract and retain qualified directors and executive officers. The limitation of liability and indemnification provisions in New ZeroFox's Proposed Certificate of Incorporation and Proposed Bylaws may
discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such
an action, if successful, might otherwise benefit New ZeroFox and its shareholders. In addition, your investment may be adversely affected to the extent New ZeroFox pays the costs of settlement and damage awards against directors and officers
pursuant to these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors or executive officers, we have been informed that in the opinion of the SEC such
indemnification is against public policy and is therefore unenforceable.
350
L&F
Prior to the consummation of the Business Combination, none of the
executive officers or directors of L&F received any cash compensation for services rendered. The Sponsor, executive officers, directors and their respective affiliates are reimbursed for any out-of-pocket expenses related to identifying,
investigating, negotiating and completing an initial business combination. The audit committee reviews on a quarterly basis all payments that were made to the Sponsor, executive officers, directors and our or their respective affiliates. We
note that certain named executive officers have economic interests in our Sponsor. For more information about the interests of our Sponsor in the Business Combination, please see the sections entitled “Proposal
No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination,” “Proposal No. 2 - The Business Combination Proposal —
Conflicts of Interest and Waiver of Corporate Opportunity Doctrine” and “Risk Factors.”
ZeroFox
Throughout this section, unless otherwise noted,
“ZeroFox,” “we,” “us,” “our” and similar terms refer to ZeroFox, Inc. and its subsidiaries.
To achieve ZeroFox’s goals, ZeroFox has designed, and intends to
modify as necessary, its compensation and benefits program to attract, retain, incentivize and reward deeply talented and qualified executives who share its philosophy and desire to work towards achieving these goals.
ZeroFox believes its compensation program should promote the success
of the company and align executive incentives with the long-term interests of its shareholders. ZeroFox’s current compensation programs reflect its startup origins in that they consist primarily of salary and stock option awards. As ZeroFox’s
needs evolve, ZeroFox intends to continue to evaluate its philosophy and compensation programs as circumstances require.
This section provides an overview of ZeroFox’s executive compensation
programs, including a narrative description of the material factors necessary to understand the information disclosed in the summary compensation table below.
The ZeroFox Board, with input from its Chief Executive Officer, has
historically determined the compensation for ZeroFox’s named executive officers. For the year ended January 31, 2022, ZeroFox’s named executive officers were:
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•
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James C. Foster, Chief Executive Officer
|
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•
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Kevin Reardon, Chief Operating Officer
|
|
•
|
Scott O’Rourke, Chief Revenue Officer
|
Summary Compensation Table
The following table sets forth information concerning the
compensation of the named executive officers for the year ended January 31, 2022.
|
Name and Principal Position
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| |
Year
|
| |
Salary
($)
|
| |
Option
Awards
($)(1)
|
| |
Non-equity Incentive
Compensation
($)
|
| |
All Other
Compensation
($)(2)
|
| |
Total
($)
|
|
James C. Foster, Chief Executive Officer
|
| |
2022
|
| |
278,770
|
| |
—
|
| |
$175,000
|
| |
12,000
|
| |
$465,770
|
|
Kevin Reardon, Chief Operating Officer
|
| |
2022
|
| |
285,000
|
| |
1,262,472
|
| |
$175,000
|
| |
—
|
| |
$1,722,472
|
|
Scott O’Rourke, Chief Revenue Officer
|
| |
2022
|
| |
268,852
|
| |
160,202
|
| |
$281,322
|
| |
14,269
|
| |
$724,645
|
|
(1)
|
The amounts in this column represent the aggregate grant-date fair value of awards granted to each named executive officer,
computed in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. See Note 11 to ZeroFox’s audited financial statements included elsewhere in this proxy
statement/prospectus for a discussion of the assumptions made by ZeroFox in determining the grant-date fair value of ZeroFox’s equity awards.
|
|
(2)
|
The amounts in this column represents a monthly expense allowance for Mr. Foster, and a field marketing allowance for
Mr. O’Rourke.
|
351
Narrative Disclosure to Summary Compensation Table
For the year ended January 31, 2022, the compensation program for
ZeroFox’s named executive officers consisted of base salary, incentive compensation delivered in the form of bonuses and commissions, stock option awards, and perquisites.
Base Salary
Base salary is set at a level that is commensurate with the named
executive officer’s duties and authorities, contributions, prior experience and sustained performance.
Bonus Plan
Bonuses are earned based upon the achievement of annual bookings,
with payouts equal to 1% of target for each 1% achievement of the annual bookings target up to 100% of the target bonus. Incremental payouts above the target bonus based on the achievement of bookings above the annual bookings target are at the
discretion of the compensation committee in the case of Mr. Foster, and at the discretion of the chief executive officer for other participants.
Messrs. Foster and Reardon are eligible to earn annual bonuses under
our Annual Incentive Plan. For the year ended January 31, 2022, each of Messrs. Foster and Reardon had bonus targets equal to $175,000, and bonuses were paid out at 100% of target.
Commission Plan
Commissions are earned based on annual bookings, with a fixed
percentage for annual bookings up to the annual bookings target and an incremental percentage for annual bookings above the annual bookings target.
Mr. O’Rourke is eligible for periodic commissions under our Sales
Management Incentive Plan. For 2022, Mr. O’Rourke had an annual commission target expressed as a rate per bookings amounts, which equated to a total annual commission target of $275,000, and annual commissions were paid out at 102% of target.
Stock Option Awards
Stock options have been granted to ZeroFox’s named executive officers
under the ZeroFox 2013 Equity Incentive Plan (the “2013 Equity Incentive Plan”).
2013 Equity Incentive Plan
ZeroFox maintains the 2013 Equity Incentive Plan, which allows
ZeroFox to provide incentive stock options, within the meaning of Section 422 of the Code, nonstatutory stock options, stock appreciation rights, restricted or unrestricted stock awards, phantom stock, restricted stock units, performance
awards, other stock-based awards, or any combination of the foregoing (each, an “award” and the recipient of such award, a “participant”) to eligible employees, officers and directors of, and other individuals providing bona fide services to or
for ZeroFox or any affiliate of ZeroFox. It is expected that the 2013 Equity Incentive Plan will be frozen as of the Closing, and ZeroFox will not grant any additional awards under the 2013 Equity Incentive Plan thereafter. However, the 2013
Equity Incentive Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the 2013 Equity Incentive Plan.
As of January 31, 2022, stock options covering 23,065,696 shares of
ZeroFox common stock were outstanding under the 2013 Equity Incentive Plan.
Plan Administration. The 2013 Equity Incentive Plan is administered by the compensation committee of the ZeroFox Board. The administrator has all authority and discretion necessary or appropriate to administer the 2013 Equity Incentive Plan and to
control its operation, including the authority to construe and interpret the terms of the 2013 Equity Incentive Plan and the awards granted under the 2013 Equity Incentive Plan. The administrator’s determinations, interpretations and
constructions are final, binding and conclusive on all persons.
Awards Available for Grant and Eligibility. The 2013 Equity Incentive Plan provides for the grant of stock options, stock appreciation rights, restricted stock, phantom stock, performance awards and other stock-based
352
awards. Employees, officer and directors of, and other individuals providing bona
fide services to or for, ZeroFox or an affiliate of ZeroFox are eligible to receive awards. Only employees of ZeroFox or its parent or subsidiary companies are eligible to receive incentive stock options.
Stock Options.
Subject to the provisions of the 2013 Equity Incentive Plan, the administrator determines the term of a stock option, the number of shares subject to a stock option, and the time period in which a stock option may be exercised.
The term of a stock option is stated in the applicable award
agreement, but the term of an incentive stock option may not exceed 10 years from the grant date. The administrator determines the exercise price of the stock options, which generally may not be less than 100% of the fair market value of our
common stock on the grant date for incentive stock options. However, an incentive stock option granted to an individual who directly or by attribution owns more than 10% of the total combined voting power of all of our classes of stock or of
any our parent or subsidiary may have a term of no longer than five (5) years from the grant date and will have an exercise price of at least 110% of the fair market value of our common stock on the grant date.
The administrator determines how a participant may pay the exercise
price of a stock option, and the permissible methods are generally set forth in the applicable award agreement. Award agreements also set forth post-separation exercise periods for vested stock options, which are generally as follows, but in no
event later than the stock option expiration date: (i) immediate expiration upon termination for cause; (ii) 90 days upon involuntary termination without cause or resignation (other than due to disability or death); (iii) 12 months upon
separation due to death or disability; or (iv) 12 months following death occurring during a post-separation exercise period described in (ii) or (iii). Upon exercise of stock options, participants generally are required to execute a stock
restriction agreement, providing transfer restrictions, rights of ZeroFox to repurchase the stock upon termination of the service relationship, drag-along rights and other similar provisions.
Non-Transferability of Awards. Unless determined otherwise by the administrator, and in any event in the case of an incentive stock option or a stock appreciation right granted with respect to an incentive stock option, awards generally are
not transferable except by will or by the laws of descent and distribution, and are exercisable during the lifetime of the participant only by the participant.
Stock Dividend, Stock Split and Reverse Stock
Split. In the event of a stock dividend, stock split or reverse stock split affecting ZeroFox common stock, the maximum number of shares available for issuance under the 2013 Equity Incentive Plan, the number
of shares covered by and the exercise price and other terms of outstanding awards shall, without further action of the ZeroFox board of directors, be adjusted to reflect such event.
Change in Control Transactions. Unless otherwise provided in an award agreement or any other written agreement between ZeroFox or any of its affiliates and the participant or unless otherwise expressly provided by the ZeroFox Board at the time
of grant of an award, in the event of a “change in control” (as defined in the 2013 Equity Incentive Plan), the ZeroFox Board may take one or more of the following actions with respect to awards: (i) arrange for the surviving corporation or
acquiring corporation (or the surviving or acquiring corporation’s parent company) to assume or continue the award or to substitute a similar award for the award; (ii) arrange for the assignment of any reacquisition or repurchase rights held
by ZeroFox in respect of common stock issued pursuant to the award to the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company); (iii) accelerate the vesting, in whole or in part, of the
award (and, if applicable, the time at which the award may be exercised) to a date prior to the effective time of such change in control as the ZeroFox Board shall determine (or, if the ZeroFox Board shall not determine such a date, to the
date that is five (5) days prior to the effective date of the change in control), with such award terminating if not exercised (if applicable) at or prior to the effective time of the change in control; (iv) arrange for the lapse of any
reacquisition or repurchase rights held by ZeroFox with respect to the award; (v) cancel or arrange for the cancellation of the award, to the extent not vested or not exercised prior to the effective time of the change in control, in exchange
for such cash consideration, if any, as the ZeroFox Board, in its sole discretion, may consider appropriate; and (vi) make a payment, in such form as may be determined by the ZeroFox Board equal to the excess, if any, of (A) the value of the
property the holder of the award would have received upon the exercise of the award, over (B) any exercise price payable by such holder in connection with such exercise. The ZeroFox Board need not take the same action with respect to all
awards or with respect to all participants.
353
Amendment; Termination. The ZeroFox Board may terminate, amend or modify the 2013 Equity Incentive Plan or any portion thereof at any time. Except as otherwise determined by the Board, termination of the 2013 Equity Incentive Plan shall not affect the
administrator’s ability to exercise the powers granted to it with respect to awards granted under the 2013 Equity Incentive Plan before its termination. As noted above, it is expected that as of the Closing, the 2013 Equity Incentive Plan
will be frozen and ZeroFox will not grant any additional awards under the 2013 Equity Incentive Plan thereafter.
ZeroFox 2022 Incentive Equity Plan
For more information about the 2022 Incentive Equity Plan, see the
section entitled “Proposal No. 7 — The Incentive Equity Plan Proposal.”
ZeroFox 2022 Employee Stock Purchase Plan
For more information about the 2022 Employee Stock Purchase Plan, see
the section entitled “Proposal No. 8 — The Employee Stock Purchase Plan Proposal.”
Outstanding Equity Awards at 2022 Fiscal Year End
The following table presents information regarding outstanding equity
awards held by ZeroFox’s named executive officers as of January 31, 2022.
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|
| |
Option Awards(1)
|
||||||||||||
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Name
|
| |
Grant Date
|
| |
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
| |
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
| |
Option
Exercise
Price
($)
|
| |
Option
Expiration
Date
|
|
James C. Foster
|
| |
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Kevin Reardon
|
| |
02/24/20(2)
|
| |
2,050,000
|
| |
2,050,000
|
| |
0.35
|
| |
01/30/30
|
|
|
| |
11/24/21(3)
|
| |
—
|
| |
1,250,000
|
| |
1.90
|
| |
11/01/31
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Scott O’Rourke
|
| |
10/28/15(4)
|
| |
175,000
|
| |
—
|
| |
0.14
|
| |
10/28/25
|
|
|
| |
01/27/16(5)
|
| |
150,000
|
| |
—
|
| |
0.17
|
| |
01/27/26
|
|
|
| |
02/14/17(6)
|
| |
863,000
|
| |
—
|
| |
0.20
|
| |
02/14/27
|
|
|
| |
03/05/19(7)
|
| |
343,750
|
| |
156,250
|
| |
0.28
|
| |
03/05/29
|
|
|
| |
03/05/19(8)
|
| |
148,750
|
| |
191,250
|
| |
0.28
|
| |
03/05/29
|
|
|
| |
11/20/19(9)
|
| |
20,000
|
| |
—
|
| |
0.31
|
| |
11/20/29
|
|
|
| |
05/14/20(10)
|
| |
8,750
|
| |
11,250
|
| |
0.35
|
| |
05/14/30
|
|
|
| |
05/14/20(11)
|
| |
5,000
|
| |
—
|
| |
0.35
|
| |
05/14/30
|
|
|
| |
05/20/21(12)
|
| |
—
|
| |
300,000
|
| |
0.64
|
| |
03/01/31
|
|
(1)
|
All stock options were granted pursuant to the 2013 Equity Incentive Plan.
|
|
(2)
|
25% of the stock options vested on January 30, 2021, and the remainder will vest in equal quarterly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
|
(3)
|
25% of the stock options will vest on November 1, 2022, and the remainder will vest in equal quarterly installments over 36
months thereafter, subject to continued services throughout the applicable vesting date.
|
|
(4)
|
25% of the stock options vested on October 17, 2016, and the remainder vested in equal monthly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
|
(5)
|
25% of the stock options vested on January 27, 2017, and the remainder vested in equal monthly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
|
(6)
|
25% of the stock options vested on February 1, 2018, and the remainder vested in equal quarterly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
354
|
(7)
|
25% of the stock options vested on March 1, 2020, and the remainder will vest in equal quarterly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
|
(8)
|
25% of the stock options vested on January 31, 2021, and the remainder will vest in equal quarterly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
|
(9)
|
100% of the stock options vested on November 20, 2019.
|
|
(10)
|
25% of the stock options vested on February 1, 2021, and the remainder will vest in equal quarterly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
|
(11)
|
100% of the stock options vested on May 14, 2020.
|
|
(12)
|
25% of the stock options vested on March 1, 2022, and the remainder will vest in equal quarterly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
Benefits and Perquisites
ZeroFox provides benefits to its named executive officers on the same
basis as provided to all of its employees, including medical, dental and vision insurance; health reimbursement arrangement, life insurance; accidental death and dismemberment insurance; short-and long-term disability insurance; health and
dependent care flexible spending accounts; employee assistance program; various voluntary employee-funded coverages; and a tax-qualified Section 401(k) plan to which ZeroFox may provide discretionary employer contributions. ZeroFox does not
maintain any executive-specific benefit or perquisite programs.
In addition, Mr. Foster received a monthly expense allowance of
$1,000, and Mr. O’Rourke received a discretionary field marketing allowance of $14,269 during the year ended January 31, 2022.
Executive Officer Employment Agreements
James C. Foster
The Company has not entered into an employment agreement or offer
letter with Mr. Foster.
Kevin Reardon
Employment Letter Agreement
ZeroFox entered into an employment letter agreement with Kevin
Reardon, our Chief Operating Officer, dated December 19, 2019, which provides for an initial annual base salary of $300,000, an initial annual cash incentive bonus target of $170,000, of which $85,000 was paid at signing, an initial grant of
4,100,000 options to purchase ZeroFox common stock, a change in control bonus in the amount of $300,000 if the ZeroFox Board approves a definitive change in control transaction agreement within the 24-month period from the effective date of the
employment letter agreement, and eligibility to receive an additional grant of 1,250,000 options to purchase ZeroFox Common Stock upon the achievement of $50.0 million ARR by ZeroFox, which options were granted on November 24, 2021.
Mr. Reardon’s current base salary is $285,000.
Mr. Reardon’s employment letter does not provide for a specific term
and Mr. Reardon is an at-will employee. ZeroFox or Mr. Reardon may terminate his employment at any time for any or no reason, with no severance due.
Scott O’Rourke
Employment Letter Agreement
ZeroFox entered into an employment letter agreement with Scott
O’Rourke, our Vice President of Commercial Sales, dated September 30, 2015, which provided for an initial annual base salary of $175,000, an initial annual cash incentive target of $175,000, and an initial grant of 175,000 options to purchase
ZeroFox Common Stock. Mr. O’Rourke was promoted to Chief Revenue Officer on May 14, 2019. Mr. O’Rourke’s current base salary is $275,000, and he is eligible to earn periodic commissions under our Sales Management Incentive Plan with an annual
target opportunity of $275,000.
Mr. O’Rourke’s employment letter does not provide for a specific term
and Mr. O’Rourke is an at-will employee. ZeroFox or Mr. O’Rourke may terminate his employment at any time for any or no reason, with no severance due.
355
Change in Control Retention Agreements
ZeroFox entered into a change in control retention agreement (a “Change in Control Retention Agreement”) with each of Messrs. Reardon and O’Rourke, dated April 24, 2020 and November 1, 2017, respectively, which provides for accelerated vesting of the “Specified Amount” (as
defined below) of stock options granted to Mr. Reardon on February 24, 2020 and Mr. O’Rourke on October 28, 2015, January 27, 2016 and February 14, 2017 (each, a “Grant”), if either (i) the named
executive officer’s employment is involuntarily terminated without “cause” or he resigns for “good reason,” in each case, within 12 months following consummation of a change in control; or (ii) the named executive officer’s employment is
involuntarily terminated without “cause” between the date on which a change in control transaction is approved by ZeroFox’s Board and the date on which the transaction is consummated; provided that he executes a release agreement. For this
purpose, the “Specified Amount” means, with respect to each Grant, the lesser of (i) 50% of the original number of options granted under such Grant and (ii) all remaining nonvested options granted under such Grant. Under the Change in Control
Retention Agreement, ZeroFox agrees not to exercise its right under the 2013 Equity Incentive Plan, in connection with a change in control transaction, to cancel the options in exchange for payment of an amount determined in the sole discretion
of Zero Fox’s Board.
Each of Messrs. Reardon and O’Rourke has waived his rights under his
Change in Control Retention Agreement with respect to the transactions contemplated by the Business Combination Agreement.
Post-Business Combination Executive Compensation
Following the Closing, New ZeroFox intends to develop an executive
compensation program that is designed to align compensation with New ZeroFox’s business objectives and the creation of shareholder value, while enabling New ZeroFox to attract, retain, incentivize and reward individuals who contribute to the
long-term success of New ZeroFox. Decisions on the executive compensation program will be made by the New ZeroFox compensation committee.
Director Compensation
ZeroFox currently has no formal plan under which all of its directors
receive compensation for their service on the ZeroFox Board or its committees. ZeroFox’s general policy is to reimburse non-employee directors for reasonable and necessary out-of-pocket expenses incurred in connection with attending board and
committee meetings or performing other services in their capacities as non-employee directors and to occasionally grant stock options and restricted stock awards to ZeroFox’s non-employee directors. ZeroFox made an exception to its historical
policy of not compensating its non-employee directors when Ms. King was added to the Board in 2021.
For the year ended January 31, 2022, Samskriti King was the only
non-employee director to receive cash compensation or equity grants. Ms. King receives an annual retainer of $40,000 paid in quarterly installments. She was granted two restricted stock awards for an aggregate of 176,317 shares of ZeroFox
Common Stock on November 24, 2021, of which 158,773 shares were unvested as of January 31, 2022. The table below summarizes the compensation of each person serving as a ZeroFox non-employee director for the year ended January 31, 2022 who is
expected to serve as a director of New ZeroFox. James C. Foster did not receive any additional compensation for his service as a director in 2022. The compensation of Mr. Foster as a named executive officer is set forth above under “ZeroFox’s
Executive Compensation—Summary Compensation Table.” Following the Closing, the New ZeroFox compensation committee expects to implement an appropriate compensation program for the non-employee directors of New ZeroFox.
|
Name
|
| |
Fees
earned
or paid
in cash
($)
|
| |
Stock
awards
($)
|
| |
All Other
Compensation
($)
|
| |
Total
($)
|
|
Peter Barris
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Todd Headley
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Samskriti King
|
| |
$20,000
|
| |
$389,661(1)
|
| |
—
|
| |
$409,661
|
|
Corey Mulloy
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
(1)
|
Represents the aggregate grant-date fair value of restricted stock awards, computed in accordance with the FASB ASC Topic 718.
See Note 11 to ZeroFox’s audited financial statements included elsewhere in this proxy statement/prospectus for a discussion of the assumptions made by ZeroFox in determining the grant-date fair value of ZeroFox’s equity awards.
|
356
L&F Related Party Transactions
Class B Ordinary Shares
In August 2020, the Sponsor paid $25,000 to cover certain offering
and formation costs of L&F in exchange for 5,750,000 Founder Shares. In November 2020, the Sponsor effected a surrender of 1,437,500 Founder Shares to the Company for no consideration, resulting in a decrease in the total number of Class B
Ordinary Shares outstanding to 4,312,500 shares. The Founder Shares included an aggregate of up to 562,500 shares that were subject to forfeiture depending on the extent to which the underwriter’s over-allotment option was exercised, so that
the number of Founder Shares would equal, on an as-converted basis, 20% of the Company’s issued and outstanding ordinary shares after the L&F IPO. As a result of the underwriter’s election to fully exercise its over-allotment option on
November 25, 2020, no Founder Shares were subject to forfeiture.
The Sponsor and L&F’s directors and officers have agreed not to
transfer, assign or sell any of their Founder Shares until the earlier of (A) one year after the completion of the Business Combination, or earlier if, subsequent to the Business Combination, the closing price of the New ZeroFox Common Stock
equals or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Business
Combination, and (B) the date on which L&F completes a liquidation, merger, share exchange or other similar transaction that results in the Public Shareholders having the right to exchange their shares of New ZeroFox Common Stock for cash,
securities or other property.
Private Placement Warrants
On November 23, 2020, simultaneously with the closing of the L&F
IPO, L&F completed the private sale of an aggregate of 5,000,000 L&F Private Placement Warrants to the Sponsor at a purchase price of $1.00 per L&F Private Placement Warrant, generating gross proceeds to the Company of $5,000,000.
In connection with the underwriter’s full exercise of its over-allotment option an additional 450,000 L&F Private Placement Warrants were sold to the Sponsor at a price $1.00 per L&F Private Placement Warrant, generating gross proceeds
to the Company of $450,000.
Each private placement warrant is exercisable for one whole Class A
Ordinary Share at a price of $11.50 per share, subject to adjustment. A portion of the proceeds from the sale of the private placement warrants to the Sponsor was added to the proceeds from the L&F IPO held in the trust account. If the
Company does not complete a business combination by August 24, 2022, the L&F Private Placement Warrants will expire worthless. The L&F Private Placement Warrants will be non-redeemable for cash and exercisable on a cashless basis so
long as they are held by the Sponsor or its permitted transferees.
The Sponsor and L&F’s officers and directors have agreed, subject
to limited exceptions, not to transfer, assign or sell any of their private placement warrants until 30 days after the completion of the initial business combination.
Registration Rights Agreement
At the Closing, New ZeroFox, the Sponsor Holders, Jefferies and
certain shareholders of ZeroFox and IDX will enter into the Registration Rights Agreement pursuant to which, among other things, New ZeroFox will grant the other parties customary registration rights with respect to shares of New ZeroFox Common
Stock, and former shareholders of ZeroFox and IDX will be subject to a 180-day lock-up period following execution of the Registration Rights Agreement during which period such shareholders may not transfer their shares (subject to customary
exceptions). The lock-up period described above will not apply to any shares acquired in the Common Equity PIPE Financing or shares issuable upon conversion of the Notes.
Common Equity PIPE Financing
Concurrently with the execution of the Business Combination
Agreement, L&F entered into the Common Equity Subscription Agreements with the Common Equity PIPE Investors. Pursuant to the Common Equity Subscription Agreements, the Common Equity PIPE Investors agreed to subscribe for and purchase, and
L&F agreed to issue and sell to such investors, on the Closing Date, an aggregate of 2,000,000 shares of New ZeroFox Common Stock in exchange for an aggregate purchase price of $20,000,000.
357
Several related parties to L&F as summarized below entered
into the Common Equity Subscription Agreements, pursuant to which they have collectively committed to subscribe for an aggregate of 1,000,000 shares of New ZeroFox Common Stock for aggregate gross proceeds of $10,000,000 to be consummated in
connection with Closing.
|
Common Equity PIPE Investor
|
| |
Shares
|
| |
Amount Subscribed
|
|
JCH Investments LLC(1)
|
| |
50,000
|
| |
$500,000
|
|
GCP-OI I, LLC(2)
|
| |
50,000
|
| |
$500,000
|
|
L&F Acquisition Holdings Fund, LLC(3)
|
| |
150,000
|
| |
$1,500,000
|
|
Corbin ERISA Opportunity Fund, L.P.(4)
|
| |
750,000
|
| |
$7,500,000
|
|
(1)
|
JCH Investments LLC is an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board.
|
|
(2)
|
GCP-OI I, LLC is an entity affiliated with Adam Gerchen, our chief executive officer and a director of L&F.
|
|
(3)
|
L&F Acquisition Holdings Fund, LLC is an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard
Levy, a director of L&F.
|
|
(4)
|
Corbin ERISA Opportunity Fund, L.P. is an affiliate of Corbin Capital Partners, LP, and such entity is a significant security
holder of L&F.
|
Convertible Notes Financing
In connection with signing the Business Combination Agreement,
L&F entered into the Convertible Notes Subscription Agreements with the Convertible Notes Investors, in respect of $150,000,000 aggregate principal amount of the Notes to be issued in connection with the Closing. The principal terms of the
Notes are set forth in the form of indenture attached as an exhibit to the Convertible Notes Subscription Agreements, which Indenture will be entered into by L&F, the guarantors party thereto and the indenture trustee, and the form of
global note attached thereto. The Notes will bear interest at a rate of 7.00% per annum, payable quarterly in cash; provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum, and the Notes will be convertible at
the Conversion Price, and will mature on the date that is three years following the closing of the Convertible Notes Financing.
Several related parties to L&F as summarized below entered into
Convertible Notes Subscription Agreements, pursuant to which they collectively committed to subscribe for Notes in an aggregate principal amount of $30,000,000, on the terms and subject to the conditions set forth in the Convertible Notes
Subscription Agreements and the Indenture, to be consummated in connection with the Closing.
|
Convertible Notes Investor
|
| |
Amount Subscribed
|
|
L&F Acquisition Holdings Fund, LLC(1)
|
| |
$7,500,000
|
|
Corbin ERISA Opportunity Fund, L.P.(2)
|
| |
$22,500,000
|
|
(1)
|
L&F Acquisition Holdings Fund, LLC is an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard
Levy, a director of L&F.
|
|
(2)
|
Corbin ERISA Opportunity Fund, L.P. is an affiliate of Corbin Capital Partners, LP, and such entity is a significant security
holder of L&F.
|
Sponsor Support Letter Agreement
Concurrently with the execution of the Business Combination
Agreement, (i) L&F, (ii) the Sponsor, Albert Goldstein and Joseph Lieberman, (iii) ZeroFox, (iv) IDX, and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the limited purposes set forth therein), entered into
an Amended and Restated Sponsor Support Letter Agreement. On January 31, 2022, (i) L&F, (ii) the Sponsor, the Sponsor Holders, (iii) ZeroFox, (iv) IDX, and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the
limited purposes set forth therein), entered into a Second Amended and Restated Sponsor Support Letter Agreement (the “Sponsor Support Letter Agreement”). Pursuant to the Sponsor Support Letter Agreement,
the Sponsor Holders have agreed to subject an aggregate of 1,293,750 shares of New ZeroFox Common Stock held by such Sponsor Holders to an earnout, whereby such shares will be forfeited unless certain volume-weighted average share price
thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the Closing. See “Proposal No. 2 — Business
Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” for more information related to the Sponsor Support Letter Agreement.
358
Related Party Loans
On August 28, 2020, the Sponsor agreed to loan L&F an aggregate
of up to $300,000 to cover expenses related to the L&F IPO pursuant to a promissory note (the “Promissory Note”). This loan was non-interest bearing and payable upon the completion of the L&F IPO.
Prior to the consummation of the L&F IPO, L&F borrowed approximately $64,126 under the Promissory Note. On November 23, 2020, L&F repaid the Promissory Note in full to the Sponsor.
In addition, in order to finance transaction costs in connection with
a business combination, the Sponsor or an affiliate of the Sponsor, or certain of L&F’s officers and directors may, but are not obligated to, loan L&F funds as may be required (“Working Capital Loans”).
If L&F completes an initial business combination, L&F would repay the Working Capital Loans out of the proceeds of the trust account released to L&F. Otherwise, the Working Capital Loans would be repaid only out of funds held
outside the trust account. In the event that an initial business combination does not close, L&F may use a portion of proceeds held outside the trust account to repay the Working Capital Loans but no proceeds held in the trust account would
be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either
be repaid upon consummation of an initial business combination or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into warrants of New ZeroFox at a price of $1.00 per warrant. The warrants would be
identical to the private placement warrants. To date, L&F had no borrowings under the Working Capital Loans.
Administrative Services Agreement
L&F entered into an agreement that provides that, subsequent to
the closing of the L&F IPO and continuing until the earlier of L&F’s consummation of an initial business combination or L&F’s liquidation, L&F will pay to an affiliate of the Sponsor a total of $10,000 per month for office
space, secretarial and administrative services.
The Sponsor, executive officers and directors, or any of their
respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on L&F’s behalf such as identifying potential target businesses and performing due diligence on suitable business combinations.
L&F’s audit committee will review on a quarterly basis all payments that were made to the Sponsor, officers, directors or their affiliates.
ZeroFox Related Party Transactions
Headquarters’ Lease
ZeroFox currently leases its headquarters at 1834 S. Charles Street,
Baltimore, Maryland, 21230 pursuant to the terms of a Lease Agreement dated February 27, 2016 (as amended, the “ZF HQ Lease”) with 1830 Charles Street LLC, a subsidiary of Wolf Acquisitions, L.P. Wolf
Acquisitions, L.P. is wholly-owned by James C. Foster, ZeroFox’s Chief Executive Officer. Under the terms of the ZF HQ Lease, ZeroFox paid 1830 Charles Street LLC base rent of $35,170 per month (an amount that increased to $36,225 per month on
March 1, 2022). The current term of the ZF HQ Lease will expire on February 28, 2023, unless extended by the parties. The ZF HQ Lease was approved by ZeroFox’s board of directors and ZeroFox believes that the ZF HQ Lease is on arms’-length
terms.
Cyveillance Sublease
On September 30, 2020, ZeroFox acquired the Cyveillance business unit
and related assets from Lookingglass Cyber Solutions, Inc. (“Lookingglass”). In connection with this transaction, ZeroFox issued Series E redeemable convertible preferred stock to Lookingglass and, as a
result, Lookingglass is a related party of ZeroFox and Lookingglass will be a greater than 5% beneficial owner of the outstanding shares of New ZeroFox Common Stock. As part of the Cyveillance acquisition, ZeroFox entered into that certain Deed
of Sublease, dated September 30, 2020, with Lookingglass as sublandlord (the “Lookingglass Sublease”). Under the Lookingglass Sublease, ZeroFox paid Lookingglass $23,886 monthly base rent (an amount that
increased to $24,844 per month on March 1, 2021 and to $25,837 per month on March 1, 2022). The Lookingglass Sublease expires on July 31, 2022. The Lookingglass Sublease was approved by the ZeroFox Board in connection with the Cyveillance
acquisition and ZeroFox believes that the Lookingglass Sublease is on arm’s-length terms.
359
Bridge Notes
On December 16, 2021, several ZeroFox related parties purchased
ZeroFox PIK Promissory Notes, as summarized below. Such ZeroFox PIK Promissory Notes accrue interest that will be paid-in-kind at a rate of 5.0% per annum and mature upon the earlier of the Closing and the one-year anniversary of the date of
issuance. If the Closing occurs, the repayment of the original principal amount of the ZeroFox PIK Promissory Notes may be offset against amounts owed by such related parties under their respective Common Equity Subscription Agreements.
|
Noteholder
|
| |
Amount Subscribed
|
|
Highland Capital Partners 9 Limited Partnership(1)
|
| |
$1,179,620
|
|
Highland Capital Partners 9-B Limited Partnership(1)
|
| |
$508,110
|
|
Highland Entrepreneurs’ Fund 9 Limited Partnership(1)
|
| |
$102,960
|
|
New Enterprise Associates 14, L.P.(2)
|
| |
$2,288,150
|
|
Wolf Acquisitions, L.P.(3)
|
| |
$671,160
|
|
(1)
|
Corey Mulloy is a member of the ZeroFox board of directors, and following the Closing will be a member of the New ZeroFox Board.
The general partner of each of Highland Capital Partners 9 Limited Partnership, Highland Capital Partners 9-B Limited Partnership and Highland Entrepreneurs’ Fund 9 Limited Partnership is Highland Management Partners 9 Limited
Partnership whose general partner is Highland Management Partners 9 LLC, of which Mr. Mulloy is a managing member. Following the Closing, Highland Capital will be a greater than 5% beneficial owner of the outstanding New ZeroFox Common
Stock.
|
|
(2)
|
Following the Closing, New Enterprise Associates 14, L.P. will be a greater than 5% beneficial owner of the outstanding New
ZeroFox Common Stock.
|
|
(3)
|
Wolf Acquisitions, L.P. is wholly-owned by James C. Foster, the Chief Executive Officer of ZeroFox. Mr. Foster is a member of the
ZeroFox board of directors, is a nominee to serve as a member of the New ZeroFox Board, and following the Closing will be the Chief Executive Officer and a greater than 5% beneficial owner of the outstanding New ZeroFox Common Stock.
|
Participation in the Common Equity PIPE
Financing
Several ZeroFox related parties are participating in the Common
Equity PIPE Financing, as summarized below:
|
Common Equity PIPE Investor
|
| |
Shares
|
| |
Amount Subscribed
|
|
Highland Capital Partners 9 Limited Partnership
|
| |
117,962
|
| |
$1,179,620
|
|
Highland Capital Partners 9-B Limited Partnership
|
| |
50,811
|
| |
$508,110
|
|
Highland Entrepreneurs’ Fund 9 Limited Partnership
|
| |
10,296
|
| |
$102,960
|
|
New Enterprise Associates 14, L.P.
|
| |
228,815
|
| |
$2,288,150
|
|
Wolf Acquisitions, L.P.
|
| |
67,116
|
| |
$671,160
|
Please see footnotes to the Bridge Notes table above.
360
Private Placements of Securities
Series D Preferred Stock Financing
On December 20, 2019, ZeroFox issued an aggregate of 20,743,718
shares of its Series D, Series D-1 and Series D-2 preferred stock. Investors acquired shares of Series D preferred stock at a purchase price, in cash, of $1.52993 per share, for an aggregate purchase amount of approximately $21.22 million.
Shares of Series D-1 and Series D-2 were issued upon the conversion of convertible promissory notes held by investors at conversion prices of $1.223944 per share and $1.376937 per share, respectively, for an aggregate conversion amount of
approximately $8.56 million. Certain ZeroFox parties participated in the financing round, as summarized below:
|
Stockholder
|
| |
Shares of
ZeroFox
Series D
Preferred
Stock
|
| |
Purchase
Price
|
|
Highland Capital Partners 9 Limited Partnership
|
| |
856,515
|
| |
$1,310,408
|
|
Highland Capital Partners 9-B Limited Partnership
|
| |
368,935
|
| |
$564,445
|
|
Highland Entrepreneurs’ Fund 9 Limited Partnership
|
| |
74,762
|
| |
$114,381
|
|
New Enterprise Associates 14, L.P.(1)
|
| |
2,037,886
|
| |
$3,117,823
|
|
Redline Capital Fund Universal Investments, a sub-fund of
Redline Capital Fund, FCP-FIS(2)
|
| |
1,284,661
|
| |
$1,965,441
|
|
Investor
|
| |
Shares of
ZeroFox
Series D-1
Preferred
Stock
|
| |
Purchase
Price ($)
|
|
Highland Capital Partners 9 Limited Partnership
|
| |
1,105,729
|
| |
$1,353,350
|
|
Highland Capital Partners 9-B Limited Partnership
|
| |
476,281
|
| |
$582,942
|
|
Highland Entrepreneurs’ Fund 9 Limited Partnership
|
| |
96,515
|
| |
$118,129
|
|
New Enterprise Associates 14, L.P.(1)
|
| |
2,119,077
|
| |
$2,593,632
|
|
Redline Capital Fund Universal Investments, a sub-fund of
Redline Capital Fund, FCP-FIS(2)
|
| |
1,334,978
|
| |
$1,633,938
|
Please see footnotes to the Bridge Notes table above.
|
(1)
|
Peter Barris is a member of the ZeroFox board of directors, and is a nominee to serve as a member of the New ZeroFox Board.
Effective December 31, 2019, Mr. Barris resigned from his position as a member of NEA 14 GP, LTD, the sole general partner of NEA Partners 14, L.P., the sole general partner of New Enterprise Associates 14, L.P.
|
|
(2)
|
Following the Closing, Redline Capital will be a greater than 5% beneficial owner of the outstanding New ZeroFox Common Stock.
|
Redline Letter Agreement
On December 7, 2021, ZeroFox entered into a letter agreement with
Redline Capital Fund Universal Investments, a sub-fund of Redline Capital Fund, FCP-FIS (“Redline Capital”), pursuant to which Redline Capital irrevocably waived its right to designate a member of the
ZeroFox board of directors and its board observer rights and pursuant to which Redline Capital and its affiliates granted to ZeroFox’s chief executive officer an irrevocable proxy to vote all of their shares, which shall be voted proportionally
to the overall votes cast by other shareholders of ZeroFox on proposals or resolutions voted on by ZeroFox’s shareholders. Following the Closing, Redline Capital will beneficially own more than 5% of the outstanding New ZeroFox Common Stock.
Registration Rights Agreement
At the Closing, New ZeroFox, the Sponsor Holders, Jefferies and
certain shareholders of ZeroFox (including James C. Foster, Wolf Acquisitions, L.P., New Enterprises Associates 14, L.P., Highland Capital Partners 9 Limited Partnership, Highland Capital Partners 9-B Limited Partnership, Highland
Entrepreneurs’ Fund 9 Limited Partnership and Redline Capital Fund Universal Investments) and IDX will enter into the Registration Rights Agreement pursuant to which, among other things, New ZeroFox will grant the other parties customary
registration rights with respect to shares of New ZeroFox, and former shareholders of ZeroFox and IDX will be
361
subject to a 180-day lock-up period following execution of the Registration Rights
Agreement during which period such shareholders may not transfer their shares (subject to customary exceptions). The lock-up period described above will not apply to any shares acquired in the Common Equity PIPE Financing.
IDX Related Party Transactions
In connection with and contingent upon the Closing, Thomas F. Kelly
will continue his employment for one year, assuming the position of Senior Advisor pursuant to Amendment No. 4 to the Employment Agreement between IDX and Thomas F. Kelly, dated December 17, 2021. Thomas F. Kelly is a nominee to serve as a
member of the New ZeroFox Board.
In the fiscal year ended December 31, 2021, in connection with his
service as IDX's Chief Executive Officer, Thomas F. Kelly received a base salary of $325,000, and for his achievements in 2021, he earned a discretionary bonus of $225,000, which he received in the three-month period ended March 31, 2022.
Participation in the Common Equity PIPE
Financing
Several IDX related parties are participating in the Common Equity
PIPE Financing, as summarized below:
|
Common Equity PIPE Investor
|
| |
Shares
|
| |
Amount Subscribed
|
|
Peloton Equity I, L.P.(1)
|
| |
104,963
|
| |
$1,049,630
|
|
Peloton ID Experts, LLC(1)
|
| |
77,238
|
| |
$772,380
|
|
ForgePoint Cyber Affiliates Fund I, L.P.(2)
|
| |
1,723
|
| |
$17,230
|
|
ForgePoint Cybersecurity Fund I, L.P.(2)
|
| |
148,223
|
| |
$1,482,230
|
|
(1)
|
Following the Closing, Peloton Equity will be a greater than 5% beneficial owner of the outstanding New ZeroFox Common Stock.
|
|
(2)
|
Sean Cunningham is a non-managing member of ForgePoint Cybersecurity GP-I, LLC, and is a nominee to serve as a member of the New
ZeroFox Board. Following the Closing, ForgePoint will be a greater than 5% beneficial owner of the outstanding New ZeroFox Common Stock.
|
Convertible Promissory Notes
IDX is a party to that certain Convertible Promissory Note Purchase
Agreement, dated as of December 18, 2018, by and among IDX and certain IDX shareholders, including entities associated with Peloton and ForgePoint (the “NPA”). Pursuant to the NPA, IDX issued certain
convertible promissory notes to related parties, as summarized below:
|
Noteholder
|
| |
Principal
Amount
|
| |
Loans Fees and
Interest Paid as of
March 31, 2022
|
| |
Total Outstanding
Balance as of
March 31, 2022
|
|
Peloton Equity I, L.P.
|
| |
$293,250
|
| |
$0.00
|
| |
$566,779
|
|
Peloton ID Experts, LLC
|
| |
$215,790
|
| |
$0.00
|
| |
$417,069
|
|
ForgePoint Cybersecurity Fund I, LP(1)
|
| |
$414,113
|
| |
$0.00
|
| |
$800,379
|
|
ForgePoint Cyber Affiliates Fund I, LP(1)
|
| |
$4,815
|
| |
$0.00
|
| |
$9,306
|
Please see footnotes to the “Participation in the Common Equity PIPE Financing” table
above.
|
(1)
|
Transferred from Trident Capital Security Fund I, L.P. pursuant to an assignment and transfer agreement dated May 13, 2020.
|
Registration Rights Agreement
At the Closing, New ZeroFox, the Sponsor Holders, Jefferies and
certain shareholders of ZeroFox and IDX (including Thomas Kelly, Peloton Equity I, L.P., Peloton ID Experts, LLC and ForgePoint Capital) will enter into the Registration Rights Agreement pursuant to which, among other things, New ZeroFox will
grant the other parties customary registration rights with respect to shares of New ZeroFox, and former shareholders of ZeroFox and IDX will be subject to a 180-day lock-up period following execution of the Registration Rights Agreement during
which period such shareholders may not transfer their shares (subject to customary exceptions). The lock-up period described above will not apply to any shares acquired in the Common Equity PIPE Financing.
362
The following table sets forth information regarding (i) the actual
beneficial ownership of L&F Ordinary Shares as of June 2, 2022 (except as otherwise noted) and (ii) the expected beneficial ownership of New ZeroFox Common Stock immediately following the Closing, assuming that no Public Shares are redeemed
in connection with the Business Combination Proposal and alternatively that all Public Shares are redeemed in connection with the Business Combination Proposal by:
|
•
|
each person who is known to be the beneficial owner of more than 5% of either the outstanding Class A Ordinary Shares or Class B
Ordinary Shares, and each person who is expected to be the beneficial owner of more than 5% of the outstanding shares of New ZeroFox Common Stock post-Business Combination;
|
|
•
|
each of our current executive officers and directors;
|
|
•
|
each person who will become an executive officer or director of New ZeroFox; and
|
|
•
|
all executive officers and directors of L&F as a group pre-Business Combination and all executive officers and directors of
New ZeroFox as a group post-Business Combination.
|
Beneficial ownership is determined according to the rules of the SEC,
which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable
within 60 days.
The beneficial ownership of L&F Ordinary Shares pre-Business
Combination is based on 3,425,689 Class A Ordinary Shares and 4,312,500 Class B Ordinary Shares outstanding as of June 2, 2022.
The expected beneficial ownership of shares of New ZeroFox Common
Stock immediately following the Closing, assuming that none of the Public Shares is redeemed (after giving effect to the Extension Amendment Redemptions), is based on an aggregate of 120,865,968 shares of New ZeroFox Common Stock to be issued
and outstanding immediately following the Closing, which assumes the following: (A) 83,222,734 ZeroFox Common Stock are issued to the holders of ZeroFox Common Stock in connection with the Business Combination based on a per share consideration
of 0.2866 of a share of New ZeroFox Common Stock, (B) 27,905,045 shares of New ZeroFox Common Stock are issued to the holders of IDX Capital Stock in connection with the Business Combination based on a per share consideration of 0.6177 of a
share of New ZeroFox Common Stock, (C) all outstanding ZeroFox Warrants and IDX Warrants will be exercised immediately prior to the Closing, (D) 2,000,000 shares of New ZeroFox Common Stock are issued to the PIPE Investors, (E) no New ZeroFox
Public Warrants and New ZeroFox Private Placement Warrants issued in connection with the Business Combination that will be outstanding immediately following Closing have been exercised; (F) no Notes issued in the Convertible Notes Financing
have been converted; (G) all outstanding vested and unvested ZeroFox options and IDX options are converted into New ZeroFox Options exercisable for shares of New ZeroFox Common Stock; and (H) neither ZeroFox nor IDX issues any additional equity
securities prior to the Business Combination, and that no other event occurs that would change either the ZeroFox or the IDX per share consideration from what each would have been as of the date of this proxy statement/prospectus.
The expected beneficial ownership of shares of New ZeroFox Common
Stock immediately following the Closing, assuming the maximum number of the Public Shares is redeemed, is based on an aggregate of 117,440,279 shares of New ZeroFox Common Stock to be issued and outstanding immediately following the Closing,
based on the same assumptions set forth above.
363
|
|
| |
|
| |
|
| |
|
| |
After the Business Combination
|
|||||||||
|
|
| |
Before the Business Combination
|
| |
Assuming No Redemption
|
| |
Assuming Maximum Redemption
|
||||||||||||
|
Name of Beneficial Owner
|
| |
Number of
Class A Shares
|
| |
Number of
Class B Shares
|
| |
% of Class
|
| |
Shares of New
ZeroFox
Common Stock
|
| |
% of Class
|
| |
Shares of New
ZeroFox
Common Stock
|
| |
% of Class
|
|
Five Percent Holders
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
New Enterprise Associates(1)
|
| |
—
|
| |
—
|
| |
—
|
| |
18,112,242
|
| |
15.0%
|
| |
18,112,242
|
| |
15.4%
|
|
Highland Capital(2)
|
| |
—
|
| |
—
|
| |
—
|
| |
14,174,519
|
| |
11.7%
|
| |
14,174,519
|
| |
12.1%
|
|
Redline Capital(3)
|
| |
—
|
| |
—
|
| |
—
|
| |
11,273,022
|
| |
9.3%
|
| |
11,273,022
|
| |
9.6%
|
|
Lookingglass Cyber Solutions, Inc(4)
|
| |
—
|
| |
—
|
| |
—
|
| |
8,728,958
|
| |
7.2%
|
| |
8,728,958
|
| |
7.4%
|
|
James C. Foster(5,14)
|
| |
—
|
| |
—
|
| |
—
|
| |
8,660,268
|
| |
7.2%
|
| |
8,660,268
|
| |
7.4%
|
|
Peloton Equity(6)
|
| |
—
|
| |
—
|
| |
—
|
| |
7,309,937
|
| |
6.0%
|
| |
7,309,937
|
| |
6.2%
|
|
ForgePoint(7)
|
| |
—
|
| |
—
|
| |
—
|
| |
6,015,916
|
| |
5.0%
|
| |
6,015,916
|
| |
5.1%
|
|
Corbin Capital Partners GP, LLC(8)
|
| |
1,405,000
|
| |
—
|
| |
41.0%
|
| |
2,155,000
|
| |
1.8%
|
| |
750,000
|
| |
*
|
|
JAR Sponsor LLC(9)
|
| |
—
|
| |
4,202,767
|
| |
97.5%
|
| |
9,652,767
|
| |
7.6%
|
| |
9,652,767
|
| |
7.9%
|
|
Directors and Executive Officers of
L&F(10)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Jeffrey C. Hammes(11)
|
| |
—
|
| |
4,202,767
|
| |
97.5%
|
| |
4,252,767
|
| |
3.5%
|
| |
4,252,767
|
| |
3.6%
|
|
Adam Gerchen(12)
|
| |
—
|
| |
4,202,767
|
| |
97.5%
|
| |
4,252,767
|
| |
3.5%
|
| |
4,252,767
|
| |
3.6%
|
|
Richard Levy(13)
|
| |
—
|
| |
4,202,767
|
| |
97.5%
|
| |
4,352,767
|
| |
3.6%
|
| |
4,352,767
|
| |
3.7%
|
|
Tom Gazdziak
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Senator Joseph Lieberman
|
| |
—
|
| |
50,000
|
| |
1.2%
|
| |
50,000
|
| |
*
|
| |
50,000
|
| |
*
|
|
Albert Goldstein
|
| |
—
|
| |
20,000
|
| |
*
|
| |
20,000
|
| |
*
|
| |
20,000
|
| |
*
|
|
Kurt Summers
|
| |
—
|
| |
39,733
|
| |
*
|
| |
39,733
|
| |
*
|
| |
39,733
|
| |
*
|
|
All L&F Directors and Executive Officers as a Group (7
persons)
|
| |
—
|
| |
4,312,500
|
| |
100.0%
|
| |
4,562,500
|
| |
3.8%
|
| |
4,562,500
|
| |
3.9%
|
|
Directors & Executive Officers of New
ZeroFox After Closing(14)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
James C. Foster(5)
|
| |
—
|
| |
—
|
| |
—
|
| |
8,660,268
|
| |
7.2%
|
| |
8,660,268
|
| |
7.4%
|
|
Peter Barris
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Sean Cunningham
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Adam Gerchen(12)
|
| |
—
|
| |
4,202,767
|
| |
97.5%
|
| |
4,252,767
|
| |
3.5%
|
| |
4,252,767
|
| |
3.6%
|
|
Todd Headley(15)
|
| |
—
|
| |
—
|
| |
—
|
| |
306,700
|
| |
*
|
| |
306,700
|
| |
*
|
|
Thomas F. Kelly
|
| |
—
|
| |
—
|
| |
—
|
| |
1,967,690
|
| |
1.6%
|
| |
1,967,690
|
| |
1.7%
|
|
Samskriti King(16)
|
| |
—
|
| |
—
|
| |
—
|
| |
50,535
|
| |
*
|
| |
50,535
|
| |
*
|
|
Corey Mulloy(17)
|
| |
—
|
| |
—
|
| |
—
|
| |
14,174,519
|
| |
11.7%
|
| |
14,174,519
|
| |
12.1%
|
|
Kevin Reardon(18)
|
| |
—
|
| |
—
|
| |
—
|
| |
661,016
|
| |
*
|
| |
661,016
|
| |
*
|
|
Tim Bender(19)
|
| |
—
|
| |
—
|
| |
—
|
| |
786,991
|
| |
*
|
| |
786,991
|
| |
*
|
|
Scott O'Rourke(20)
|
| |
—
|
| |
—
|
| |
—
|
| |
549,015
|
| |
*
|
| |
549,015
|
| |
*
|
|
John Prestridge(21)
|
| |
—
|
| |
—
|
| |
—
|
| |
96,734
|
| |
*
|
| |
96,734
|
| |
*
|
|
Michael Price(22)
|
| |
—
|
| |
—
|
| |
—
|
| |
690,360
|
| |
*
|
| |
690,360
|
| |
*
|
|
Tom FitzGerald(23)
|
| |
—
|
| |
—
|
| |
—
|
| |
53,741
|
| |
*
|
| |
53,741
|
| |
*
|
|
All Directors and Executive Officers of
New ZeroFox as a Group (14 persons)(24)
|
| |
|
| |
4,202,767
|
| |
97.5%
|
| |
32,250,336
|
| |
26.0%
|
| |
32,250,336
|
| |
26.8%
|
|
*
|
Represents beneficial ownership of less than 1%.
|
364
|
(1)
|
Consists of (i) 18,089,867 shares (including 228,815 shares to be purchased in the Common Equity PIPE Financing) to be held by
New Enterprise Associates 14, L.P. (“NEA 14”) upon the Closing and (ii) 22,375 shares to be held by NEA Ventures 2014, L.P. (“Ven 2014”) upon the Closing. The shares held directly by NEA 14 are held indirectly by NEA Partners 14, L.P.
(“NEA Partners 14”), the sole general partner of NEA 14. NEA 14 GP, LTD (“NEA 14 LTD”) is the sole general partner of NEA Partners 14. The individual directors of NEA 14 LTD are Forest Baskett, Anthony A. Florence, Jr., Patrick J.
Kerins, Scott D. Sandell, and Peter Sonsini (together, the “NEA 14 Directors”). NEA Partners 14, NEA 14 LTD and the NEA 14 Directors may be deemed to share voting and dispositive power with regard to the shares directly held by NEA 14.
The shares held directly by Ven 2014 are held indirectly by Karen P. Welsh, the general partner of Ven 2014. The address for each of these entities and individuals is c/o New Enterprise Associates, Inc., 1954 Greenspring Drive, Suite
600, Timonium, Maryland 21093.
|
|
(2)
|
Consists of 9,337,467 shares (including 117,962 shares to be purchased in the Common Equity PIPE Financing) to be held by
Highland Capital Partners 9 Limited Partnership (“HCP 9”) upon the Closing, 4,022,019 shares (including 50,811 shares to be purchased in the Common Equity PIPE Financing) to be held by Highland Capital Partners 9-B Limited Partnership
(“HCP 9B”) upon the Closing, and 815,033 shares (including 10,296 shares to be purchased in the Common Equity PIPE Financing) to be held by Highland Entrepreneurs’ Fund 9 Limited Partnership (“HEF 9”) upon the Closing. The general
partner of each of HCP 9, HCP 9B and HEF 9 is Highland Management Partners 9 Limited Partnership (“Highland 9 GP LP”), whose general partner is Highland Management Partners 9 LLC (“Highland 9 GP LLC”). Robert Davis, Dan Nova, Paul
Maeder and Corey Mulloy (“Managing Members”) are the managing members of Highland 9 GP LLC and may be deemed to share voting and dispositive power over shares held by each of HCP 9, HCP 9B and HEF 9. The principal business address of
each of the foregoing entities and the Managing Members is One Broadway, 14th Floor, Cambridge, Massachusetts 02142.
|
|
(3)
|
Consists of 11,273,022 shares to be held directly by Redline Capital Fund Universal Investments (“Redline UI”), a sub-fund of
Redline Capital Fund, FCP-FIS (“Redline Capital”) upon the Closing. Redline Capital Management S.A. (“Redline Management”) serves as the manager of Redline UI and Redline Capital, and Redline Capital (UK) Limited (“Redline Adviser”)
serves as the investment adviser to Redline Management. As the Investment Director of Redline Management, Tatiana Evtushenkova may be deemed to have investment power over the shares held by Redline UI. The principal business address of
Redline Adviser is Lynton House 7-12 Tavistock Square, London, England WC1 9LT. The principal business address of the other Redline entities is 26 Avenue Monterey, L-2163 Luxembourg. Pursuant to a letter agreement, dated December 7,
2021, Redline Capital and its affiliates granted to ZeroFox’s chief executive officer an irrevocable proxy to vote all of their shares, which shall be voted proportionally to the overall votes cast by other shareholders of ZeroFox on
proposals or resolutions voted on by ZeroFox’s shareholders.
|
|
(4)
|
Consists of 8,728,958 shares to be held directly by Lookingglass Cyber Solutions, Inc. (“Lookingglass”) upon the Closing.
Lookingglass is a privately held, operating company, and voting and dispositive decisions with respect to the ZeroFox shares owned by Lookingglass are made collectively by the members of Lookingglass' senior management team, under the
oversight of its five member board of directors. In making these voting and dispositive decisions, the Lookingglass senior management team generally acts by consensus. Although the composition of the senior management team changes over
time, the current senior management team consists of Gilman Louie, Bryan Ware, Donald Gilberg, Dana Mariano, Norman Laudermilch and Ronald Nielson, each of whom may be deemed to share voting and dispositive power over the shares. The
address of Lookingglass is 10740 Parkridge Boulevard, Suite 200, Reston, Virginia, 20191.
|
|
(5)
|
Consists of 8,532,605 shares to be held directly by James C. Foster upon the Closing and 127,663 shares (including 67,116 shares
to be purchased in the Common Equity PIPE Financing) to be held by Wolf Acquisitions, L.P. upon the Closing. Wolf Acquisitions, L.P. is wholly-owned by Mr. Foster. The address of Mr. Foster is c/o ZeroFox, Inc., 1834 S. Charles Street
Baltimore, Maryland 21230.
|
|
(6)
|
Consists of (i) 4,211,138 shares (including 104,963 shares to be purchased in the Common Equity PIPE Financing) to be held by
Peloton Equity I, L.P. upon the Closing and (ii) 3,098,799 shares (including 77,238 shares to be purchased in the Common Equity PIPE Financing) to be held by Peloton ID Experts, LLC upon the Closing. Peloton Equity GP is the general
partner of Peloton Equity I, L.P. and Peloton ID Experts, LLC. Carlos Ferrer and Theodore B. Lundberg are the managing members of Peloton Equity GP. The business address of the foregoing persons and entities is 66 Field Point Road, 2nd
Floor, Greenwich, CT 06830.
|
|
(7)
|
Consists of (i) 69,144 shares (including 1,723 shares to be purchased in the Common Equity PIPE Financing) to be held by
ForgePoint Cyber Affiliates Fund I, L.P. upon the Closing and (ii) 5,946,772 (including 148,223 shares to be purchased in the Common Equity PIPE Financing) to be held by ForgePoint Cybersecurity Fund I, L.P. (together with ForgePoint
Cyber Affiliates Fund I, L.P., the “ForgePoint Funds”) upon the Closing. Donald R. Dixon and Alberto J. Yepez are the managing members of ForgePoint Cybersecurity GP-I, LLC, which is the general partner of each of the ForgePoint Funds,
and exercise shared voting, investment and dispositive rights with respect to the shares of stock held by each of the ForgePoint Funds. Sean Cunningham is a non-managing member of ForgePoint Cybersecurity GP-I, LLC. In this capacity,
Mr. Cunningham does not have voting or dispositive power over the shares held by the ForgePoint Funds. The address for all entities and individuals affiliated with the ForgePoint Funds is 400 S El Camino Road, Suite 1050, San Mateo, CA
94402.
|
|
(8)
|
Before the Business Combination, includes Class A Ordinary Shares held by Corbin Opportunity Fund, L.P. (“COF”), Corbin ERISA
Opportunity Fund, Ltd. (“CEOF”), Corbin Capital Partners, L.P. (“CCP”) and Corbin Capital Partners GP, LLC (“CCPG”). Before the Business Combination, based on Schedule 13D/A filed jointly by COF, CEOF, CCP and CCPG with the SEC on June
2, 2022, COF beneficially owns 468,333 Class A Ordinary Shares, CEOF beneficially owns 936,667 Class A Ordinary Shares, CCP beneficially owns 1,405,000 Class A Ordinary Shares and CCPG beneficially owns 1,405,000 Class A Ordinary
Shares. After the Business Combination, also includes 750,000 shares to be purchased in the Common Equity PIPE Financing by CEOF and excludes up to 1,956,520 shares issuable to CEOF upon the conversion, subject to certain adjustments
from time to time as set forth in the relevant indenture, of $22,500,000 principal amount of Notes. CCP is the investment manager of each of COF and CEOF (“Corbin Funds”). CCP and its general partner, CCPG may be deemed beneficial
owners of the Class A Ordinary Shares beneficially owned by each of the Corbin Funds noted above.Craig Bergstrom, as the Chief Investment Officer of CCP, makes voting and investment for the Corbin Funds, but disclaims beneficial
ownership of the shares held by them, except to the extent of his pecuniary interest therein. The address of COF, CEOF, CCP and CCPG is 590 Madison Avenue, 31st Floor, New York, NY 10022.
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(9)
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Before the Business Combination, includes 4,202,767 Class B Ordinary Shares held by JAR Sponsor LLC. After the Business
Combination also includes 5,450,000 New ZeroFox Common Stock issuable upon exercise of 5,450,000 private placement warrants purchased by JAR Sponsor LLC in connection with the L&F IPO. GCP-OI I, LLC, MSBD 2020 Series LLC and
Victory Park Capital Advisors, LLC as the voting members of JAR Sponsor LLC will exercise voting control over 4,202,767 Class B Ordinary Shares. Jeffrey C. Hammes, by virtue of his role as managing member of MSBD 2020 Series LLC has
voting and dispositive power over the Class B Ordinary Shares held by JAR Sponsor LLC, and therefore may be deemed to have beneficial ownership of the Class B
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365
Ordinary Shares held directly by the Sponsor. Adam Gerchen, by virtue of his role
as manager of GCP-OI I, LLC has voting and dispositive power over the Class B Ordinary Shares held by JAR Sponsor LLC, and therefore may be deemed to have beneficial ownership of the Class B Ordinary Shares held directly by the Sponsor. Richard
Levy has voting and dispositive power on behalf of Victory Park Capital, LLC over the Class B Ordinary Shares held by JAR Sponsor LLC, and therefore may be deemed to have beneficial ownership of the Class B ordinary shares held directly by the
Sponsor. The address of JAR Sponsor LLC is 150 North Riverside Plaza, Suite 5200 Chicago, IL 60606.
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(10)
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Unless otherwise indicated, the address of each of L&F’s directors and executive officers is c/o L&F Acquisition Corp.,
150 North Riverside Plaza, Suite 5200 Chicago, IL 60606.
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(11)
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Before the Business Combination, includes 4,202,767 shares held by JAR Sponsor LLC, the Sponsor, the record holder of the Class B
Ordinary Shares reported herein. The voting members of the Sponsor are, GCP-OI I, LLC, MSBD 2020 Series LLC and Victory Park Capital Advisors, LLC. Jeffrey C. Hammes, by virtue of his role as managing member of MSBD 2020 Series LLC has
voting and dispositive power over the Class B Ordinary Shares held by JAR Sponsor LLC, and therefore may be deemed to have beneficial ownership of the Class B Ordinary Shares held directly by the Sponsor. Mr. Hammes disclaims beneficial
ownership of such securities except to the extent of his pecuniary interest therein. After the Business Combination, also includes 50,000 shares to be purchased in the Common Equity PIPE Financing by JCH Investments LLC of which Mr.
Hammes is managing member.
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(12)
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Before the Business Combination, includes 4,202,767 shares held by JAR Sponsor LLC, the Sponsor, the record holder of the Class B
Ordinary Shares reported herein. The members of the Sponsor are, GCP-OI I, LLC, MSBD 2020 Series LLC and Victory Park Capital Advisors, LLC. Adam Gerchen, by virtue of his role as manager of GCP-OI I, LLC has shared voting and
dispositive power over the Class B Ordinary Shares held by JAR Sponsor LLC, and therefore may be deemed to have beneficial ownership of the Class B Ordinary Shares held directly by the Sponsor. Mr. Gerchen disclaims beneficial ownership
of such securities except to the extent of his pecuniary interest therein. After the Business Combination, also includes 50,000 shares to be purchased in the Common Equity PIPE Financing by GCP-OI I, LLC.
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(13)
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Before the Business Combination, includes 4,202,767 shares held by JAR Sponsor LLC, the Sponsor, the record holder of the Class B
Ordinary Shares reported herein. The members of the Sponsor are, GCP-OI I, LLC, MSBD 2020 Series LLC and Victory Park Capital Advisors, LLC. Richard Levy has shared voting and dispositive power on behalf of Victory Park Capital, LLC
over the Class B Ordinary Shares held by JAR Sponsor LLC, and therefore may be deemed to have beneficial ownership of the Class B Ordinary Shares held directly by the Sponsor. Mr. Levy disclaims beneficial ownership of such securities
except to the extent of his pecuniary interest therein. After the Business Combination, includes 150,000 shares to be purchased in the Common Equity PIPE Financing by L&F Acquisition Holdings Fund, LLC, of which Mr. Levy has voting
and dispositive power, and excludes up to 652,173 shares issuable upon the conversion, subject to certain adjustments from time to time as set forth in the relevant indenture, of $7,500,000 principal amount of Notes to be purchased by
L&F Acquisition Holdings Fund, LLC.
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(14)
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Unless otherwise indicated, the address of each of New ZeroFox’s directors and executive officers is c/o ZeroFox, Inc., 1834 S.
Charles Street Baltimore, Maryland 21230.
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(15)
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Includes options to purchase 227,002 shares exercisable as of or within 60 days of May 27, 2022.
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(16)
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Includes 50,535 unvested restricted shares as to which Ms. King has sole voting power but which are subject to restrictions on
transfer, of which 7,542 shares will vest within 60 days of April 30, 2022.
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(17)
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Represents shares (including 179,069 shares to be purchased in the Common Equity PIPE Financing) to be held by HCP 9, HCP 9B and
HEF 9 upon the Closing as to which shares Mr. Mulloy may be deemed to share voting and dispositive power, as discussed in footnote (2).
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(18)
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Includes options to purchase 661,016 shares exercisable as of or within 60 days of May 27, 2022.
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(19)
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Includes options to purchase 771,855 shares exercisable as of or within 60 days of May 27, 2022.
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(20)
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Includes options to purchase 549,015 shares exercisable as of or within 60 days of May 27, 2022.
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(21)
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Includes options to purchase 96,734 shares exercisable as of or within 60 days of May 27, 2022.
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(22)
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Includes options to purchase 690,360 shares exercisable as of or within 60 days of May 27, 2022.
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(23)
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Includes options to purchase 53,741 shares exercisable as of or within 60 days of May 27, 2022.
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(24)
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After the Business Combination, includes options to purchase 3,049,723 shares exercisable as of or within 60 days of May 27, 2022
and shares beneficially owned as discussed in footnotes (5), (12) and (17).
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L&F is an exempted company incorporated under the Cayman Islands
Companies Act. The Cayman Islands Companies Act and L&F’s Existing Governing Documents govern the rights of its shareholders. Following the Domestication, New ZeroFox will be incorporated under the laws of the State of Delaware and the
rights of New ZeroFox shareholders will be governed by the laws of the State of Delaware, including the DGCL, the Proposed Certificate of Incorporation and the Proposed Bylaws. The Cayman Islands Companies Act differs in some material respects
from laws generally applicable to U.S. corporations and their shareholders. In addition, the Existing Governing Documents differ in certain material respects from the Proposed Certificate of Incorporation and Proposed Bylaws of New ZeroFox. As
a result, when you become a shareholder of New ZeroFox, your rights will differ as compared to when you were a shareholder of L&F.
The following table sets forth a summary of important similarities
and differences in the corporate governance and shareholder rights associated with each of L&F and New ZeroFox according to applicable law or the organizational documents of L&F and New ZeroFox, including the principal changes proposed
to be made between L&F’s Existing Governing Documents and the Proposed Certificate of Incorporation and Proposed Bylaws of New ZeroFox. This summary is qualified by reference to the complete text of the Existing Governing Documents of
L&F, the complete text of the Proposed Certificate of Incorporation, a copy of which is attached to this proxy statement/prospectus as Annex B, and the complete text of the Proposed Bylaws, a copy of which is attached to this proxy
statement/prospectus as Annex C. All shareholders are encouraged to read each of the Proposed Governing Documents in their entirety for a more complete description of their terms. Additionally, as the Existing Governing Documents are governed
by the Cayman Islands law and the Proposed Governing Documents will be governed by the DGCL, we encourage shareholders to carefully consult the information set out under the section entitled “Proposal No. 3
- The Domestication Proposal” and “Description of Securities” as well as the DGCL and the Cayman Islands Companies Act.
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Existing Governing Documents
and Cayman Islands Law
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Proposed Governing Documents
and Delaware Law
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Authorized Shares
(Advisory Governing
Documents Proposal 5(A))
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The authorized share capital under the Existing Governing Documents is
500,000,000 Class A Ordinary Shares, par value US$0.0001 per share, 50,000,000 Class B Ordinary Shares, par value US$0.0001 per share, and 1,000,000 preference shares, par value US$0.0001 per share.
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The Proposed Governing Documents authorize 1,000,000,000 shares of New ZeroFox
Common Stock, par value $0.0001 per share, and 100,000,000 shares of New ZeroFox Preferred Stock, par value $0.0001 per share
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See paragraph 5 of L&F’s Amended and Restated
Memorandum of Association.
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See Article IV, Section 1 of the Proposed Certificate of
Incorporation.
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Authorize the Board of Directors to Issue Preferred Stock Without
Shareholder Consent
(Advisory Governing
Documents Proposal 5(B))
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The Existing Governing Documents authorize the issuance of up to 1,000,000
preference shares with such designation, rights and preferences as may be determined from time to time by L&F’s Board. Accordingly, L&F’s Board is empowered under the Existing Governing Documents, without shareholder approval,
to issue preference shares with dividend, liquidation, redemption, voting or other rights which could adversely affect the voting power or other rights of the holders of ordinary shares.
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The Proposed Governing Documents authorize the issuance of up to 100,000,000
shares of preferred stock in one or more series with such designations, powers, preferences and rights, and qualifications, limitations or restrictions thereof as may be fixed from time to time by the New ZeroFox Board for each such
series, including, without limitation, the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and
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367
368
369
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Existing Governing Documents
and Cayman Islands Law
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Proposed Governing Documents
and Delaware Law
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Quorum for Shareholder Meetings
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Under the Existing Governing Documents, a quorum for a meeting of shareholders
will be present if the holders of a majority of the issued and outstanding shares are present (in person or by proxy) or, being a non-natural person, duly represented in person or by proxy.
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In order to constitute a quorum for the transaction of business at a meeting of
shareholders, the Proposed Bylaws require the presence, in person or by proxy, of the holders of a majority of the voting power of the capital stock of New ZeroFox issued and outstanding and entitled to vote at the meeting.
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See Article 22, subsection 22.1 of L&F’s Amended and
Restated Articles of Association.
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See Article II, Section 2.6 of the Proposed Bylaws.
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Voting Rights Generally
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Under the Cayman Islands Companies Act and the Existing Governing Documents,
routine corporate matters may be approved by an ordinary resolution (being the affirmative vote of at least a majority of the votes cast by the holders of the issued ordinary shares who are present in person or represented by proxy and
entitled to vote thereon at the general meeting).
Except as otherwise set forth in the Existing Governing Documents, shareholders
of L&F have one vote for every share held.
Mergers require a special resolution, and any other authorization as may be
specified in the Existing Governing Documents.
All mergers (other than parent/subsidiary mergers) require shareholder
approval—there is no exception for smaller mergers.
Where a bidder has acquired 90% or more of the shares in a Cayman Islands
company, it can compel the acquisition of the shares of the remaining shareholders and thereby become the sole shareholder.
A Cayman Islands company may also be acquired through a “scheme of arrangement”
sanctioned by a Cayman Islands court and approved by a
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Generally, approval of routine corporate matters that are put to a shareholder
vote require the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter while directors are elected by a plurality of the votes cast.
Holders of New ZeroFox Common Stock will be entitled to one vote for each share
held as of the record date for the determination of the shareholders entitled to vote on such matters, including the election and removal of directors, except as otherwise required by law.
Mergers generally require approval of a majority of all outstanding shares of
voting stock. Mergers in which less than 20% of the acquirer’s stock is issued generally do not require acquirer shareholder approval.
Mergers in which one corporation owns 90% or more of a second corporation may
be completed without the vote of the second corporation’s board of directors or shareholders.
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370
371
372
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Existing Governing Documents
and Cayman Islands Law
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Proposed Governing Documents
and Delaware Law
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Shareholder Lawsuits
(Advisory Governing
Documents Proposal 5(C) with respect to the Exclusive Forum Provisions)
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In the Cayman Islands, the decision to institute proceedings on behalf of a
company is generally taken by the company’s board of directors. A shareholder may be entitled to bring a derivative action on behalf of the company, but only in certain limited circumstances.
The Existing Governing Documents do not expand upon or otherwise limit
statutorily provided rights.
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A shareholder may bring a derivative suit subject to procedural requirements
(including compliance with the exclusive forum provisions in the Proposed Certificate of Incorporation).
Except with respect to the exclusive forum provisions in the Proposed
Certificate of Incorporation, the Proposed Governing Documents do not expand upon or otherwise limit statutorily provided rights.
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Provisions Related to Status as Blank Check Company
(Advisory Governing
Documents Proposal 5(G))
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The Existing Governing Documents set forth various provisions related to
L&F’s status as a blank check company prior to the consummation of a business combination.
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The Proposed Governing Documents do not include such provisions related to New
ZeroFox’s status as a blank check company, which no longer will apply upon consummation of the Business Combination, as we will cease to be a blank check company at such time.
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See Article 49 of L&F’s Amended and Restated Articles
of Association.
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Duties of Directors
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Under Cayman Islands law, a director owes fiduciary duties to a company,
including to exercise loyalty, honesty and good faith to the company as a whole.
In addition to fiduciary duties, directors owe a duty of care, diligence and
skill. Such duties are owed to the company but may be owed directly to creditors or shareholders in certain limited circumstances.
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Under Delaware law, the standards of conduct for directors have developed
through Delaware case law. Generally, directors of Delaware corporations are subject to a duty of loyalty and a duty of care. The duty of loyalty requires directors not to act for the purpose of self-dealing, and the duty of care
requires directors in managing New ZeroFox’s affairs to use that level of care which ordinarily careful and prudent persons would use in similar circumstances. When directors act consistently with their duties of loyalty and care, and
no other facts exist to call for a heightened standard of review, their decisions generally are presumed to be valid under the business judgment rule.
New ZeroFox’s Board may exercise all such authority and powers of New ZeroFox
and do all such lawful acts and things as are not by statute or the Proposed Governing Documents
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373
374
The following description of the Company’s securities reflects the
Company’s capital stock and warrants as they will exist as of the effective time of the Business Combination. The Company’s capital stock will be governed by the Company’s Proposed Certificate of Incorporation, the Company’s Proposed Bylaws and
the DGCL. This description is a summary and is not complete. We urge you to read the Company’s Proposed Certificate of Incorporation and Proposed Bylaws, which will be in effect prior to the effective time of the Business Combination and the
forms of which are included as Annex B and Annex C, respectively, to this proxy statement/prospectus and are incorporated herein by reference, in their entirety. Throughout this section, references to the “Company” refer to ZeroFox Holdings,
Inc. (f.k.a. L&F Acquisition Corp.) after the Business Combination as the context so requires.
General
Following the consummation of the Business Combination, the
authorized capital stock of the Company will consist of 1,100,000,000 shares of stock, $0.0001 par value per share, of which 1,000,000,000 shares will be designated as common stock and 100,000,000 shares will be designated as preferred stock.
Following the consummation of the Business Combination, assuming no Redemptions, the Company would have an aggregate of approximately 129,047,972 shares of New ZeroFox Common Stock outstanding, assuming the maximum number of shares of New
ZeroFox Common Stock that may be issued to holders of shares and equity awards of the Target Companies are issued (as more fully described in this proxy statement/prospectus), together with the shares issued to the existing shareholders of
L&F and the shares issued in connection with the Common Equity PIPE Financing, in each case in connection with the Business Combination, but excluding shares issuable upon exercise of the New ZeroFox Public Warrants and New ZeroFox Private
Placement Warrants and upon conversion of the Notes, and no shares of preferred stock issued and outstanding.
Common Stock
The Proposed Certificate of Incorporation authorizes one class of
common stock.
Dividend Rights
The DGCL permits a corporation to declare and pay dividends out of
“surplus” or, if there is no “surplus”, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. “Surplus” is defined as the excess of the net assets of the corporation over the amount
determined to be the capital of the corporation by the board of directors. The capital of the corporation is typically calculated to be (and cannot be less than) the aggregate par value of all issued shares of capital stock. Net assets equals
the fair value of the total assets minus total liabilities. The DGCL also provides that dividends may not be paid out of net profits if, after the payment of the dividend, capital is less than the capital represented by the outstanding stock of
all classes having a preference upon the distribution of assets. Delaware common law also imposes a solvency requirement in connection with the payment of dividends.
Subject to preferences that may apply to any shares of the Company’s
preferred stock outstanding at the time, the holders of the Company’s common stock will be entitled to receive dividends out of funds legally available therefor if the Company’s board of directors, in its discretion, determines to authorize the
issuance of dividends and then only at the times and in the amounts that the Company’s board of directors may determine.
Voting Rights
Holders of the Company’s common stock will be entitled to one vote
for each share held as of the record date for the determination of the shareholders entitled to vote on such matters, including the election and removal of directors, except as otherwise required by law. Under Delaware law, the right to vote
cumulatively does not exist unless the certificate of incorporation specifically authorizes cumulative voting. The Company’s Proposed Certificate of Incorporation will not authorize cumulative voting and will provide that no shareholder will be
permitted to cumulate votes at any election of directors. Consequently, the holders of a majority of the outstanding shares of the Company’s common stock can elect all of the directors then standing for election, and the holders of the
remaining shares will not be able to elect any directors.
Right to Receive Liquidation Distributions
If the Company becomes subject to a liquidation, dissolution, or
winding-up, the assets legally available for distribution to the Company’s shareholders would be distributable ratably among the holders of the Company’s
375
common stock and any participating series of the Company’s 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 any liquidation preferences on, any outstanding shares of the Company’s preferred stock.
Other Matters
All outstanding shares of the Company’s common stock will be fully
paid and nonassessable. The Company’s common stock will not be entitled to preemptive rights and will not be subject to redemption or sinking fund provisions.
Preferred Stock
The Company’s board of directors will be authorized, subject to
limitations prescribed by the DGCL, to issue 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 the Company’s shareholders. The Company’s board of directors will be empowered to increase or decrease the number of shares
of any series of the Company’s preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by the Company’s shareholders. The Company’s board of directors will be able to authorize the
issuance of the Company’s preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the Company’s common stock. The issuance of the Company’s 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 control of the Company and might adversely affect the market price
of the Company’s common stock and the voting and other rights of the holders of the Company’s common stock. There are currently no plans to issue any shares of the Company’s preferred stock.
Board of Directors
The Company’s board of directors is expected to consist of eight
directors. The Proposed Certificate of Incorporation provides that the number of directors shall be fixed only by resolution of the board of directors. Directors are elected by a plurality of all of the votes cast in the election of directors.
Takeover Defense Provisions
Certain provisions of Delaware law, the Proposed Certificate of
Incorporation and the Proposed Bylaws, which are summarized in this proxy statement/prospectus, may have the effect of delaying, deferring, or discouraging another person from acquiring control of the Company. They are also designed, in part,
to encourage persons seeking to acquire control of the Company to negotiate first with the Company’s board of directors.
Section 203 of the DGCL
The Company will also be governed by the provisions of Section 203 of
the DGCL. In general, Section 203 of the DGCL prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” (as those terms are defined in Section 203 of the DGCL) for a period of three years
after the date of the transaction in which the person became an interested stockholder, unless:
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•
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either the merger or the transaction which resulted in the shareholder becoming an interested stockholder was approved by the
board of directors prior to the time that the shareholder became an interested stockholder;
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•
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upon consummation of the transaction which resulted in the shareholder 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 shares owned by directors who are also officers of the corporation and shares owned by employee stock
plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
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•
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at or subsequent to the time the shareholder became an interested stockholder, the merger was approved by the Company’s board of
directors and authorized at an annual or special meeting of the shareholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
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376
In general, Section 203 defines a “business combination” to
include mergers, asset sales, and other transactions resulting in financial benefit to a shareholder and an “interested stockholder” as a person who, together with affiliates and associates, owns, or, within the prior three years, did own, 15%
or more of the corporation’s outstanding voting stock. These provisions may have the effect of delaying, deferring, or preventing changes in control of the Company.
Classified Board of Directors
The Proposed Certificate of Incorporation will provide that the
Company’s board of directors is divided into three classes, designated as Class I, Class II and Class III. Each class will be an equal number of directors, as nearly as possible, consisting of one-third of the total number of directors
constituting the entire board of directors. The term of the initial Class I directors will terminate on the date of the first annual meeting of shareholders following the Closing Date, the term of the initial Class II directors will terminate
on the date of the second annual meeting of shareholders following the Closing Date, and the term of the initial Class III directors will terminate on the date of the third annual meeting of shareholders following the Closing Date. At each
annual meeting of shareholders, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year term.
Removal of Directors
The Proposed Certificate of Incorporation will provide that
shareholders may only remove a director for cause and only by the affirmative vote of the holders of a majority of the issued and outstanding capital stock of the Company entitled to vote in the election of directors, voting together as a
single class.
Board of Directors Vacancies
The Proposed Certificate of Incorporation and Proposed Bylaws
authorize only a majority of the remaining members of the Company’s board of directors, although less than a quorum, to fill vacant directorships, including newly created directorships. In addition, subject to the rights of holders of any
series of the Company’s preferred stock, the number of directors constituting the Company’s board of directors will be permitted to be set only by a resolution of the Company’s board of directors. These provisions would prevent a shareholder
from increasing the size of the Company’s board of directors and then gaining control of the Company’s board of directors by filling the resulting vacancies with its own nominees. This will make it more difficult to change the composition of
the Company’s board of directors and will promote continuity of management.
Shareholder Action; Special Meeting of
Shareholders
The Proposed Certificate of Incorporation and Proposed Bylaws will
provide that the Company’s shareholders may not take action by written consent but may only take action at annual or special meetings of the shareholders. As a result, a holder controlling a majority of the Company’s capital stock would not be
able to amend the Proposed Bylaws, amend the Proposed Certificate of Incorporation or remove directors without holding a meeting of the Company’s shareholders called in accordance with the Proposed Certificate of Incorporation and Proposed
Bylaws. The Proposed Certificate of Incorporation and Proposed Bylaws will further provide that special meetings of shareholders of the Company may be called only by the Company’s board of directors, the Chairperson of the Company’s board of
directors, or the Chief Executive Officer or the President of the Company, thus prohibiting shareholder action to call a special meeting. These provisions might delay the ability of the Company’s shareholders to force consideration of a
proposal or for shareholders controlling a majority of the Company’s capital stock to take any action, including the removal of directors.
Advance notice requirements for shareholder
proposals and director nominations
The Proposed Certificate of Incorporation will provide that advance
notice of shareholder nominations for the election of directors and of business to be brought by shareholders before any meeting of the shareholders of the Company must be given in the manner and to the extent provided in the bylaws of the
Company. The Proposed Bylaws provide that, with respect to an annual meeting of the Company’s shareholders, nominations of persons for election to the board of directors and the proposal of other business to be transacted by the shareholders
may be made only (i) pursuant to the Company’s notice of the meeting, (ii) by or at the direction of the Company’s board of directors, (iii) as provided in the certificate of designation for any class or series of
377
preferred stock or (iv) by any shareholder who was a shareholder of record at the
time of giving the notice required by the Proposed Bylaws, at the record date(s) set by the board of directors for the purpose of determining shareholders entitled to notice of, and to vote at, the meeting, and at the time of the meeting, and
who complies with the advance notice provisions of the Proposed Bylaws.
With respect to special meetings of shareholders, only the business
specified in the Company’s notice of meeting may be brought before the meeting. Nominations of persons for election to the board of directors may be made only (i) by or at the direction of the Company’s board of directors or (ii) if the meeting
has been called for the purpose of electing directors, by any shareholder who was a shareholder of record at the time of giving the notice required by the Proposed Bylaws, at the record date(s) set by the board of directors for the purpose of
determining shareholders entitled to notice of, and to vote at, the meeting, and at the time of the meeting, and who complies with the advance notice provisions of the Proposed Bylaws.
The advance notice procedures of the Proposed Bylaws provide that, to
be timely, a shareholder’s notice with respect to director nominations or other proposals for an annual meeting must be delivered to the Company’s Secretary at the principal executive office of the Company not earlier than the 150th
day nor later than 5:00 p.m., local time, on the 120th day prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting. In the event that the date of the annual meeting is advanced by
more than 30 days before or delayed by more than 60 days after the first anniversary of the date of the preceding year’s annual meeting, to be timely, a shareholder’s notice must be delivered not earlier than the 120th day prior to
the date of such annual meeting and not later than 5:00 p.m., local time, on the later of the 90th day prior to the date of such annual meeting or the tenth day following the day on which public announcement of the date of such
meeting is first made.
These provisions might preclude shareholders of the Company from
bringing matters before the annual meeting of shareholders or from making nominations for directors at the annual meeting of shareholders if the proper procedures are not followed. These provisions may 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 the Company.
No cumulative voting
The DGCL provides that shareholders are not entitled to cumulate
votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. The Proposed Certificate of Incorporation will not provide for cumulative voting and will provide that no shareholder will be permitted
to cumulate votes at any election of directors.
Amendments to Certificate of Incorporation and
Bylaws
Except for those amendments permitted to be made without shareholder
approval under Delaware law or the Proposed Certificate of Incorporation, the Proposed Certificate of Incorporation generally may be amended only if the amendment is first declared advisable by the board of directors and thereafter approved by
holders of a majority of the outstanding stock of the Company entitled to vote thereon. Any amendment of certain provisions in the Proposed Certificate of Incorporation will require approval by holders of at least two-thirds of the voting power
of the then-outstanding voting securities of the Company entitled to vote thereon, voting together as a single class. These provisions include, among others, provisions related to the classified board structure, board composition, removal of
directors, indemnification and exculpation, cumulative voting rights, preferred stock, exclusive forum provisions, provisions related to shareholder action and advance notice, corporate opportunities and amendments to the charter, in each case
as summarized in this proxy statement/prospectus.
The Company’s board of directors will have the power to adopt, amend
or repeal any provision of the Proposed Bylaws. In addition, shareholders of the Company may adopt, amend or repeal any provision of the Proposed Bylaws with the approval by the holders of a majority of the voting power of the shares present in
person or by proxy at the meeting of shareholders and entitled to vote on the matter. Any amendment of certain provisions in the Proposed Bylaws will require approval by holders of at least two-thirds of the voting power of the then-outstanding
voting securities of the Company entitled to vote thereon, voting together as a single class. These provisions include, among others, provisions related to meetings of shareholders, the powers and composition of the board of directors, removal
of directors, indemnification of directors and officers and amendments to the Proposed Bylaws.
378
Authorized but Unissued Capital Stock
Delaware law does not require shareholder approval for any issuance
of authorized shares. However, the listing requirements of the Nasdaq Stock Market, which would apply if and so long as the common stock remains listed on the Nasdaq Stock Market, require shareholder approval of certain issuances equal to or
exceeding 20% of the then-outstanding voting power or then-outstanding number of shares of common stock. Additional shares that may be issued in the future may be used for a variety of corporate purposes, including future public offerings, to
raise additional capital or to facilitate acquisitions.
One of the effects of the existence of unissued and unreserved common
stock may be to enable the Company’s board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender
offer, proxy contest or otherwise and thereby protect the continuity of management and possibly deprive shareholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.
Exclusive Forum
The Proposed Certificate of Incorporation will provide that, unless
otherwise consented to by the Company in writing, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of
Delaware) will, to the fullest extent permitted by law, be the sole and exclusive forum for the following types of actions or proceedings: (i) any derivative action or proceeding brought on behalf of the Company; (ii) any action asserting a
claim of breach of a duty (including any fiduciary duty) owed by any current or former director, officer, shareholder, employee or agent of the Company to the Company or the Company’s shareholders; (iii) any action asserting a claim against the
Company or any current or former director, officer, shareholder, employee or agent of the Company relating to any provision of the DGCL or the Proposed Certificate of Incorporation or the Proposed Bylaws or as to which the DGCL confers
jurisdiction on the Court of Chancery of the State of Delaware; (iv) any action asserting a claim against the Company or any current or former director, officer, shareholder, employee or agent of the Company governed by the internal affairs
doctrine of the State of Delaware, in each such case unless the Court of Chancery (or such other state or federal court located within the State of Delaware, as applicable) has dismissed a prior action by the same plaintiff asserting the same
claims because such court lacked personal jurisdiction over an indispensable party named as a defendant therein. The Proposed Certificate of Incorporation will further provide that, unless otherwise consented to by the Company in writing to the
selection of an alternative forum, the federal district courts of the United States will, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint against any person in connection with any
offering of the Company’s securities, asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in the Company’s securities will be deemed to have notice of and consented
to this provision.
Although the Proposed Certificate of Incorporation contains the
choice of forum provisions described above, it is possible that a court could rule that such provisions are inapplicable for a particular claim or action or that such provisions are unenforceable. For example, under the Securities Act, federal
courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. In
addition, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and, therefore, the exclusive forum
provisions described above do not apply to any actions brought under the Exchange Act.
Although we believe these provisions will benefit us by limiting
costly and time-consuming litigation in multiple forums and by providing increased consistency in the application of applicable law, these exclusive forum provisions may limit the ability of our shareholders to bring a claim in a judicial forum
that such shareholders find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and other employees.
Corporate Opportunities
The Proposed Certificate of Incorporation provides that, to the
fullest extent permitted by applicable law, none of our non-employee directors nor his or her affiliates has any duty to refrain from, directly or indirectly, (x) engaging in the same or similar business activities or lines of business as the
Company or (y) otherwise
379
competing with the Company or its affiliates. In the event that any non-employee
director or his or her affiliates acquire knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for the non-employee director, his or her affiliates or the Company, such non-employee director
will, to the fullest extent permitted by applicable law, have no duty to communicate or offer such transaction or business opportunity to the Company or any of its affiliates and will not be liable to the Company, its affiliates or the
shareholders of the Company for breach of any fiduciary duty as a director or officer of the Company solely by reason of the fact that such non-employee director or his or her affiliate pursues or acquires such opportunity for themselves,
offers or directs such opportunity to another person, or does not communicate such opportunity to the Company; provided, that the Company does not renounce its interest in any corporate opportunity expressly offered or presented to any
non-employee director solely in his or her capacity as a director of the Company.
Limitations on Liability and Indemnification of Directors and
Officers
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their shareholders for monetary damages for breaches of directors’ fiduciary duties, subject to certain exceptions. The Company’s Proposed Certificate of Incorporation includes a provision that
eliminates the personal liability of directors for monetary damages for any breach of fiduciary duty as a director to the fullest extent permitted by the DGCL as the same exists or as may hereafter be amended from time to time. The effect of
these provisions is to eliminate the rights of the Company and its shareholders, through shareholders’ derivative suits on the Company’s behalf, to recover monetary damages from a director for breach of fiduciary duty as a director, including
breaches resulting from grossly negligent behavior. However, exculpation does not apply to any director if the director has acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived
an improper benefit from his or her actions as a director.
The Company’s Proposed Certificate of Incorporation will permit and
the Proposed Bylaws will obligate the Company to indemnify, to the fullest extent permitted by the DGCL, any director or officer of the Company who was or is a party or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she is or was a director or officer of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with any such Proceeding. The Company will not be obligated to indemnify a person in connection with a Proceeding (or part thereof) initiated by such person unless the Proceeding (or part thereof) was, or is,
authorized by the board of directors, the Company determines to provide the indemnification or is otherwise required by applicable law. In addition, the Proposed Bylaws require the Company, to the fullest extent permitted by law, to pay, in
advance of the final disposition of a Proceeding, expenses (including attorneys’ fees) actually and reasonably incurred by an officer or director of the Company in defending any Proceeding, upon receipt of a written request therefor (together
with documentation reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under the Proposed Bylaws or
the DGCL.
The Company expects to enter into an indemnification agreement with
each of its directors and executive officers that provide for indemnification to the maximum extent permitted by Delaware law.
The Company believes that these indemnification and advancement
provisions and insurance are useful to attract and retain qualified directors and executive officers. The limitation of liability and indemnification provisions in the Company’s Proposed Certificate of Incorporation and Proposed Bylaws may
discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such
an action, if successful, might otherwise benefit the Company and its shareholders. In addition, your investment may be adversely affected to the extent the Company pays the costs of settlement and damage awards against directors and officers
pursuant to these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors or executive officers, we have been informed that in the opinion of the SEC such
indemnification is against public policy and is therefore unenforceable.
380
Transfer Agent
The Transfer Agent for the New ZeroFox Common Stock and New ZeroFox
Public Warrants following the Business Combination will be Continental Stock Transfer & Trust Company.
Listing of Common Stock and Warrants
L&F has applied for the listing of the New ZeroFox Common Stock
and New ZeroFox Public Warrants of the Company on Nasdaq following the completion of the Business Combination under the symbols “ZFOX” and “ZFOXW,” respectively.
ZeroFox and IDX Options and Warrants
See “Proposal No. 2 — The Business
Combination Proposal — Consideration to be Received in the Business Combination” for a description of the treatment of outstanding stock options and warrants of ZeroFox and IDX in connection with the Business Combination.
Warrants
New ZeroFox Public Warrants
Each New ZeroFox whole warrant entitles the registered holder to
purchase one share of New ZeroFox Common Stock at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing on the later of one year from the closing of the L&F IPO and 30 days after the completion of the
Business Combination, provided in each case that New ZeroFox has an effective registration statement under the Securities Act covering the New ZeroFox Common Stock issuable upon exercise of the warrants and a current prospectus relating to them
is available (or we permit holders to exercise their warrants on a cashless basis under the circumstances specified in the warrant agreement) and such shares are registered, qualified or exempt from registration under the securities, or blue
sky, laws of the state of residence of the holder. Pursuant to the Warrant Agreement, a warrant holder may exercise its warrants only for a whole number of shares of New ZeroFox Common Stock. This means only a whole warrant may be exercised at
a given time by a warrant holder. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. Accordingly, unless you hold at least two units, you will not be able to receive or trade a whole warrant.
The warrants will expire five years after the completion of the Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
We will not be obligated to deliver any shares of New ZeroFox Common
Stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the New ZeroFox Common Stock underlying the warrants is then
effective and a prospectus relating thereto is current, subject to our satisfying our obligations described below with respect to registration. No warrant will be exercisable and we will not be obligated to issue a share of New ZeroFox Common
Stock upon exercise of a warrant unless the share of New ZeroFox Common Stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder
of the warrants. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no
value and expire worthless. In no event will we be required to net cash settle any warrant.
We have agreed that as soon as practicable, but in no event later
than 20 business days after the closing of the Business Combination, we will use our best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of New ZeroFox Common Stock issuable
upon exercise of the warrants. We will use our best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants
in accordance with the provisions of the warrant agreement. If a registration statement covering the shares of New ZeroFox Common Stock issuable upon exercise of the warrants is not effective by the 60th business day after the closing of the
Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when we will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis”
in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if our shares of New ZeroFox Common Stock are at the time of any
381
exercise of a warrant not listed on a national securities exchange such that they
satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9)
of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, and in the event we do not so elect, we will use our best efforts to register or qualify the shares under
applicable blue sky laws to the extent an exemption is not available.
Redemption of New ZeroFox Warrants when the price
per share of New ZeroFox Common Stock equals or exceeds $18.00. Once the warrants become exercisable, we may redeem the outstanding warrants (except as described herein with respect to the private placement
warrants):
|
•
|
in whole and not in part;
|
|
•
|
at a price of $0.01 per warrant;
|
|
•
|
upon a minimum of 30 days’ prior written notice of redemption; and
|
|
•
|
if, and only if, the closing price of the shares of New ZeroFox Common Stock equals or exceeds $18.00 per share (as adjusted for
share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending three business days before we send the notice of redemption to the warrant
holders.
|
If and when the warrants become redeemable by us, we may exercise our
redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
We have established the last of the redemption criterion discussed
above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and we issue a notice of redemption of the warrants, each warrant holder
will be entitled to exercise his, her or its warrant prior to the scheduled redemption date. However, the price of the shares of New ZeroFox Common Stock may fall below the $18.00 redemption trigger price (as adjusted for share sub-divisions,
share capitalizations, reorganizations, recapitalizations and the like) as well as the $11.50 warrant exercise price after the redemption notice is issued.
Redemption of New ZeroFox Warrants when the price
per share of New ZeroFox Common Stock equals or exceeds $10.00. Once the warrants become exercisable, we may redeem the outstanding warrants (except as described herein with respect to the private placement
warrants):
|
•
|
in whole and not in part;
|
|
•
|
at a price of $0.10 per warrant;
|
|
•
|
upon a minimum of 30 days’ prior written notice of redemption; provided that holders will be able to exercise their warrants on
a cashless basis prior to redemption and receive that number of shares determined by reference to the table below, based on the redemption date and the “fair market value” (as defined below) of our shares of New ZeroFox Common Stock
except as otherwise described below;
|
|
•
|
if, and only if, the closing price of the shares of New ZeroFox Common Stock equals or exceeds $10.00 per share (as adjusted for
share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within the 30 trading-day period ending three trading days before we send the notice of redemption to the warrant
holders; and
|
|
•
|
if the closing price of the shares of New ZeroFox Common Stock for any 20 trading days within a 30 trading day period ending on
the third trading day prior to the date on which we send the notice of redemption to the warrant holders is less than $18.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and
the like), the private placement warrants must also be concurrently called for redemption on the same terms as the outstanding public warrants, as described above.
|
Beginning on the date the notice of redemption is given and until the
warrants are redeemed or exercised, holders may elect to exercise their warrants on a cashless basis. The numbers in the table below represent the number of shares of New ZeroFox Common Stock that a warrant holder will receive upon such
cashless exercise in connection with a redemption by us pursuant to this redemption feature, based on the “fair market value” of
382
the shares of New ZeroFox Common Stock on the corresponding redemption date (assuming
holders elect to exercise their warrants and such warrants are not redeemed for $0.10 per warrant), determined for these purposes based on the volume-weighted average price of our shares of New ZeroFox Common Stock during the 10 trading days
immediately following the date on which the notice of redemption is sent to the holders of warrants, and the number of months that the corresponding redemption date precedes the expiration date of the warrants, each as set forth in the table
below. We will provide our warrant holders with the final fair market value no later than one business day after the 10-trading day period described above ends.
The share prices set forth in the column headings of the table below
will be adjusted as of any date on which the number of shares issuable upon exercise of a warrant or the exercise price of a warrant is adjusted as set forth under the heading “—Anti-Dilution Adjustments”
below. If the number of shares issuable upon exercise of a warrant is adjusted, the adjusted share prices in the column headings will equal the share prices immediately prior to such adjustment, multiplied by a fraction, the numerator of which
is the number of shares deliverable upon exercise of a warrant immediately prior to such adjustment and the denominator of which is the number of shares deliverable upon exercise of a warrant as so adjusted. The number of shares in the table
below shall be adjusted in the same manner and at the same time as the number of shares issuable upon exercise of a warrant. If the exercise price of a warrant is adjusted, (a) in the case of an adjustment pursuant to the fifth paragraph under
the heading “—Anti-Dilution Adjustments” below, the adjusted share prices in the column headings will equal the unadjusted share prices multiplied by a fraction, the numerator of which is the higher of the Market Value and the Newly Issued
Price as set forth under the heading “—Anti-Dilution Adjustments” and the denominator of which is $10.00 and (b) in the case of an adjustment pursuant to the second paragraph under the heading “—Anti-Dilution Adjustments” below, the adjusted share prices in the column headings will equal the unadjusted share prices less the decrease in the exercise price of a warrant pursuant to such exercise price
adjustment.
|
Redemption Date
(Period to Expiration
of Warrants)
|
| |
Fair Market Value of Shares of New ZeroFox Common Stock
|
||||||||||||||||||||||||
| |
≤$10.00
|
| |
$11.00
|
| |
$12.00
|
| |
$13.00
|
| |
$14.00
|
| |
$15.00
|
| |
$16.00
|
| |
$17.00
|
| |
≥$18.00
|
||
|
60 months
|
| |
0.261
|
| |
0.281
|
| |
0.297
|
| |
0.311
|
| |
0.324
|
| |
0.337
|
| |
0.348
|
| |
0.358
|
| |
0.361
|
|
57 months
|
| |
0.257
|
| |
0.277
|
| |
0.294
|
| |
0.310
|
| |
0.324
|
| |
0.337
|
| |
0.348
|
| |
0.358
|
| |
0.361
|
|
54 months
|
| |
0.252
|
| |
0.272
|
| |
0.291
|
| |
0.307
|
| |
0.322
|
| |
0.335
|
| |
0.347
|
| |
0.357
|
| |
0.361
|
|
51 months
|
| |
0.246
|
| |
0.268
|
| |
0.287
|
| |
0.304
|
| |
0.320
|
| |
0.333
|
| |
0.346
|
| |
0.357
|
| |
0.361
|
|
48 months
|
| |
0.241
|
| |
0.263
|
| |
0.283
|
| |
0.301
|
| |
0.317
|
| |
0.332
|
| |
0.344
|
| |
0.356
|
| |
0.361
|
|
45 months
|
| |
0.235
|
| |
0.258
|
| |
0.279
|
| |
0.298
|
| |
0.315
|
| |
0.330
|
| |
0.343
|
| |
0.356
|
| |
0.361
|
|
42 months
|
| |
0.221
|
| |
0.246
|
| |
0.269
|
| |
0.290
|
| |
0.309
|
| |
0.325
|
| |
0.340
|
| |
0.354
|
| |
0.361
|
|
39 months
|
| |
0.228
|
| |
0.252
|
| |
0.274
|
| |
0.294
|
| |
0.312
|
| |
0.328
|
| |
0.342
|
| |
0.355
|
| |
0.361
|
|
36 months
|
| |
0.213
|
| |
0.239
|
| |
0.263
|
| |
0.285
|
| |
0.305
|
| |
0.323
|
| |
0.339
|
| |
0.353
|
| |
0.361
|
|
33 months
|
| |
0.205
|
| |
0.232
|
| |
0.257
|
| |
0.280
|
| |
0.301
|
| |
0.320
|
| |
0.337
|
| |
0.352
|
| |
0.361
|
|
30 months
|
| |
0.196
|
| |
0.224
|
| |
0.250
|
| |
0.274
|
| |
0.297
|
| |
0.316
|
| |
0.335
|
| |
0.351
|
| |
0.361
|
|
27 months
|
| |
0.185
|
| |
0.214
|
| |
0.242
|
| |
0.268
|
| |
0.291
|
| |
0.313
|
| |
0.332
|
| |
0.350
|
| |
0.361
|
|
24 months
|
| |
0.173
|
| |
0.204
|
| |
0.233
|
| |
0.260
|
| |
0.285
|
| |
0.308
|
| |
0.329
|
| |
0.348
|
| |
0.361
|
|
21 months
|
| |
0.161
|
| |
0.193
|
| |
0.223
|
| |
0.252
|
| |
0.279
|
| |
0.304
|
| |
0.326
|
| |
0.347
|
| |
0.361
|
|
18 months
|
| |
0.146
|
| |
0.179
|
| |
0.211
|
| |
0.242
|
| |
0.271
|
| |
0.298
|
| |
0.322
|
| |
0.345
|
| |
0.361
|
|
15 months
|
| |
0.130
|
| |
0.164
|
| |
0.197
|
| |
0.230
|
| |
0.262
|
| |
0.291
|
| |
0.317
|
| |
0.342
|
| |
0.361
|
|
12 months
|
| |
0.111
|
| |
0.146
|
| |
0.181
|
| |
0.216
|
| |
0.250
|
| |
0.282
|
| |
0.312
|
| |
0.339
|
| |
0.361
|
|
9 months
|
| |
0.090
|
| |
0.125
|
| |
0.162
|
| |
0.199
|
| |
0.237
|
| |
0.272
|
| |
0.305
|
| |
0.336
|
| |
0.361
|
|
6 months
|
| |
0.065
|
| |
0.099
|
| |
0.137
|
| |
0.178
|
| |
0.219
|
| |
0.259
|
| |
0.296
|
| |
0.331
|
| |
0.361
|
|
3 months
|
| |
0.034
|
| |
0.065
|
| |
0.104
|
| |
0.150
|
| |
0.197
|
| |
0.243
|
| |
0.286
|
| |
0.326
|
| |
0.361
|
|
0 months
|
| |
—
|
| |
—
|
| |
0.042
|
| |
0.115
|
| |
0.179
|
| |
0.233
|
| |
0.281
|
| |
0.323
|
| |
0.361
|
The exact fair market value and redemption date may not be set forth
in the table above, in which case, if the fair market value is between two values in the table or the redemption date is between two redemption dates in the table, the number of shares of New ZeroFox Common Stock to be issued for each warrant
exercised will be determined by a straight-line interpolation between the number of shares set forth for the higher and lower fair market values and the earlier and later redemption dates, as applicable, based on a 365 or 366-day year, as
applicable. For example, if the volume weighted average price of the shares of New ZeroFox Common Stock during the 10 trading days immediately following the date on which the notice of redemption is sent to the
383
holders of the warrants is $11.00 per share, and at such time there are 57 months
until the expiration of the warrants, holders may choose to, in connection with this redemption feature, exercise their warrants for 0.277 shares of New ZeroFox Common Stock for each whole warrant. For an example where the exact fair market
value and redemption date are not as set forth in the table above, if the volume-weighted average price of the shares of New ZeroFox Common Stock during the 10 trading days immediately following the date on which the notice of redemption is
sent to the holders of the warrants is $13.50 per share, and at such time there are 38 months until the expiration of the warrants, holders may choose to, in connection with this redemption feature, exercise their warrants for 0.298 shares of
New ZeroFox Common Stock for each whole warrant. In no event will the warrants be exercisable on a cashless basis in connection with this redemption feature for more than 0.361 shares of New ZeroFox Common Stock per warrant (subject to
adjustment). Finally, as reflected in the table above, if the warrants are out of the money and about to expire, they cannot be exercised on a cashless basis in connection with a redemption by us pursuant to this redemption feature, since they
will not be exercisable for any shares of New ZeroFox Common Stock.
This redemption feature differs from the typical warrant redemption
features used in many other blank check company offerings, which typically only provide for a redemption of warrants for cash (other than the private placement warrants) when the trading price for the shares of New ZeroFox Common Stock exceeds
$18.00 per share for a specified period of time. This redemption feature is structured to allow for all of the outstanding warrants to be redeemed when the shares of New ZeroFox Common Stock are trading at or above $10.00 per public share,
which may be at a time when the trading price of the shares of New ZeroFox Common Stock is below the exercise price of the warrants. We have established this redemption feature to provide us with the flexibility to redeem the warrants without
the warrants having to reach the $18.00 per share threshold set forth above. Holders choosing to exercise their warrants in connection with a redemption pursuant to this feature will, in effect, receive a number of shares of New ZeroFox Common
Stock for their warrants based on an option pricing model with a fixed volatility input. This redemption right provides us with an additional mechanism by which to redeem all of the outstanding warrants, and therefore have certainty as to our
capital structure as the warrants would no longer be outstanding and would have been exercised or redeemed. We will be required to pay the applicable redemption price to warrant holders if we choose to exercise this redemption right and it will
allow us to quickly proceed with a redemption of the warrants if we determine it is in our best interest to do so. As such, we would redeem the warrants in this manner when we believe it is in our best interest to update our capital structure
to remove the warrants and pay the redemption price to the warrant holders.
As stated above, we can redeem the warrants when the shares of New
ZeroFox Common Stock are trading at a price starting at $10.00, which is below the exercise price of $11.50, because it will provide certainty with respect to our capital structure and cash position while providing warrant holders with the
opportunity to exercise their warrants on a cashless basis for the applicable number of shares. If we choose to redeem the warrants when the shares of New ZeroFox Common Stock are trading at a price below the exercise price of the warrants,
this could result in the warrant holders receiving fewer shares of New ZeroFox Common Stock than they would have received if they had chosen to wait to exercise their warrants for shares of New ZeroFox Common Stock if and when such shares of
New ZeroFox Common Stock were trading at a price higher than the exercise price of $11.50.
No fractional shares of New ZeroFox Common Stock will be issued upon
exercise. If, upon exercise, a holder would be entitled to receive a fractional interest in a share, we will round down to the nearest whole number of shares of New ZeroFox Common Stock to be issued to the holder. If, at the time of redemption,
the warrants are exercisable for a security other than the shares of New ZeroFox Common Stock pursuant to the warrant agreement, the warrants may be exercised for such security. At such time as the warrants become exercisable for a security
other than the shares of New ZeroFox Common Stock, New ZeroFox (or surviving company) will use its commercially reasonable efforts to register under the Securities Act the security issuable upon the exercise of the warrants.
Holder Election to Limit Exercise. A holder of a warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the right to exercise such warrant, to the extent that after giving effect to
such exercise, such person (together with such person’s affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 4.9% or 9.8% (as specified by the holder) of the shares of New ZeroFox Common Stock outstanding
immediately after giving effect to such exercise.
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Anti-Dilution Adjustments. If the number of outstanding shares of New ZeroFox Common Stock is increased by a share capitalization payable in shares of New ZeroFox Common Stock, or by a sub-division of common stock or other similar event,
then, on the effective date of such share capitalization, sub-division or similar event, the number of shares of New ZeroFox Common Stock issuable on exercise of each warrant will be increased in proportion to such increase in the outstanding
shares of common stock. A rights offering made to all or substantially all holders of common stock entitling holders to purchase shares of New ZeroFox Common Stock at a price less than the fair market value will be deemed a share
capitalization of a number of shares of New ZeroFox Common Stock equal to the product of (i) the number of shares of New ZeroFox Common Stock actually sold in such rights offering (or issuable under any other equity securities sold in such
rights offering that are convertible into or exercisable for shares of New ZeroFox Common Stock) and (ii) one minus the quotient of (x) the price per share of New ZeroFox Common Stock paid in such rights offering and (y) the fair market
value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for shares of New ZeroFox Common Stock, in determining the price payable for shares of New ZeroFox Common Stock, there will be taken into
account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) fair market value means the volume weighted average price of shares of New ZeroFox Common Stock as reported
during the ten (10) trading day period ending on the trading day prior to the first date on which the shares of New ZeroFox Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive
such rights.
In addition, if we, at any time while the warrants are outstanding
and unexpired, pay a dividend or make a distribution in cash, securities or other assets to all or substantially all the holders of shares of New ZeroFox Common Stock on account of such shares of New ZeroFox Common Stock (or other securities
into which the warrants are convertible), other than (a) as described above, (b) certain ordinary cash dividends, (c) to satisfy the redemption rights of the Public Shareholders in connection with the Business Combination, or (d) in connection
with the redemption of our Public Shares upon our failure to complete our initial business combination, then the warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash
and/or the fair market value of any securities or other assets paid on each share of New ZeroFox Common Stock in respect of such event.
If the number of outstanding shares of New ZeroFox Common Stock is
decreased by a consolidation, combination, reverse share sub-division or reclassification of shares of New ZeroFox Common Stock or other similar event, then, on the effective date of such consolidation, combination, reverse share sub-division,
reclassification or similar event, the number of shares of New ZeroFox Common Stock issuable on exercise of each warrant will be decreased in proportion to such decrease in outstanding shares of New ZeroFox Common Stock.
Whenever the number of shares of New ZeroFox Common Stock purchasable
upon the exercise of the warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the
number of shares of New ZeroFox Common Stock purchasable upon the exercise of the warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of shares of New ZeroFox Common Stock so purchasable
immediately thereafter.
In case of any reclassification or reorganization of the outstanding
shares of New ZeroFox Common Stock (other than those described above or that solely affects the par value of such shares of New ZeroFox Common Stock), or in the case of any merger or consolidation of us with or into another corporation (other
than a consolidation or merger in which we are the continuing corporation and that does not result in any reclassification or reorganization of our issued and outstanding shares of New ZeroFox Common Stock), or in the case of any sale or
conveyance to another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection with which we are dissolved, the holders of the warrants will thereafter have the right to purchase
and receive, upon the basis and upon the terms and conditions specified in the warrants and in lieu of the shares of New ZeroFox Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented
thereby, the kind and amount of shares of New ZeroFox Common Stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or
transfer, that the holder of the warrants would have received if such holder had exercised their warrants immediately prior to such event. If less than 70% of the consideration receivable by the holders of shares of New ZeroFox Common Stock in
385
such a transaction is payable in the form of shares of New ZeroFox Common Stock in
the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder
of the warrant properly exercises the warrant within thirty days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the warrant agreement based on the Black-Scholes Warrant Value (as
defined in the warrant agreement) of the warrant. The purpose of such exercise price reduction is to provide additional value to holders of the warrants when an extraordinary transaction occurs during the exercise period of the warrants
pursuant to which the holders of the warrants otherwise do not receive the full potential value of the warrants.
The warrants are issued in registered form under a warrant agreement
between Continental Stock Transfer & Trust Company, as warrant agent, and New ZeroFox. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder for the purpose of (i) curing any
ambiguity or to correct any defective provision or mistake, including to conform the provisions of the warrant agreement to the description of the terms of the warrants and the warrant agreement set forth in L&F’s prospectus for the L&F
IPO, (ii) adjusting the provisions relating to cash dividends on ordinary shares as contemplated by and in accordance with the warrant agreement or (iii) adding or changing any provisions with respect to matters or questions arising under the
warrant agreement as the parties to the warrant agreement may deem necessary or desirable and that the parties deem to not adversely affect the rights of the registered holders of the warrants, provided
that the approval by the holders of at least 50% of the then-outstanding public warrants is required to make any change that adversely affects the interests of the registered holders of public warrants, and, solely with respect to any amendment
to the terms of the private placement warrants, 50% of the then outstanding private placement warrants. You should review a copy of the warrant agreement, which is filed as an exhibit to the registration statement of which this proxy
statement/prospectus is a part, for a complete description of the terms and conditions applicable to the warrants.
The warrants may be exercised upon surrender of the warrant
certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or
on a cashless basis, if applicable), by certified or official bank check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of shares of New ZeroFox Common Stock and
any voting rights until they exercise their warrants and receive shares of New ZeroFox Common Stock. After the issuance of shares of New ZeroFox Common Stock upon exercise of the warrants, each holder will be entitled to one vote for each share
held of record on all matters to be voted on by shareholders.
We have agreed that, subject to applicable law, any action,
proceeding or claim against us arising out of or relating in any way to the warrant agreement will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and we
irrevocably submit to such jurisdiction, which jurisdiction will be the exclusive forum for any such action, proceeding or claim. See “Risk Factors—The L&F Warrant Agreement designates the courts of the
State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of New ZeroFox Warrants, which could
limit the ability of warrant holders to obtain a favorable judicial forum for disputes with New ZeroFox.” This provision applies to claims under the Securities Act but does not apply to claims under the Exchange Act or any claim for
which the federal district courts of the United States of America are the sole and exclusive forum.
Private Placement Warrants
The private placement warrants (including the shares of New ZeroFox
Common Stock issuable upon exercise of such warrants) will not be transferable, assignable or salable until 30 days after the completion of the Business Combination (except to our officers and directors and other persons or entities affiliated
with the initial purchasers of the private placement warrants) and they will not be redeemable by us so long as they are held by the Sponsor, members of the Sponsor, Jefferies LLC or their permitted transferees, except as described above when
the price per share of New ZeroFox Common Stock equals or exceeds $10.00. The Sponsor, Jefferies LLC or their permitted transferees, have the option to exercise the private placement warrants on a cashless basis. Except as described below, the
private placement warrants have terms and provisions that are identical to those of the public warrants. If the private placement warrants are held by holders other than the Sponsor, Jefferies LLC or their permitted transferees, the private
placement warrants will be redeemable by us and exercisable by
386
the holders on the same basis as the public warrants. In accordance with FINRA Rule
5110(g)(8)(A), the warrants purchased by Jefferies LLC will not be exercisable for more than five years from the effective date of the registration statement in connection with the L&F IPO for so long as they are held by the Jefferies.
Except as described above regarding redemption procedures and
cashless exercise in respect of the public warrants, if holders of the private placement warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering his, her or its warrants for that number of shares
of New ZeroFox Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of New ZeroFox Common Stock underlying the warrants, multiplied by the excess of the “fair market value” of our shares of New ZeroFox
Common Stock (defined below) over the exercise price of the warrants by (y) the fair market value. The “fair market value” will mean the average reported closing price of the shares of New ZeroFox Common Stock for the 10 trading days ending on
the third trading day prior to the date on which the notice of warrant exercise is sent to the warrant agent.
387
Rule 144
Pursuant to Rule 144 under the Securities Act (“Rule 144”), a person who has beneficially owned restricted common stock or warrants of New ZeroFox for at least six months would be entitled to sell their securities provided that (i) such person is not
deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale and have
filed all required reports under Section 13 or 15(d) of the Exchange Act during the 12 months (or such shorter period as we were required to file reports) preceding the sale.
Persons who have beneficially owned restricted common stock or
warrants of New ZeroFox for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale would be entitled to sell within any three-month period only a number of securities that does
not exceed the greater of:
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1% of the total number of shares of New ZeroFox Common Stock then outstanding (as of the date of this proxy
statement/prospectus, L&F has 3,425,689 Class A Ordinary Shares outstanding and 4,312,500 Class B Ordinary Shares outstanding); or
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•
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the average weekly reported trading volume of New ZeroFox Common Stock during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
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Sales by our affiliates under Rule 144 are also limited by manner of
sale provisions and notice requirements and to the availability of current public information about us.
Restrictions on the Use of Rule 144 by Shell Companies or Former
Shell Companies
Rule 144 is not available for the resale of securities issued by
shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions
are met:
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the issuer of the securities that was formerly a shell company has ceased to be a shell company;
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the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
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•
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the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the
preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and
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•
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at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its
status as an entity that is not a shell company (“Form 10 information”).
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As a result, subject to the provisions of the Sponsor Support Letter
Agreement, the L&F Initial Shareholders will be able to sell their Founder Shares and L&F Private Placement Warrants, as applicable, pursuant to Rule 144 without registration one year after we have completed the Business Combination and
filed our Form 10 information with the SEC.
We anticipate that following the consummation of the Business
Combination, we will no longer be a shell company, and so, once the conditions set forth in the exceptions listed above are satisfied, Rule 144 will become available for the resale of the above noted restricted securities.
388
Unless we have received contrary instructions, we may send a single
copy of this proxy statement/prospectus to any household at which two or more shareholders reside if we believe the shareholders are members of the same family. This process, known as “householding,” reduces the volume of duplicate information
received at any one household and helps to reduce our expenses. However, if shareholders prefer to receive multiple sets of our disclosure documents at the same address this year or in future years, the shareholders should follow the
instructions described below. Similarly, if an address is shared with another shareholder and together both of the shareholders would like to receive only a single set of our disclosure documents, the shareholders should follow these
instructions:
If the shares are registered in the name of the shareholder, the
shareholder should contact us at our offices at L&F Acquisition Corp., 150 North Riverside Plaza, Suite 5200 Chicago, IL 60606, to inform us of his or her request; or
If a bank, broker or other nominee holds the shares, the shareholder
should contact the bank, broker or other nominee directly.
The Transfer Agent for our securities is Continental Stock Transfer
& Trust Company and, following the Business Combination, will be Continental Stock Transfer & Trust Company.
The Board is aware of no other matter that may be brought before the
Shareholder Meeting. Under the Cayman Islands Companies Act, only business that is specified in the notice of Shareholder Meeting to shareholders may be transacted at the Shareholder Meeting.
For any proposal to be considered for inclusion in our proxy
statement and form of proxy for submission to the shareholders at the first annual meeting of shareholders of New ZeroFox following consummation of the Business Combination, assuming consummation, it must be submitted in writing and comply with
the requirements of Rule 14a-8 of the Exchange Act.
In addition, the Proposed Bylaws provide notice procedures for
shareholders to nominate a person as a director and to propose business to be considered by shareholders at a meeting. To be timely, a shareholder’s notice must be delivered to New ZeroFox’s offices at 1834 S. Charles Street, Baltimore,
Maryland, 21230, not later than 5:00 p.m., local time, on the 120th day nor earlier than 8:00 a.m., local time, on the 150th day before the first anniversary of the date of the proxy statement for the preceding year's
annual meeting of shareholders (which anniversary date will, for purposes of New ZeroFox’s first annual meeting after its shares of stock are first publicly traded, be deemed to be April 15, 2023); provided, however, that in the event that the
annual meeting is called for a date that is not within 30 days before or a date that is more than 60 days after such anniversary date, notice by the shareholder to be timely must be so received no earlier than 8:00 a.m., local time, on the 120th
day before the meeting and not later than the later of (x) 5:00 p.m., local time, on the 90th day before the meeting and (y) 5:00 p.m., local time, on the 10th day following the day on which public announcement of the date
of the annual meeting was first made by New ZeroFox. Nominations and proposals also must satisfy other requirements set forth in the Proposed Bylaws. The Chairman of the Board may refuse to acknowledge the introduction of any shareholder
proposal not made in compliance with the foregoing procedures.
Shareholders and interested parties may communicate with the L&F
Board, any committee chairperson or the non-management directors as a group by writing to the board or committee chairperson in care of L&F Acquisition Corp., 150 North Riverside Plaza, Suite 5200, Chicago, IL 60606. Following the Business
Combination, such communications should be sent in care of New ZeroFox, 1834 S. Charles Street, Baltimore, Maryland 21230, and its telephone number is (855) 936-9369. Each communication will be forwarded, depending on the subject matter, to the
board of directors, the appropriate committee chairperson or all non-management directors.
390
Kirkland & Ellis LLP, New York, NY will pass upon the validity of
the securities of New ZeroFox to be issued in connection with the Business Combination and certain other legal matters related to this proxy statement/prospectus.
The financial statements of L&F Acquisition Corp. as of
December 31, 2021 and 2020 and for the year ended December 31, 2021 and for the period from August 20, 2020 (inception) through December 31, 2020, appearing in this proxy statement/prospectus have been audited by WithumSmith+Brown, PC,
independent registered accounting firm, as stated in their report thereon and included in this proxy statement/prospectus, in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
The financial statements of ZeroFox, Inc. and subsidiaries as of
January 31, 2022 and 2021, and for each of the three years in the period ended January 31, 2022, appearing in this proxy statement/prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as
stated in their report appearing herein. Such financial statements have been so included in reliance upon the report of such firm given upon their authority experts in accounting and auditing.
The financial statements of ID Experts Holdings, Inc. and subsidiary
as of and for the year ended December 31, 2021, appearing in this proxy statement/prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such
financial statements have been so included in reliance upon the report of such firm given upon their authority experts in accounting and auditing.
The consolidated financial statements of ID Experts Holdings, Inc.
and subsidiary as of December 31, 2020 and for each of the years in the two-year period ended December 31, 2020, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The audit report covering the December 31, 2020 financial statements refers to a change to the accounting for revenue as of January 1, 2020 due to the
adoption of a new standard.
L&F has filed a registration statement on Form S-4 to register
the issuance of securities described elsewhere in this proxy statement/prospectus. This proxy statement/prospectus is a part of that registration statement.
L&F files reports, proxy statements and other information with
the SEC as required by the Exchange Act. You may access information on L&F at the SEC web site, which contains reports, proxy statements and other information, at: http://www.sec.gov.
This proxy statement/prospectus is available without charge to
shareholders of L&F upon written or oral request. If you would like additional copies of this proxy statement/prospectus or if you have questions about the Business Combination or the proposals to be presented at the Shareholder Meeting,
you should contact L&F in writing at L&F Acquisition Corp., 150 North Riverside Plaza, Suite 5200, Chicago IL 60606 or by telephone at (312) 701-1777.
If you have questions about the proposals or this proxy
statement/prospectus, would like additional copies of this proxy statement/prospectus, or need to obtain proxy cards or other information related to the proxy solicitation, please contact Morrow Sodali, the proxy solicitor for L&F, by
calling (800) 662-5200 (toll-free), or banks and brokers can call (203) 658-9400, or by emailing LNFA.info@investor.morrowsodali.com. You will not be charged for any of the documents that you request.
To obtain timely delivery of the documents, you must request them no
later than five business days before the date of the Shareholder Meeting, or no later than , 2022.
Information and statements contained in this proxy
statement/prospectus are qualified in all respects by reference to the copy of the relevant contract or other document included as an annex to this proxy statement/prospectus or filed as an exhibit to the registration statement of which this
proxy statement/prospectus is a part.
391
All information contained in this document relating to L&F has
been supplied by L&F and all such information relating to the Target Companies has been supplied by the Target Companies. Information provided by L&F or the Target Companies does not constitute any representation, estimate or projection
of the other.
This document is a proxy statement/prospectus of L&F for the
Shareholder Meeting. L&F has not authorized anyone to give any information or make any representation about the Business Combination, L&F or the Target Companies that is different from, or in addition to, that contained in this proxy
statement/prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it. The information contained in this proxy statement/prospectus speaks only as of the date of this document unless the information
specifically indicates that another date applies.
L&F is a Cayman Islands exempted company. If L&F does not
change its jurisdiction of incorporation from the Cayman Islands to Delaware by effecting the Domestication, you may have difficulty serving legal process within the United States upon L&F. You may also have difficulty enforcing, both in
and outside the United States, judgments you may obtain in U.S. courts against L&F in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. Furthermore, there is doubt that the
courts of the Cayman Islands would enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws. However, L&F may be served with process in the United States with respect to actions against
L&F arising out of or in connection with violation of U.S. federal securities laws relating to offers and sales of L&F’s securities by serving L&F’s U.S. agent irrevocably appointed for that purpose.
392
L&F ACQUISITION CORP.
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Condensed Consolidated Financial
Statements as of March 31, 2022 (unaudited) and as of December 31, 2021, and for the Three Months Ended March 31, 2022 and March 31, 2021 (Unaudited)
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Consolidated Financial Statements as of December 31, 2021
and 2020, and for the Year
Ended December 31, 2021, and for the Period from August 20,
2020 (Inception) through December 31, 2020
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ID EXPERTS HOLDINGS, INC. AND SUBSIDIARY
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Consolidated Financial Statements as of
March 31, 2022 and December 31, 2021, and for the Three Months Ended March 31, 2022 and 2021 (Unaudited)
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Consolidated Financial Statements as of December 31, 2021
and 2020, and for the Years
Ended December 31, 2021, 2020, and 2019 (Audited)
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FS-1
ZEROFOX, INC. AND SUBSIDIARIES
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Condensed Consolidated Financial
Statements as of April 30, 2022 and January 31, 2022, and for the Three Months Ended April 30, 2022 and 2021 (Unaudited)
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Consolidated Financial Statements as of January 31, 2022 and
2021, and for the Years
Ended January 31, 2022, 2021, and 2020
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FS-2
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31,
2022
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December 31,
2021
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(Unaudited)
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ASSETS
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Current assets
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Cash
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$263,247
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$575,739
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Prepaid expenses
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6,667
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9,167
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Total Current Assets
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269,914
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584,906
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Marketable investments held in Trust Account
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175,126,678
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175,110,029
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TOTAL ASSETS
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$175,396,592
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$175,694,935
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LIABILITIES AND SHAREHOLDERS’ DEFICIT
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Current liabilities
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Accrued expenses
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$4,233,547
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$2,785,180
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Accrued offering costs
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350,000
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350,000
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Total Current Liabilities
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4,583,547
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3,135,180
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Deferred underwriting fee payable
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6,037,500
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6,037,500
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Warrant Liabilities
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9,912,695
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18,637,420
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Total Liabilities
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20,533,742
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27,810,100
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Commitments and Contingencies
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Class A ordinary shares subject to possible redemption,
17,250,000 shares at $10.15 per share at March 31, 2022 and December 31, 2021
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175,087,500
|
| |
175,087,500
|
|
|
| |
|
| |
|
|
Shareholders’ Deficit
|
| |
|
| |
|
|
Preference shares, $0.0001 par value; 1,000,000
shares authorized; no shares issued and outstanding
|
| |
—
|
| |
—
|
|
Class A ordinary shares, $0.0001 par value; 500,000,000
shares authorized; no shares issued and outstanding at March 31, 2022 and December 31, 2021 (not including 17,250,000 shares subject to redemption)
|
| |
—
|
| |
—
|
|
Class B ordinary shares, $0.0001 par value; 50,000,000
shares authorized; 4,312,500 shares issued and outstanding at March 31, 2022 and December 31, 2021
|
| |
431
|
| |
431
|
|
Additional paid-in capital
|
| |
—
|
| |
—
|
|
Accumulated deficit
|
| |
(20,225,081)
|
| |
(27,203,096)
|
|
Total Shareholders’ Deficit
|
| |
(20,224,650)
|
| |
(27,202,665)
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
| |
$175,396,592
|
| |
$175,694,935
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
FS-3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
| |
For the Three Months
Ended March 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
|
| |
|
| |
|
|
Operating Costs
|
| |
$1,763,359
|
| |
$247,495
|
|
Loss from operations
|
| |
(1,763,359)
|
| |
(247,495)
|
|
|
| |
|
| |
|
|
Other income:
|
| |
|
| |
|
|
Change in fair value of warrant liabilities
|
| |
8,724,725
|
| |
10,825,645
|
|
Interest earned on marketable investments held in Trust Account
|
| |
16,649
|
| |
8,192
|
|
Total other income
|
| |
8,741,374
|
| |
10,833,837
|
|
|
| |
|
| |
|
|
Net income
|
| |
$6,978,015
|
| |
$10,586,342
|
|
|
| |
|
| |
|
|
Weighted average shares outstanding of Class A ordinary shares
|
| |
17,250,000
|
| |
17,250,000
|
|
Basic and diluted net income per
ordinary share, Class A ordinary shares
|
| |
$0.32
|
| |
$0.49
|
|
|
| |
|
| |
|
|
Weighted average shares outstanding of Class B ordinary shares
|
| |
4,312,500
|
| |
4,312,500
|
|
Basic and diluted net income per
ordinary share, Class B ordinary shares
|
| |
$0.32
|
| |
$0.49
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
FS-4
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S DEFICIT
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2022
|
|
| |
Class A
Ordinary Shares
|
| |
Class B
Ordinary Shares
|
| |
Additional
Paid in
Capital
|
| |
Accumulated
Deficit
|
| |
Total
Shareholders’
Deficit
|
||||||
|
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| ||||||||
|
Balance — January 1, 2022
|
| |
—
|
| |
$—
|
| |
4,312,500
|
| |
$431
|
| |
$—
|
| |
$(27,203,096)
|
| |
$(27,202,665)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
6,978,015
|
| |
6,978,015
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Balance — March 31, 2022
|
| |
—
|
| |
$—
|
| |
4,312,500
|
| |
$431
|
| |
$—
|
| |
$(20,225,081)
|
| |
$(20,224,650)
|
FOR THE THREE MONTHS ENDED MARCH 31, 2021
|
|
| |
Class A
Ordinary Shares
|
| |
Class B
Ordinary Shares
|
| |
Additional
Paid in
Capital
|
| |
Accumulated
Deficit
|
| |
Total
Shareholders’
Deficit
|
||||||
|
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| ||||||||
|
Balance — January 1, 2021
|
| |
—
|
| |
$—
|
| |
4,312,500
|
| |
$431
|
| |
$—
|
| |
$(32,801,182)
|
| |
$(32,800,751)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
10,586,342
|
| |
10,586,342
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Balance — March 31, 2021
|
| |
—
|
| |
$—
|
| |
4,312,500
|
| |
$431
|
| |
$—
|
| |
$(22,214,840)
|
| |
$(22,214,409)
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
FS-5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
| |
For the Three Months
Ended March 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Cash Flows from Operating Activities:
|
| |
|
| |
|
|
Net income
|
| |
$6,978,015
|
| |
$10,586,342
|
|
Adjustments to reconcile net income to net cash used in
operating activities:
|
| |
|
| |
|
|
Change in fair value of warrant liabilities
|
| |
(8,724,725)
|
| |
(10,825,645)
|
|
Interest earned on marketable investments held in Trust Account
|
| |
(16,649)
|
| |
(8,192)
|
|
Changes in operating assets and liabilities:
|
| |
|
| |
|
|
Prepaid expenses
|
| |
2,500
|
| |
74,552
|
|
Accrued expenses
|
| |
1,448,367
|
| |
123,099
|
|
Net cash used in operating activities
|
| |
(312,492)
|
| |
(49,844)
|
|
|
| |
|
| |
|
|
Net Change in Cash
|
| |
(312,492)
|
| |
(49,844)
|
|
Cash – Beginning
|
| |
575,739
|
| |
1,478,928
|
|
Cash – Ending
|
| |
$263,247
|
| |
$1,429,084
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
FS-6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
L&F Acquisition Corp. (the “Company”) is a blank check company
incorporated as a Cayman Islands exempted company on August 20, 2020. The Company was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one
or more businesses or entities. On November 23, 2021, L&F Acquisition Holdings, LLC. (“Merger Sub”), a Delaware corporation and a wholly owned subsidiary of L&F Acquisition Corp., was formed.
The Company is not limited to a particular industry or sector for
purposes of consummating a business combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of March 31, 2022, the Company had not commenced any operations.
All activity through March 31, 2022 relates to the Company’s identifying a target company for a business combination, and activities in connection with the proposed business combination with ZeroFox, Inc. (“ZeroFox”) and ID Experts Holdings,
Inc. (“IDX” and, together with ZeroFox, the “Target Companies”) (the “Business Combination”). The Company will not generate any operating revenues until after the completion of the Business Combination or, if the Business Combination is not
consummated, an alternative business combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.
The registration statement for the Company’s Initial Public Offering
was declared effective on November 18, 2020. On November 23, 2020, the Company consummated the Initial Public Offering of 15,000,000
units (the “Units” and, with respect to the Class A ordinary shares included in the Units sold, the “Public Shares”) at $10.00 per
Unit, generating gross proceeds of $150,000,000 which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the
Company consummated private placements of an aggregate of 6,859,505 warrants (the “Private Placement Warrants”) to JAR Sponsor, LLC
(the “Sponsor”) and Jefferies LLC at a price of $1.00 per Private Placement Warrant and approximately $1.21 per Private Placement Warrant, respectively, generating gross proceeds of approximately $7,250,000, which are described in Note 4.
On November 25, 2020, the underwriter fully exercised its
over-allotment option, resulting in an additional 2,250,000 Units issued for an aggregate amount of $22,500,000. In connection with the underwriter’s full exercise of its over-allotment option, the Company also consummated the sale of an additional
728,925 Private Placement Warrants to the Sponsor and Jefferies LLC at $1.00 per Private Placement Warrant and approximately $1.21
per Private Placement Warrant, respectively, generating total proceeds of $787,500. A total of approximately $22,837,500 was deposited into the Trust Account, bringing the aggregate proceeds held in the Trust Account to approximately $175,087,500.
Transaction costs amounted to $10,050,665, consisting of $3,450,000
of underwriting fees, $6,037,500 of deferred underwriting fees and $563,165 of other offering costs.
Following the closing of the Initial Public Offering on November 23,
2020 and the underwriters full exercise of its over-allotment option on November 25, 2020, an amount of approximately $175,087,500 ($10.15 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Warrants was
placed in a trust account (the “Trust Account”), and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of
185 days or less, or in any open-ended investment company that holds itself out as a money market fund investing solely in U.S. Treasuries and meeting certain conditions under Rule 2a-7 of the Investment Company Act, as determined by the
Company, until the earliest of: (i) the completion of a business combination and (ii) the distribution of the funds in the Trust Account to the Company’s shareholders, as described below.
The Company’s management has broad discretion with respect to the
specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a business
combination. The stock exchange
FS-7
listing rules require that the business combination must be with one or more operating businesses or assets with a fair market value equal to at least 80% of the assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on the interest earned on the Trust Account). The Company
will only complete a business combination if the post-business combination company owns or acquires 50% or more of the issued and
outstanding voting securities of the target or otherwise acquires a controlling interest in the target business sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no assurance
that the Company will be able to successfully effect a business combination.
The Company will provide the holders of the public shares (the
“Public Shareholders”) with the opportunity to redeem all or a portion of their public shares upon the completion of the Business Combination or an alternative business combination, either (i) in connection with a general meeting called to
approve the Business Combination or an alternative business combination or (ii) by means of a tender offer. The Business Combination requires shareholder approval. In the event the Business Combination is not consummated, in connection with any
alternative proposed business combination, the decision as to whether the Company will seek shareholder approval of an alternative business combination or conduct a tender offer will be made by the Company, solely in its discretion. The Public
Shareholders will be entitled to redeem their Public Shares, equal to the aggregate amount then on deposit in the Trust Account, calculated as of
business days prior to the consummation of the business combination (initially $10.15 per Public Share), including interest (which
interest shall be net of taxes payable), divided by the number of then issued and outstanding public shares, subject to certain limitations as described in the prospectus. The per-share amount to be distributed to the Public Shareholders who
properly redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriter (as discussed in Note 6). There will be no redemption rights upon the completion of a with respect to the Public
Warrants.
The Company will proceed with a Business Combination only if the
Company seeks shareholder approval, it receives an ordinary resolution under Cayman Islands law approving a Business Combination, which requires the affirmative vote of a majority of the shareholders who attend and vote at a general meeting of
the Company. If a shareholder vote is not required and the Company does not decide to hold a shareholder vote for business or other legal reasons, the Company will, pursuant to its amended and restated memorandum and articles of association,
conduct the redemptions pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”), and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC
prior to completing a Business Combination. If the Company seeks shareholder approval in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares (as defined in Note 5) and any Public Shares purchased during or
after the Initial Public Offering in favor of approving a Business Combination. Additionally, each Public Shareholder may elect to redeem their Public Shares, without voting, and if they do vote, irrespective of whether they vote for or against
a proposed Business Combination.
Notwithstanding the foregoing, if the Company seeks shareholder
approval of the Business Combination and the Company does not conduct redemptions pursuant to the tender offer rules, a Public Shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting
in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the Public Shares without the Company’s prior written consent.
The Sponsor has agreed (a) to waive its redemption rights with
respect to any Founder Shares and Public Shares held by it in connection with the completion of a business combination and (b) not to propose an amendment to the amended and restated memorandum and articles of association (i) to modify the
substance or timing of the Company’s obligation to allow redemption in connection with the Company’s initial business combination or to redeem 100%
of the Public Shares if the Company does not complete a business combination within the Extended Combination Period (as defined below) or (ii) with respect to any other provision relating to shareholders’ rights or pre-initial business
combination activity, unless the Company provides the Public Shareholders with the opportunity to redeem their Public Shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on
deposit in the Trust Account, including interest earned on the Trust account and not previously released to pay taxes, divided by the number of then issued and outstanding Public Shares.
FS-8
The Company previously had until May 23, 2022 to consummate a
business combination. On May 3, 2022, the Company held an extraordinary general meeting of the shareholders pursuant to which its shareholders approved amending the Company’s memorandum and articles of association (the “Charter Amendment”) to
extend the date by which the Company has to consummate a business combination from May 23, 2022 to August 24, 2022. The Company’s shareholders approved the Charter Amendment and as such the Company now has until August 24, 2022 to consummate a
business combination (the “Extended Combination Period”). On May 3, 2022, the Company filed the Charter Amendment with the Registrar of Companies of the Cayman Islands. For further discussion of the Charter Amendment, please see the section
titled Note 10 — Subsequent Events. However, if the Company has not completed a business combination within the Extended Combination Period, the Company will (i) cease all operations except for the
purpose of winding up, (ii) as promptly as reasonably possible but not more than business days thereafter, redeem 100% of the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including
interest earned and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution
expenses), divided by the number of then issued and outstanding Public Shares, which redemption will completely extinguish the rights of the Public Shareholders as shareholders (including the right to receive further liquidating distributions,
if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining Public Shareholders and its Board of Directors, liquidate and dissolve, subject in each case to the Company’s
obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company's warrants, which will expire
worthless if the Company fails to complete a Business combination within the Extended Combination Period.
The Sponsor has agreed to waive its rights to liquidating
distributions from the Trust Account with respect to the Founder Shares it will receive if the Company fails to complete a business combination within the Extended Combination Period. However, if the Sponsor or any of its respective affiliates
acquire Public Shares, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a business combination within the Extended Combination Period. The underwriter has agreed to waive
their rights to their deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company does not complete a business combination within the Extended Combination Period, and in such event, such amounts will be
included with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for
distribution will be less than $10.15.
In order to protect the amounts held in the Trust Account, the
Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party (other than the Company’s independent registered public accounting firm) for services rendered or products sold to the Company, or a
prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below the lesser of (1) $10.15 per Public Share and (2) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.15 per Public Share, due to reductions in the value of trust assets, in each case net of the interest that may be withdrawn to pay taxes. This
liability will not apply to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and as to any claims under the Company’s indemnity of the underwriter of the Initial Public Offering against
certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the
extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers
(other than the Company’s independent registered public accounting firm), prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of
any kind in or to monies held in the Trust Account.
Business Combination
On December 17, 2021, L&F Acquisition Corp., a Cayman Islands
exempted company (“LNFA”), entered into a Business Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”), by and among LNFA, L&F Acquisition Holdings, LLC, a
Delaware limited liability company (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware corporation (“ZF
FS-9
Merger Sub”), IDX Merger Sub, Inc., a Delaware corporation (“IDX Merger Sub”), IDX
Forward Merger Sub, LLC, a Delaware limited liability company (“IDX Forward Merger Sub”), ZeroFox, Inc., a Delaware corporation (“ZeroFox”), and ID Experts Holdings, Inc., a Delaware corporation (“IDX”). The Business Combination Agreement and
the transactions contemplated thereby were approved by the boards of directors of each of LNFA, ZeroFox and IDX and have been approved by the requisite stockholders of ZeroFox and IDX (See Note 6).
Going Concern
As of March 31, 2022, the Company had $263,247 in its operating bank accounts, $175,126,678
in marketable securities held in the Trust Account to be used for the Business Combination or an alternative business combination or to repurchase or redeem its common stock in connection therewith and working capital deficit of $4,313,633.
The Company may need to raise additional capital through loans or
additional investments from its Sponsor, stockholders, officers, directors, or third parties. The Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever
amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required
to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any
assurance that new financing will be available to it on commercially acceptable terms, if at all.
Additionally, In connection with the Company’s assessment of going
concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” the Company has until
August 24, 2022 to consummate the Business Combination or a proposed alternative business combination. It is uncertain that the Company will be able to consummate the Business Combination or a proposed alternative business combination by this
time. If the Business Combination or a proposed alternative business combination is not consummated by August 24, 2022, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the
mandatory liquidation, should the Business Combination or a proposed alternative business combination not occur, potential subsequent dissolution, and working capital deficit raises substantial doubt about the Company’s ability to continue as a
going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after August 24, 2022.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with 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 consolidated 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 period presented.
The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the Company’s Annual Report on Form 10-K, as filed with the SEC on March 14, 2022. The interim results for the three months ended March 31, 2022 are not necessarily indicative of the results to be
expected for the period ending December 31, 2022 or for any future periods.
Principles of Consolidation
The accompanying condensed consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
FS-10
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section
2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it 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 of 2002, reduced disclosure obligations regarding executive
compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth
companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities
registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that
apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different
application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s
financial statement with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences
in accounting standards used.
Use of Estimates
The preparation of condensed consolidated financial statements in
conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant
judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could
change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original
maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of
March 31, 2022 and December 31, 2021.
Marketable Investments Held in Trust Account
At March 31, 2022 and December 31, 2021, substantially all of the
assets held in the Trust Account were held in a money market fund that only holds U.S. Treasury Securities.
Offering Costs
Offering costs consisted of legal, accounting and other expenses
incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value
basis, compared to total proceeds received. Offering costs associated with warrant liabilities were expensed as incurred in the condensed consolidated statements of operations. Offering costs associated with the Class A ordinary share issued
were initially charged to temporary equity and then accreted to ordinary shares subject to redemption upon the completion of the Initial Public Offering. Offering costs amounting to $9,243,241 were charged to shareholders’ equity and offering costs amounting to $807,424
were charged to the statement of operations upon the completion of the Initial Public Offering (see Note 1).
FS-11
Class A Ordinary Shares Subject to Possible
Redemption
The Company accounts for its Class A ordinary shares subject to
possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A ordinary shares subject to mandatory redemption are classified as a liability
instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of
uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The Company’s Class A ordinary shares feature certain redemption rights
that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at March 31, 2022 and December 31, 2021, Class A ordinary shares subject to possible redemption are presented as
temporary equity, outside of the shareholders’ equity section of the Company’s condensed consolidated balance sheets.
The Company recognizes changes in redemption value immediately as
they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from
initial book value to redemption amount value. The change in the carrying value of redeemable Class A ordinary shares resulted in charges against additional paid-in capital and accumulated deficit.
At March 31, 2022 and December 31, 2021, the Class A ordinary shares
reflected in the condensed consolidated balance sheets are reconciled in the following table:
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Gross proceeds
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$175,087,500
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Less:
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Proceeds allocated to Public Warrants
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(13,196,250)
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Class A ordinary shares issuance costs
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(9,243,241)
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Excess funds in trust from sale of Private Warrants
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(2,587,500)
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Plus:
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Accretion of carrying value to redemption value
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25,026,991
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Class A ordinary shares subject to possible redemption
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$175,087,500
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Income Taxes
The Company accounts for income taxes under ASC Topic 740, “Income
Taxes,” which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax
position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s management determined that the Cayman Islands is the Company’s major tax jurisdiction. The Company recognizes accrued interest and
penalties related to unrecognized tax benefits as income tax expense. As of March 31, 2022 and December 31, 2021, there were no
unrecognized tax benefits and no amounts accrued for interest and penalties. The Company is currently not aware of any issues
under review that could result in significant payments, accruals or material deviation from its position.
The Company is considered to be an exempted Cayman Islands company
with no connection to any other taxable jurisdiction and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States. As such, the Company’s tax provision was zero for the period presented. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially
change over the next twelve months.
Net Income Per Ordinary Share
The Company complies with accounting and disclosure requirements of
the Financial Accounting Standards Board (“FASB”) ASC Topic 260, “Earnings Per Share”. Net income per ordinary share is computed by dividing net income by the weighted average number of ordinary shares outstanding for the period. Accretion
associated with the redeemable shares of Class A ordinary shares is excluded from earnings per share as the redemption value approximates fair value.
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The calculation of diluted income per share does not consider the
effect of the warrants issued in connection with the (i) Initial Public Offering, and (ii) the private placement since the exercise of the warrants is contingent upon the occurrence of future events. The warrants are exercisable to purchase 16,213,430 Class A ordinary shares in the aggregate. As of March 31, 2022 and 2021, the Company did not have any dilutive securities or other
contracts that could, potentially, be exercised or converted into ordinary shares and then share in the earnings of the Company. As a result, diluted net loss per ordinary share is the same as basic net loss per ordinary share for the periods
presented.
The following table reflects the calculation of basic and diluted net
income per ordinary share (in dollars, except per share amounts):
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For the Three Months Ended March 31,
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2022
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2021
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Class A
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Class B
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Class A
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Class B
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Basic and diluted net income per ordinary share
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Numerator:
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|
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Allocation of net income, as adjusted
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$5,582,412
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$1,395,603
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$8,469,074
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$2,117,268
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Denominator:
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Basic and diluted weighted average shares outstanding
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17,250,000
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4,312,500
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17,250,000
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4,312,500
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Basic and diluted net income per ordinary share
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$0.32
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$0.32
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$0.49
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$0.49
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Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on this account and management
believes the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify
as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the Company’s condensed consolidated balance sheet, primarily due to their short-term nature, other than warrant
liabilities (see Note 9).
Fair Value Measurements
Fair value is defined as the price that would be received for sale of
an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
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•
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Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
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•
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Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as
quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
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|
•
|
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its
own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
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In some circumstances, the inputs used to measure fair value might be
categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value
measurement.
Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to
cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants,
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to determine if such instruments are derivatives or contain features that qualify as
embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company accounts for the Warrants as either equity-classified or liability-classified instruments based on an assessment of the
warrant’s specific terms and applicable authoritative guidance in the FASB Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment
considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815,
including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance
and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for
equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are
required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
The Company assessed both Public and Private Warrants and determined both met the criteria for liability treatment.
Recent Accounting Standards
Management does not believe that any other recently issued, but not
yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
NOTE 3 — INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold 15,000,000 Units at a purchase price of $10.00
per Unit. In connection with the underwriter’s full exercise of the over-allotment option on November 25, 2020, the Company sold an additional 2,250,000
Units, at a purchase price of $10.00 per Unit. Each Unit consists of one Class A ordinary share and of one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase one Class A ordinary share at an exercise price
of $11.50 per whole share (see Note 8).
NOTE 4 — PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the
Sponsor purchased an aggregate of 5,000,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, for an aggregate purchase price of $5,000,000
and Jefferies LLC purchased an aggregate of 1,859,505 Private Placement Warrants at a price of approximately $1.21 per Private Placement Warrant, for an aggregate purchase price of approximately $2,250,000. In connection with the underwriter’s full exercise of its over-allotment option, the Company also consummated the sale of an additional 728,925 Private Placement Warrants, 450,000
of which were sold to the Sponsor at $1.00 per Private Placement Warrant and 278,925 of which were sold to Jefferies LLC at approximately $1.21
per Private Placement Warrant, respectively, generating total proceeds of $787,500. Each Private Placement Warrant is exercisable to
purchase one Class A ordinary share at a price of $11.50 per share, subject to adjustment (see Note 8). A portion of the proceeds from the Private Placement Warrants was added to the proceeds from the Initial Public Offering held in the Trust Account. If the
Company does not complete the Business Combination or a proposed alternative business combination within the Extended Combination Period, the proceeds from the sale of the Private Placement Warrants will be used to fund the redemption of the
Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire worthless. In accordance with FINRA Rule 5110(g)(8)(A), the Private Placement Warrants purchased by Jefferies LLC will not be
exercisable for more than five years from the effective date of the registration statement filed in connection with the Company’s
Initial Public Offering for so long as they are held by the Jefferies LLC.
NOTE 5 — RELATED PARTY TRANSACTIONS
Founder Shares
On August 28, 2020, the Sponsor paid $25,000 to cover certain offering and formation costs of the Company in consideration for 5,750,000 Class B ordinary shares (the “Founder Shares”). On November 13,
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2020, the Sponsor effected a surrender of 1,437,500 Founder Shares to the Company for no
consideration, resulting in a decrease in the total number of Class B ordinary shares outstanding to 4,312,500 shares. The Founder
Shares included an aggregate of up to 562,500 shares that were subject to forfeiture depending on the extent to which the
underwriter’s over-allotment option was exercised, so that the number of Founder Shares would equal, on an as-converted basis, approximately 20%
of the Company’s issued and outstanding ordinary shares after the Initial Public Offering. As a result of the underwriter’s election to fully exercise their over-allotment option on November 25, 2020, no Founder Shares are currently subject to forfeiture.
The Sponsor has agreed, subject to limited exceptions, not to
transfer, assign or sell any of the Founder Shares until the earliest of: (A) one year after the completion of the Business
Combination or a proposed alternative business combination and (B) subsequent to the Business Combination or a proposed alternative business combination, (x) if the closing price of the Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading
day period commencing at least 150 days after the Business Combination or a proposed alternative business combination, or (y) the
date on which the Company completes a liquidation, merger, share exchange or other similar transaction that results in all of the Public Shareholders having the right to exchange their Class A ordinary shares for cash, securities or other
property.
Administrative Support Agreement
Commencing on November 18, 2020, the Company entered into an
agreement to pay the Sponsor up to $10,000 per month for office space, utilities, secretarial and administrative support services.
Upon completion of the Business Combination or a proposed alternative business combination or its liquidation, the Company will cease paying these monthly fees. For each of the three months ended March 31, 2022 and 2021, the Company incurred
and paid $30,000 in fees for these services.
Related Party Loans
In order to finance transaction costs in connection with the Business
Combination or a proposed alternative business combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working
Capital Loans”). If the Company completes the Business Combination or a proposed alternative business combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise,
the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that the Business Combination or a proposed alternative business combination does not close, the Company may use a portion of proceeds held
outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been
determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of the Business Combination or a proposed alternative business combination, without interest, or, at the
lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into warrants of the post-Business Combination
or proposed alternative business combination entity at a price of $1.00 per warrant. The warrants would be identical to the Private
Placement Warrants. As of March 31, 2022 and December 31, 2021, the Company had no outstanding borrowings under the Working
Capital Loans.
NOTE 6 — COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 global
pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, its results of operations and/or search for a target company, the specific impact is not readily
determinable as of the date of these condensed consolidated financial statements. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Registration and Shareholders Rights
Pursuant to a registration and shareholders rights agreement entered
into on November 23, 2020, the holders of the Founder Shares, Private Placement Warrants and any warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise of the Private
Placement
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Warrants and warrants that may be issued upon conversion of the Working Capital
Loans) will have registration rights to require the Company to register a sale of any of securities held by them. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to
registration statements filed subsequent to completion of the Business Combination or a proposed alternative business combination. The registration rights agreement does not contain liquidating damages or other cash settlement provisions
resulting from delays in registering the Company’s securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriter is entitled to a deferred fee of $0.35 per Unit, or $6,037,500 in the
aggregate. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes the Business Combination or a proposed alternative business combination, subject to the
terms of the underwriting agreement.
Business Combination Agreement
On December 17, 2021, L&F Acquisition Corp., a Cayman Islands
exempted company (“LNFA”), entered into a Business Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”), by and among LNFA, L&F Acquisition Holdings, LLC, a
Delaware limited liability company (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware corporation (“ZF Merger Sub”), IDX Merger Sub, Inc., a Delaware corporation (“IDX Merger Sub”), IDX Forward Merger Sub, LLC, a Delaware limited liability
company (“IDX Forward Merger Sub”), ZeroFox, Inc., a Delaware corporation (“ZeroFox”), and ID Experts Holdings, Inc., a Delaware corporation (“IDX”). The Business Combination Agreement and the transactions contemplated thereby were approved by
the boards of directors of each of LNFA, ZeroFox and IDX and have been approved by the requisite stockholders of ZeroFox and IDX.
The Business Combination Agreement provides for, among other things,
the following transactions on the date of Closing: (i) ZF Merger Sub will merge with and into ZeroFox (the “ZF Merger”), with ZeroFox being the surviving company in the ZF Merger and, after giving effect to such merger, continuing as a
wholly-owned subsidiary of L&F Holdings, (ii) IDX Merger Sub will merge with and into IDX (the “IDX Merger”), with IDX being the surviving company in the IDX Merger (“Transitional IDX Entity”) and, after giving effect to such merger,
continuing as a wholly-owned subsidiary of L&F Holdings, and (iii) Transitional IDX Entity will merge with and into IDX Forward Merger Sub (the “IDX Forward Merger”, and collectively with the ZF Merger and IDX Merger, the “Mergers”), with
IDX Forward Merger Sub being the surviving company in the IDX Forward Merger and, after giving effect to such merger, continuing as a wholly-owned subsidiary of L&F Holdings.
The Mergers and the other transactions contemplated by the Business
Combination Agreement are herein referred to as the Business Combination. The Business Combination is expected to close in the first half of 2022, following the receipt of the required approval by LNFA’s shareholders and the fulfillment of
other customary closing conditions.
Business Combination Consideration
In accordance with the terms and subject to the conditions of the
Business Combination Agreement, at the effective times of the Mergers, among other things, (i) each outstanding share of common stock (including shares of common stock issued upon the mandatory conversion of shares of preferred stock) of
ZeroFox, other than ZF Dissenting Shares (as defined in the Business Combination Agreement) and ZF Cancelled Shares (as defined in the Business Combination Agreement), will be automatically cancelled and converted into a right to receive a
fraction of a share of LNFA Common Stock determined in accordance with the Business Combination Agreement on the basis of a pre-money enterprise value of ZeroFox of $866,250,000 and a price of $10.00 per share of LNFA Common Stock and
(ii) each outstanding share of common stock and preferred stock of IDX, other than IDX Dissenting Shares (as defined in the Business Combination Agreement) and IDX Cancelled Shares (as defined in the Business Combination Agreement), will be
automatically cancelled and converted into a right to receive (x) for common stock and series a-1 and series a-2 preferred stock, a fraction of a share of LNFA Common Stock, (y) for common stock and series a-1 and series a-2 preferred stock, a
portion of $50,000,000 in cash consideration (subject to certain adjustments for cash, working capital, debt and transaction
expenses, and
FS-16
net of liquidation preferences, as provided in the Business Combination Agreement),
and (z) for series a-1, series a-2 and series b preferred stock, a liquidation preference amount of $0.361, in each case, in
accordance with the Business Combination Agreement and on the basis of a pre-money enterprise value of IDX of $338,750,000 and a
price of $10.00 per share of LNFA Common Stock.
Advisory Services
The Company entered into an advisory agreement with Jefferies LLC
(“Jefferies”). Jeffries will act as (i) the Company’s exclusive financial advisor and exclusive capital markets advisor in connection with the Business Combination involving one or both of the Target Companies and (ii) sole and exclusive (other
than with respect to Stifel Financial Corp. (“Stifel”). If the pending Business Combination with ZeroFox and/or IDX does not occur, the Company will not be required to pay any contingent fees in connection with this agreement.
Jefferies will provide the Company with mergers and acquisition and
equity capital markets financial advice and assistance in connection with a possible acquisition or other business transaction or series of transactions involving all or a material portion of the Target’s equity or assets, whether directly or
indirectly and through any form of transaction, including, without limitation, merger, reverse merger, liquidation, stock purchase, asset purchase, recapitalization, reorganization, consolidation, amalgamation, joint venture, strategic
partnership, license or other transaction.
The Company entered into an agreement with Stifel, Nicolaus &
Company, Incorporated (“Stifel”). Stifel will endeavor to obtain one or more commitments for the Financing (individually a “Commitment” and collectively the “Commitments”) from one or more financial institutions or other sources other than any
affiliates of the Company, ZeroFOX or IDX. (the “Investors”). If the Business Combination does not occur, the Company will not be required to pay any contingent fees in connection with this agreement.
There can be no assurances that the Company will complete the pending
Business Combination with ZeroFox and/or IDX.
Common Equity Investment
Concurrently with the execution of the Business Combination
Agreement, LNFA entered into subscription agreements (the “Common Equity Subscription Agreements”) with certain investors, including, among others, Victory Park Capital, certain existing stockholders of ZeroFox (certain funds affiliated with
New Enterprise Associates, Highland Capital and Alsop Louie Partners (the “ZF Investors”)), and certain existing stockholders of IDX (certain funds affiliated with Blue Venture Fund, Peloton Equity and ForgePoint Capital (the “IDX Investors”)).
Pursuant to the Common Equity Subscription Agreements, the investors agreed to subscribe for and purchase, and LNFA agreed to issue and sell to such investors, on the Closing Date (as defined in the Business Combination Agreement), an aggregate
of 2,000,000 shares of LNFA Common Stock in exchange for an aggregate purchase price of $20,000,000 (the “Common Equity PIPE Financing”).
In addition, on December 16, 2021, the ZF Investors purchased PIK
promissory notes issued by ZeroFox (the “ZF PIK Promissory Notes”) for an aggregate purchase price of $5,000,000. Such ZF PIK
Promissory Notes accrue interest that will be paid-in-kind at a rate of 5.0% per annum. If the Closing occurs, the repayment of the
original principal amount of the ZF PIK Promissory Notes may be offset against amounts owed by the ZF investors under their Common Equity Subscription Agreements. In addition, if the Closing occurs, any portion of closing cash consideration to
which the IDX Investors are entitled in connection with the consummation of the Business Combination may be reduced to fund the subscription amount the IDX Investors would otherwise be required to pay pursuant to the Common Equity Subscription
Agreements.
The closing of the Common Equity PIPE Financing is contingent upon,
among other things, the substantially concurrent consummation of the Business Combination. The Common Equity Subscription Agreements provide that LNFA will grant the investors in the Common Equity PIPE Financing certain customary registration
rights.
Convertible Notes Investment
In connection with signing the Business Combination Agreement, LNFA
entered into convertible note subscription agreements (the “Convertible Note Subscription Agreements”) with affiliates of Monarch Alternative Capital LP, Victory Park Capital and Corbin Capital (the “Note Investors”), in respect of
FS-17
$150,000,000 aggregate principal amount of unsecured convertible notes due in 2025 (the “Notes”) to be issued in connection with the closing of the Business Combination (the “Convertible
Notes Financing”). The principal terms of the Notes are set forth in the form of indenture attached as an exhibit to the Convertible Note Subscription Agreements, which indenture shall be entered into by LNFA, the guarantors party thereto and
the indenture trustee (the “Indenture”), and the form of global note attached thereto. The Notes will bear interest at a rate of 7.00%
per annum, payable quarterly in cash; provided, that the issuer may elect to pay interest in kind at 8.75% per annum, and the Notes will be convertible at an initial conversion price of $11.50, subject to customary anti-dilution adjustments, including with respect to stock-splits and stock dividends, dividends and other distributions, above-market tender offers,
below-market rights offerings and spin-offs (the “Conversion Price”), and shall mature on the date that is three years following the closing of the Convertible Notes Financing. The post-Business Combination company may, at its election, force
conversion of the Notes after the first anniversary of the issuance of the Notes (the “Conversion Trigger Date”), subject to a holder’s prior right to convert, if the volume-weighted average trading price of the post-Business Combination
company’s common stock (x) for the first year after the Conversion Trigger Date, is greater than or equal to 150% of the conversion
price for more than 20 trading days during a period of 30 consecutive trading days and (y) for the second year after the Conversion Trigger Date, is greater than or equal to 130% of the conversion price for more than 20 trading days during a period
of 30 consecutive trading days.
Each holder of a Note will have the right to cause the post-Business
Combination company to repurchase for cash all or a portion of the Notes held by such holder at any time upon the occurrence of a “fundamental change”, a customary definition provided in the Indenture (a “Fundamental Change”), at a price equal
to par plus accrued and unpaid interest. In the event of a conversion in connection with a Fundamental Change, the Conversion Price will be adjusted by a usual and customary Fundamental Change “make-whole table” to be agreed in the Indenture.
The Indenture will include restrictive covenants that, among other things, will limit the ability of the post-Business Combination company to incur senior debt in excess of $50,000,000, subject to certain qualifications and exceptions set forth in the Indenture. The Indenture also will include customary events of default.
The closing of the Convertible Notes Financing is contingent upon,
among other things, the substantially concurrent consummation of the Business Combination. LNFA has agreed to execute a registration rights agreement for the benefit of the Note Investors, providing for customary demand, shelf and piggyback
registration rights and otherwise in form and substance acceptable to the Note Investors and LNFA.
NOTE 7 — SHAREHOLDERS’ DEFICIT
Preference Shares — The Company is authorized to issue 1,000,000 preference shares with a par
value of $0.0001 per share, with such designations, voting and other rights and preferences as may be determined from time to time
by the Company’s board of directors. At March 31, 2022 and December 31, 2021, there were no preference shares issued or
outstanding.
Class A Ordinary Shares — The Company is authorized to issue 500,000,000 Class A ordinary shares, with a
par value of $0.0001 per share. Holders of Class A ordinary shares are entitled to one vote for each share. At March 31, 2022 and December 31, 2021, there were 17,250,000 Class A ordinary shares issued and outstanding subject to possible redemption which are presented as temporary equity.
Class B Ordinary Shares — The Company is authorized to issue 50,000,000 Class B ordinary shares, with a
par value of $0.0001 per share. Holders of the Class B ordinary shares are entitled to one vote for each share. At March 31, 2022 and December 31, 2021, there were 4,312,500 Class B ordinary shares issued and outstanding.
Only holders of the Class B ordinary shares will have the right to
vote on the appointment of directors prior to the Business Combination or a proposed alternative business combination. Holders of Class A ordinary shares and Class B ordinary shares will vote together as a single class on all other matters
submitted to a vote of shareholders, except as required by law.
The Class B ordinary shares will automatically convert into Class A
ordinary shares concurrently with or immediately following the consummation of the Business Combination or a proposed alternative business combination on a one-for-one basis, subject to adjustment. In the case that additional Class A ordinary shares or equity-linked securities are issued or deemed issued in connection with the Business Combination or a proposed
alternative business combination, the number of Class A ordinary shares issuable upon conversion of all Founder
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Shares will equal, in the aggregate, 20% of the total number of Class A ordinary shares outstanding after completion of this offering, plus the total number of Class A ordinary shares issued, or deemed issued
or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of the Business Combination or a proposed alternative business
combination, excluding any Class A ordinary shares or equity-linked securities exercisable for or convertible into Class A ordinary shares issued, or to be issued, to any seller the Business Combination or a proposed alternative business
combination and any Private Placement Warrants issued to the Sponsor, officers or directors upon conversion of Working Capital Loans; provided that such conversion of Founder Shares will never occur on a less than one-for-one basis.
NOTE 8 — WARRANTS
At March 31, 2022 and December 31, 2021, there were 8,625,000 Public Warrants and 7,588,430
Private Placement Warrants, respectively outstanding. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of the Business Combination or a proposed alternative business combination and (b) one year from the closing of the Initial Public Offering. The Public Warrants will expire five years from the completion of the Business Combination or a proposed alternative business combination or earlier upon redemption or liquidation.
The Company will not be obligated to deliver any Class A ordinary
shares pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the Class A ordinary shares underlying the warrants is then
effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue a Class A ordinary share upon
exercise of a warrant unless the Class A ordinary share issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.
The Company has agreed that as soon as practicable, but in no event
later than 20 business days, after the closing of the Business Combination or a proposed alternative business combination it will
use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the Class A ordinary shares issuable upon exercise of the warrants. The Company will use its best efforts to cause the same to
become effective and to maintain the effectiveness of such registration statement and a current prospectus relating thereto until the expiration of the warrants in accordance with the provisions of the warrant agreement. If a registration
statement covering the Class A ordinary shares issuable upon exercise of the warrants is not effective by the sixtieth (60th)
business day after the closing of the Business Combination or a proposed alternative business combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have
failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the Class A ordinary shares are at the
time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public
Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration
statement, and in the event the Company does not so elect, it will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Redemption of warrants when
the price per Class A ordinary share equals or exceeds $18.00. Once the
warrants become exercisable, the Company may redeem the outstanding warrants (except as described with respect to the Private Placement Warrants):
|
•
|
in whole and not in part;
|
|
•
|
at a price of $0.01
per warrant;
|
|
•
|
upon a minimum of 30
days’ prior written notice of redemption; and
|
|
•
|
if, and only if, the closing price of the Class A ordinary shares equals or exceeds $18.00 per share (as adjusted) for any 20 trading
days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the
warrant holders.
|
FS-19
If and when the warrants become redeemable by the Company, the
Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Redemption of warrants when
the price per Class A ordinary share equals or exceeds $10.00. Once the
warrants become exercisable, the Company may redeem the outstanding warrants (except as described with respect to the Private Placement Warrants):
|
•
|
in whole and not in part;
|
|
•
|
at a price of $0.10
per warrant;
|
|
•
|
upon a minimum of 30
days’ prior written notice of redemption; provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined based on the redemption date and the fair
market value of the Class A ordinary shares;
|
|
•
|
if, and only if, the closing price of the Class A ordinary shares equal or exceeds $10.00 per public share (as adjusted) for any 20
trading days within the 30-trading day period ending three trading days before the Company send the notice of redemption of
the warrant holders; and
|
|
•
|
if the closing price of the Class A ordinary shares for any 20 trading days within a 30-trading day period
ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders is less than $18.00
per share (as adjusted), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants.
|
If the Company calls the Public Warrants for redemption, as described
above, its management will have the option to require any holder that wishes to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of ordinary shares issuable upon
exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, except as described below, the
Public Warrants will not be adjusted for issuances of ordinary shares at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants. If the Company is unable to complete the
Business Combination or a proposed alternative business combination within the Extended Combination Period and the Company liquidates the funds held in the Trust Account, holders of Public Warrants will not receive any of such funds with
respect to their Public Warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such Public Warrants. Accordingly, the Public Warrants may expire worthless.
In addition, if (x) the Company issues additional Class A ordinary
shares or equity-linked securities for capital raising purposes in connection with the closing of the Business Combination or a proposed alternative business combination at an issue price or effective issue price of less than $9.20 per Class A ordinary share (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors
and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate
gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the
funding of the Business Combination or a proposed alternative business combination on the date of the consummation of the Business Combination or a proposed alternative business combination (net of redemptions), and (z) the volume weighted
average trading price of the Class A ordinary shares during the 10 trading day period starting on the trading day prior to the day
on which the Company consummates the Business Combination or a proposed alternative business combination (such price, the “Market Value”) is below $9.20
per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market
Value and the Newly Issued Price, and the $18.00 per share redemption trigger price will be adjusted (to the nearest cent) to be
equal to 180% of the higher of the Market Value and the Newly Issued Price, and the $10.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to the higher of the Market Value and the Newly Issued Price.
The Private Placement Warrants are identical to the Public Warrants,
except that the Private Placement Warrants and the Class A ordinary shares issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of the Business Combination or a
FS-20
proposed alternative business combination, subject to certain limited exceptions.
Additionally, the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable, except as described above, so long as they are held by the initial purchasers, Jefferies LLC or their permitted transferees. If the
Private Placement Warrants are held by someone other than the initial purchasers, Jefferies LLC or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis
as the Public Warrants. Further, in accordance with FINRA Rule 5110(g)(8)(A), the Private Placement Warrants purchased by Jefferies LLC will not be exercisable for more than five years from the effective date of the registration statement filed in connection with the Company’s Initial Public Offering for so long as they are held by the
Jefferies LLC.
NOTE 9 — FAIR VALUE MEASUREMENTS
The fair value of the Company’s financial assets and liabilities
reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the
measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable
inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order
to value the assets and liabilities:
|
Level 1:
|
Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in
which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
Level 2:
|
Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar
assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
|
|
Level 3:
|
Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or
liability.
|
At March 31, 2022 and December 31, 2021, assets held in the Trust
Account were comprised of $175,126,678 and $175,110,029, respectively in a money market fund which is invested in U.S. Treasury Securities. During March 31, 2022 and December 31, 2021, the Company did not withdraw any interest income from the Trust Account.
The following table presents information about the Company’s assets
and liabilities that are measured at fair value on a recurring basis at March 31, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
|
Description
|
| |
Level
|
| |
March 31,
2022
|
| |
December 31,
2021
|
|
Assets:
|
| |
|
| |
|
| |
|
|
Marketable investments held in Trust Account – U.S.
Treasury Securities Money Market Fund
|
| |
1
|
| |
$175,126,678
|
| |
$175,110,029
|
|
Liabilities:
|
| |
|
| |
|
| |
|
|
Warrant liabilities – Public Warrants
|
| |
1
|
| |
2,630,625
|
| |
6,028,013
|
|
Warrant liabilities – Private Placement Warrants
|
| |
3
|
| |
7,282,070
|
| |
12,609,407
|
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the
reporting period in which a change in valuation technique or methodology occurs. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement during the year ended December 31, 2021
was $6,028,013.
FS-21
The following table presents the changes in the fair value of
Level 3 warrant liabilities at March 31, 2022 and March 31, 2021:
|
Fair value as of December 31, 2021
|
| |
$12,609,407
|
|
Change in fair value
|
| |
(5,327,337)
|
|
Fair value as of March 31, 2022
|
| |
$7,282,070
|
|
|
| |
|
|
Fair value as of December 31, 2020
|
| |
$28,062,924
|
|
Change in fair value
|
| |
(10,825,645)
|
|
Transfer of Public warrants to level 1
|
| |
(5,778,750)
|
|
Fair value as of March 31, 2021
|
| |
$11,458,529
|
The Private Warrants were valued as of November 23, 2020 and
subsequent periods using a Modified Black Scholes Option Pricing Model, which is considered to be a Level 3 fair value measurement. The Modified Black Scholes model’s primary unobservable input utilized in determining the fair value of the
Private Warrants is the expected volatility of the ordinary shares. The expected volatility as of the Initial Public Offering date was derived from observable public warrant pricing on comparable ‘blank-check’ companies without an identified
target. The expected volatility as of subsequent valuation dates was implied from the Company’s own public warrant pricing. A Monte Carlo simulation methodology was used in estimating the fair value of the Public Warrants as of November 23,
2020 and December 31, 2020, for periods where no observable traded price was available, using the same expected volatility as was used in measuring the fair value of the Private Warrants. For periods subsequent to the detachment of the Public
Warrants from the Units, the close price of the Public Warrant price was used as the fair value as of each relevant date.
The key inputs into the Black-Scholes-Merton model for the Private
Placement Warrants were as follows:
|
Input
|
| |
March 31,
2022
|
| |
December 31,
2021
|
|
Risk-free interest rate
|
| |
2.42%
|
| |
1.26%
|
|
Trading days per year
|
| |
252
|
| |
252
|
|
Volatility
|
| |
11.0%
|
| |
22.0%
|
|
Exercise price
|
| |
$11.50
|
| |
$11.50
|
|
Stock Price
|
| |
$10.12
|
| |
$10.03
|
NOTE 10 — SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that
occurred after the condensed consolidated balance sheet date up to the date that the unaudited condensed consolidated financial statements were issued. Other than as described in below, the Company did not identify any subsequent events that
would have required adjustment or disclosure in the unaudited condensed consolidated financial statements.
Amendment to extend the Date to Consummate a Business Combination
On May 3, 2022, the Company held an extraordinary general meeting
pursuant to which the Company’s shareholders approved extending the date by which the Company had to complete a business combination from May 23, 2022 to August 24, 2022. In connection with the approval of the extension, shareholders elected to
redeem 13,824,311 Class A Ordinary Shares. As a result, $140,378,518 (or approximately $10.15 per share) was released from the Trust
Account to pay such shareholders and 3,425,689 Class A Ordinary Shares were outstanding as of May 16, 2022.
Refer to the Current Report on Form 8-K filed on May 4, 2022 for
further information regarding the Charter Amendment.
FS-22
To the Shareholders and the Board of Directors of
L&F Acquisition Corp.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of L&F Acquisition Corp. (the
“Company”) as of December 31, 2021 and 2020 and the related statements of operations, changes in shareholders’ deficit and cash flows for the year ended December 31, 2021 and for the period from August 20, 2020 (inception) through December 31,
2020 and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021
and 2020, and the results of its operations and its cash flows for the year ended December 31, 2021 and for the period from August 20, 2020 (inception) through December 31, 2020, in conformity with accounting principles generally accepted in
the United States of America.
Going Concern
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, if the Company is unable to raise additional funds to alleviate liquidity needs as well as complete a Business Combination by the close
of business on May 23, 2022, then the Company will cease all operations except for the purpose of liquidating. This date for mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a
going concern. 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 audit. 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 audit 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. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ WithumSmith+Brown, PC
PCAOB 100
We have served as the Company’s auditor since 2020.
New York, New York
March 14, 2022
FS-23
L&F ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
|
|
| |
December 31,
2021
|
| |
December 31,
2020
|
|
|
| |
|
| |
|
|
ASSETS
|
| |
|
| |
|
|
Current assets
|
| |
|
| |
|
|
Cash
|
| |
$575,739
|
| |
$1,478,928
|
|
Prepaid expenses
|
| |
9,167
|
| |
295,658
|
|
Total Current Assets
|
| |
584,906
|
| |
1,774,586
|
|
|
| |
|
| |
|
|
Marketable investments held in Trust Account
|
| |
175,110,029
|
| |
175,089,531
|
|
TOTAL ASSETS
|
| |
$175,694,935
|
| |
$176,864,117
|
|
|
| |
|
| |
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
| |
|
| |
|
|
Current liabilities
|
| |
|
| |
|
|
Accrued expenses
|
| |
$2,785,180
|
| |
$126,944
|
|
Accrued offering costs
|
| |
350,000
|
| |
350,000
|
|
Total Current Liabilities
|
| |
3,135,180
|
| |
476,944
|
|
|
| |
|
| |
|
|
Deferred underwriting fee payable
|
| |
6,037,500
|
| |
6,037,500
|
|
Warrant Liability
|
| |
18,637,420
|
| |
28,062,924
|
|
Total Liabilities
|
| |
27,810,100
|
| |
34,577,368
|
|
|
| |
|
| |
|
|
Commitments and Contingencies
|
| | | | ||
|
|
| |
|
| |
|
|
Class A ordinary shares subject to possible redemption, 17,250,000 shares at $10.15
per share at December 31, 2021 and 2020
|
| |
175,087,500
|
| |
175,087,500
|
|
|
| |
|
| |
|
|
Shareholders’ Deficit
|
| |
|
| |
|
|
Preference shares, $0.0001 par value; 1,000,000
shares authorized; no shares issued and outstanding
|
| |
—
|
| |
—
|
|
Class A ordinary shares, $0.0001 par value; 500,000,000
shares authorized; no shares issued and outstanding at December 31, 2021 and 2020 (not including 17,250,000 shares subject to redemption)
|
| |
—
|
| |
—
|
|
Class B ordinary shares, $0.0001 par value; 50,000,000
shares authorized; 4,312,500 shares issued and outstanding at December 31, 2021 and 2020
|
| |
431
|
| |
431
|
|
Additional paid-in capital
|
| |
—
|
| |
—
|
|
Accumulated deficit
|
| |
(27,203,096)
|
| |
(32,801,182)
|
|
Total Shareholders’ Deficit
|
| |
(27,202,665)
|
| |
(32,800,751)
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
| |
$175,694,935
|
| |
$176,864,117
|
The accompanying notes are an integral part of these consolidated financial
statements.
FS-24
STATEMENTS OF OPERATIONS
|
|
| |
Year Ended
December 31,
2021
|
| |
For the Period from
August 20, 2020
(Inception) through
December 31,
2020
|
|
|
| |
|
| |
|
|
General and administrative expenses
|
| |
$3,847,916
|
| |
$164,192
|
|
Loss from operations
|
| |
(3,847,916)
|
| |
(164,192)
|
|
|
| |
|
| |
|
|
Other income (loss):
|
| |
|
| |
|
|
Change in fair value of warrant liabilities
|
| |
9,425,504
|
| |
(6,829,174)
|
|
Transaction Costs allocable to warrant liabilities
|
| |
—
|
| |
(807,424)
|
|
Interest earned on marketable investments held in Trust Account
|
| |
20,498
|
| |
2,030
|
|
Total other income (loss), net
|
| |
9,446,002
|
| |
(7,634,568)
|
|
|
| |
|
| |
|
|
Net income (loss)
|
| |
$5,598,086
|
| |
$(7,798,760)
|
|
|
| |
|
| |
|
|
Weighted average shares outstanding of Class A ordinary shares
|
| |
17,250,000
|
| |
5,303,571
|
|
Basic and diluted net income (loss) per
ordinary share, Class A ordinary shares
|
| |
$0.26
|
| |
$(0.85)
|
|
|
| |
|
| |
|
|
Weighted average shares outstanding of Class B ordinary shares
|
| |
4,312,500
|
| |
3,915,179
|
|
Basic and diluted net income (loss) per
ordinary share, Class B ordinary shares
|
| |
$0.26
|
| |
$(0.85)
|
The accompanying notes are an integral part of these consolidated financial
statements.
FS-25
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
|
|
| |
Class A
Ordinary Shares
|
| |
Class B
Ordinary Shares
|
| |
Additional
Paid in
Capital
|
| |
Accumulated
Deficit
|
| |
Total
Shareholders’
Deficit
|
||||||
|
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| ||||||||
|
Balance — August 20, 2020 (inception)
|
| |
—
|
| |
$—
|
| |
—
|
| |
$—
|
| |
$—
|
| |
$—
|
| |
$—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Issuance of Class B ordinary shares to Sponsor
|
| |
—
|
| |
—
|
| |
4,312,500
|
| |
431
|
| |
24,569
|
| |
—
|
| |
25,000
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Accretion for Class A ordinary shares to redemption amount
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(24,569)
|
| |
(25,002,422)
|
| |
(25,026,991)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(7,798,760)
|
| |
(7,798,760)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Balance — December 31, 2020
|
| |
—
|
| |
$—
|
| |
4,312,500
|
| |
$431
|
| |
$—
|
| |
$(32,801,182)
|
| |
$(32,800,751)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
5,598,086
|
| |
5,598,086
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Balance — December 31, 2021
|
| |
—
|
| |
$—
|
| |
4,312,500
|
| |
$431
|
| |
$—
|
| |
$(27,203,096)
|
| |
$(27,202,665)
|
The accompanying notes are an integral part of these consolidated financial
statements.
FS-26
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
| |
Year Ended
December 31,
|
| |
For the Period from
August 20, 2020
(Inception) through
December 31,
|
|
|
| |
2021
|
| |
2020
|
|
Cash Flows from Operating Activities:
|
| |
|
| |
|
|
Net income (loss)
|
| |
$5,598,086
|
| |
$(7,798,760)
|
|
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
|
| |
|
| |
|
|
Formation cost paid by Sponsor in exchange for issuance of founder shares
|
| |
—
|
| |
5,000
|
|
Change in fair value of warrant liabilities
|
| |
(9,425,504)
|
| |
6,829,174
|
|
Transaction costs
|
| |
—
|
| |
807,424
|
|
Interest earned on marketable investments held in Trust Account
|
| |
(20,498)
|
| |
(2,030)
|
|
Changes in operating assets and liabilities:
|
| |
|
| |
|
|
Prepaid expenses
|
| |
286,491
|
| |
(295,658)
|
|
Accrued expenses
|
| |
2,658,236
|
| |
126,944
|
|
Net cash used in operating activities
|
| |
(903,189)
|
| |
(327,906)
|
|
|
| |
|
| |
|
|
Cash Flows from Investing Activities:
|
| |
|
| |
|
|
Investment of cash in Trust Account
|
| |
—
|
| |
(175,087,501)
|
|
Net cash used in investing activities
|
| |
—
|
| |
(175,087,501)
|
|
|
| |
|
| |
|
|
Cash Flows from Financing Activities:
|
| |
|
| |
|
|
Proceeds from sale of Units, net of underwriting discounts paid
|
| |
—
|
| |
169,050,000
|
|
Proceeds from sale of Private Placement Warrants
|
| |
—
|
| |
8,037,500
|
|
Repayment of promissory note – related party
|
| |
—
|
| |
(64,126)
|
|
Payments of offering costs
|
| |
—
|
| |
(129,039)
|
|
Net cash provided by financing activities
|
| |
—
|
| |
176,894,335
|
|
|
| |
|
| |
|
|
Net Change in Cash
|
| |
(903,189)
|
| |
1,478,928
|
|
Cash – Beginning
|
| |
1,478,928
|
| |
—
|
|
Cash – Ending
|
| |
$575,739
|
| |
$1,478,928
|
|
|
| |
|
| |
|
|
Non-Cash Investing and Financing Activities:
|
| |
|
| |
|
|
Initial classification of Class A ordinary shares subject to possible
redemption
|
| |
$—
|
| |
$175,087,500
|
|
Deferred underwriting fee payable
|
| |
$—
|
| |
$6,037,500
|
|
Payment of offering costs through promissory note
|
| |
$—
|
| |
$64,126
|
|
Offering costs included in accrued offering costs
|
| |
$—
|
| |
$350,000
|
|
Offering costs paid by Sponsor in exchange for issuance of founder shares
|
| |
$—
|
| |
$20,000
|
The accompanying notes are an integral part of these consolidated financial
statements.
FS-27
NOTE 1 — DESCRIPTION OF
ORGANIZATION AND BUSINESS OPERATIONS
L&F Acquisition Corp. (the “Company”) is a blank check company
incorporated as a Cayman Islands exempted company on August 20, 2020. The Company was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one
or more businesses or entities (a “Business Combination”). On November 23, 2021, L&F Acquisition Holdings, LLC. (“Merger Sub”), a Delaware corporation and a wholly owned subsidiary of L&F Acquisition Corp., was formed.
The Company is not limited to a particular industry or sector for
purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of December 31, 2021, the Company had not commenced any
operations. All activity from the period August 20, 2020 (inception) through December 31, 2021 relates to the Company’s identifying a target company for a Business Combination. The Company will not generate any operating revenues until after
the completion of a Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its
fiscal year end.
The registration statement for the Company’s Initial Public Offering
was declared effective on November 18, 2020. On November 23, 2020, the Company consummated the Initial Public Offering of 15,000,000
units (the “Units” and, with respect to the Class A ordinary shares included in the Units sold, the “Public Shares”) at $10.00 per
Unit, generating gross proceeds of $150,000,000 which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the
Company consummated private placements of an aggregate of 6,859,505 warrants (the “Private Placement Warrants”) to JAR Sponsor, LLC
(the “Sponsor”) and Jefferies LLC at a price of $1.00 per Private Placement Warrant and approximately $1.21 per Private Placement Warrant, respectively, generating gross proceeds of approximately $7,250,000, which are described in Note 4.
On November 25, 2020, the underwriter fully exercised its
over-allotment option, resulting in an additional 2,250,000 Units issued for an aggregate amount of $22,500,000. In connection with the underwriter’s full exercise of its over-allotment option, the Company also consummated the sale of an additional
728,925 Private Placement Warrants to the Sponsor and Jefferies LLC at $1.00 per Private Placement Warrant and approximately $1.21
per Private Placement Warrant, respectively, generating total proceeds of $787,500. A total of approximately $22,837,500 was deposited into the Trust Account, bringing the aggregate proceeds held in the Trust Account to approximately $175,087,500.
Transaction costs amounted to $10,050,665, consisting of $3,450,000
of underwriting fees, $6,037,500 of deferred underwriting fees and $563,165 of other offering costs.
Following the closing of the Initial Public Offering on November 23,
2020, and the underwriters full exercise of its over-allotment option on November 25, 2020, an amount of approximately $175,087,500
($10.15 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement
Warrants was placed in a trust account (the “Trust Account”), and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a
maturity of 185 days or less, or in any open-ended investment company that holds itself out as a money market fund investing solely in U.S. Treasuries and meeting certain conditions under Rule 2a-7 of the Investment Company Act, as determined
by the Company, until the earliest of: (i) the completion of a Business Combination and (ii) the distribution of the funds in the Trust Account to the Company’s shareholders, as described below.
The Company’s management has broad discretion with respect to the
specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business
Combination. The stock exchange listing rules require that the Business Combination must be with one or more operating businesses or
assets with a fair market value equal to at least 80% of the assets held in the Trust Account (excluding the deferred underwriting
commissions and taxes payable on the interest earned on the Trust Account). The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or
FS-28
more of the issued and outstanding voting securities of the target or otherwise
acquires a controlling interest in the target business sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able to successfully effect a
Business Combination.
The Company will provide the holders of the public shares (the
“Public Shareholders”) with the opportunity to redeem all or a portion of their public shares upon the completion of the Business Combination, either (i) in connection with a general meeting called to approve the Business Combination or (ii) by
means of a tender offer. The decision as to whether the Company will seek shareholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The Public Shareholders will be entitled
to redeem their Public Shares, equal to the aggregate amount then on deposit in the Trust Account, calculated as of business
days prior to the consummation of the Business Combination (initially $10.15 per Public Share), including interest (which interest
shall be net of taxes payable), divided by the number of then issued and outstanding public shares, subject to certain limitations as described in the prospectus. The per-share amount to be distributed to the Public Shareholders who properly
redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriter (as discussed in Note 6). There will be no redemption rights upon the completion of a Business Combination with respect to
the Public Warrants.
The Company will proceed with a Business Combination only if the
Company seeks shareholder approval, it receives an ordinary resolution under Cayman Islands law approving a Business Combination, which requires the affirmative vote of at least a majority of the shareholders who attend and vote at a general
meeting of the Company. If a shareholder vote is not required and the Company does not decide to hold a shareholder vote for business or other legal reasons, the Company will, pursuant to its amended and restated memorandum and articles of
association, conduct the redemptions pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”), and file tender offer documents containing substantially the same information as would be included in a proxy statement
with the SEC prior to completing a Business Combination. If the Company seeks shareholder approval in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares (as defined in Note 5) and any Public Shares
purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each Public Shareholder may elect to redeem their Public Shares, without voting, and if they do vote, irrespective of whether they
vote for or against a proposed Business Combination.
Notwithstanding the foregoing, if the Company seeks shareholder
approval of the Business Combination and the Company does not conduct redemptions pursuant to the tender offer rules, a Public Shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting
in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the Public Shares without the Company’s prior written consent.
The Sponsor has agreed (a) to waive its redemption rights with
respect to any Founder Shares and Public Shares held by it in connection with the completion of a Business Combination and (b) not to propose an amendment to the amended and restated memorandum and articles of association (i) to modify the
substance or timing of the Company’s obligation to allow redemption in connection with the Company’s initial Business Combination or to redeem 100%
of the Public Shares if the Company does not complete a Business Combination within the Combination Period (as defined below) or (ii) with respect to any other provision relating to shareholders’ rights or pre-initial business combination
activity, unless the Company provides the Public Shareholders with the opportunity to redeem their Public Shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the
Trust Account, including interest earned on the Trust account and not previously released to pay taxes, divided by the number of then issued and outstanding Public Shares.
The Company will have until May 23, 2022 to consummate a Business
Combination (the “Combination Period”). However, if the Company has not completed a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as
reasonably possible but not more than business days thereafter, redeem 100% of the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned and not
previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses), divided by the
number of then issued and outstanding Public Shares, which redemption will
FS-29
completely extinguish the rights of the Public Shareholders as shareholders
(including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining Public Shareholders and its Board of
Directors, liquidate and dissolve, subject in each case to the Company’s obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating
distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.
The Sponsor has agreed to waive its rights to liquidating
distributions from the Trust Account with respect to the Founder Shares it will receive if the Company fails to complete a Business Combination within the Combination Period. However, if the Sponsor or any of its respective affiliates acquire
Public Shares, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period. The underwriter has agreed to waive their rights to
their deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period, and in such event, such amounts will be included with the other funds
held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than $10.15.
In order to protect the amounts held in the Trust Account, the
Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party (other than the Company’s independent registered public accounting firm) for services rendered or products sold to the Company, or a
prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below the lesser of (1) $10.15 per Public Share and (2) the actual amount per Public
Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.15 per Public Share, due to
reductions in the value of trust assets, in each case net of the interest that may be withdrawn to pay taxes. This liability will not apply to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust
Account and as to any claims under the Company’s indemnity of the underwriter of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event
that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will
have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (other than the Company’s independent registered public accounting firm), prospective target businesses or other entities with
which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Business Combination
On December 17, 2021, L&F Acquisition Corp., a Cayman Islands
exempted company (“LNFA”), entered into a Business Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”), by and among LNFA, L&F Acquisition Holdings, LLC, a
Delaware limited liability company (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware corporation (“ZF Merger Sub”), IDX Merger Sub, Inc., a Delaware corporation (“IDX Merger Sub”), IDX Forward Merger Sub, LLC, a Delaware limited liability
company (“IDX Forward Merger Sub”), ZeroFox, Inc., a Delaware corporation (“ZeroFox”), and ID Experts Holdings, Inc., a Delaware corporation (“IDX”). The Business Combination Agreement and the transactions contemplated thereby were approved by
the boards of directors of each of LNFA, ZeroFox and IDX and have been approved by the requisite stockholders of ZeroFox and IDX (See Note 6).
Going Concern
As of December 31, 2021, the Company had $575,739 in its operating bank accounts, $175,110,029
in marketable securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem its common stock in connection therewith and working capital deficit of $2,550,274.
The Company may need to raise additional capital through loans or
additional investments from its Sponsor, stockholders, officers, directors, or third parties. The Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever
amount they deem
FS-30
reasonable in their sole discretion, to meet the Company’s working capital needs.
Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be
limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at
all.
Additionally, In connection with the Company’s assessment of going
concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” the Company has until May 23,
2022 to consummate a Business Combination. It is uncertain that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date and an extension not requested by the Sponsor,
there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the mandatory liquidation, should a Business Combination not occur and an extension is not requested by the Sponsor, potential
subsequent dissolution, and working capital deficit raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be
required to liquidate after May 23, 2022.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements are presented in
U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange
Commission (the “SEC”).
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section
2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it 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 of 2002, reduced disclosure obligations regarding executive
compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth
companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities
registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that
apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different
application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s
financial statement with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences
in accounting standards used.
FS-31
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant
judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could
change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original
maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of
December 31, 2021 and 2020.
Marketable Investments Held in Trust Account
At December 31, 2021 and 2020, substantially all of the assets held
in the Trust Account were held in a money market fund that only holds U.S. Treasury Securities.
Offering Costs
Offering costs consisted of legal, accounting and other expenses
incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value
basis, compared to total proceeds received. Offering costs associated with warrant liabilities were expensed as incurred in the statements of operations. Offering costs associated with the Class A ordinary share issued were initially charged to
temporary equity and then accreted to ordinary shares subject to redemption upon the completion of the Initial Public Offering. Offering costs amounting to $9,243,241 were charged to stockholders’ equity and offering costs amounting to $807,424
were charged to the statement of operations upon the completion of the Initial Public Offering (see Note 1).
Class A Ordinary Shares Subject to Possible
Redemption
The Company accounts for its Class A ordinary shares subject to
possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A ordinary shares subject to mandatory redemption are classified as a liability
instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of
uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The Company’s Class A ordinary shares feature certain redemption rights
that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at December 31, 2021 and 2020, Class A ordinary shares subject to possible redemption are presented as temporary
equity, outside of the shareholders’ equity section of the Company’s balance sheets.
The Company recognizes changes in redemption value immediately as
they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from
initial book value to redemption amount value. The change in the carrying value of redeemable Class A ordinary shares resulted in charges against additional paid-in capital and accumulated deficit.
FS-32
At December 31, 2021, the Class A ordinary shares reflected in the
balance sheets are reconciled in the following table:
|
Gross proceeds
|
| |
$175,087,500
|
|
Less:
|
| |
|
|
Proceeds allocated to Public Warrants
|
| |
(13,196,250)
|
|
Class A ordinary shares issuance costs
|
| |
(9,243,241)
|
|
Excess funds in trust from sale of Private Warrants
|
| |
(2,587,500)
|
|
Plus:
|
| |
|
|
Accretion of carrying value to redemption value
|
| |
25,026,991
|
|
Class A ordinary shares subject to possible redemption
|
| |
$175,087,500
|
Income Taxes
The Company accounts for income taxes under ASC Topic 740, “Income
Taxes,” which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax
position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s management determined that the Cayman Islands is the Company’s major tax jurisdiction. The Company recognizes accrued interest and
penalties related to unrecognized tax benefits as income tax expense. As of December 31, 2021 and 2020, there were no
unrecognized tax benefits and no amounts accrued for interest and penalties. The Company is currently not aware of any issues
under review that could result in significant payments, accruals or material deviation from its position.
The Company is considered to be an exempted Cayman Islands company
with no connection to any other taxable jurisdiction and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States. As such, the Company’s tax provision was zero for the period presented. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially
change over the next twelve months.
Net Loss Per Ordinary Share
The Company complies with accounting and disclosure requirements of
FASB ASC Topic 260, “Earnings Per Share”. Net income (loss) per ordinary share is computed by dividing net income (loss) by the weighted average number of ordinary shares outstanding for the period. Accretion associated with the redeemable
shares of Class A ordinary shares is excluded from earnings per share as the redemption value approximates fair value.
The calculation of diluted income (loss) per share does not consider
the effect of the warrants issued in connection with the (i) Initial Public Offering, and (ii) the private placement since the exercise of the warrants is contingent upon the occurrence of future events. The warrants are exercisable to purchase
16,213,430 Class A ordinary shares in the aggregate. As of December 31, 2021 and 2020, the Company did not have any dilutive
securities or other contracts that could, potentially, be exercised or converted into ordinary shares and then share in the earnings of the Company. As a result, diluted net loss per ordinary share is the same as basic net loss per ordinary
share for the periods presented.
FS-33
The following table reflects the calculation of basic and diluted
net income (loss) per ordinary share (in dollars, except per share amounts):
|
|
| |
Year Ended
December 31, 2021
|
| |
For the Period from August 20, 2020
(Inception) Through
December 31, 2020
|
||||||
|
|
| |
Class A
|
| |
Class B
|
| |
Class A
|
| |
Class B
|
|
Basic and diluted net income (loss)
per ordinary share
|
| |
|
| |
|
| |
|
| |
|
|
Numerator:
|
| |
|
| |
|
| |
|
| |
|
|
Allocation of net income (loss), as adjusted
|
| |
$4,478,469
|
| |
$1,119,617
|
| |
$(4,486,647)
|
| |
$(3,312,113)
|
|
Denominator:
|
| |
|
| |
|
| |
|
| |
|
|
Basic and diluted weighted average shares outstanding
|
| |
17,250,000
|
| |
4,312,500
|
| |
5,303,571
|
| |
3,915,179
|
|
Basic and diluted net income (loss) per ordinary share
|
| |
$0.26
|
| |
$0.26
|
| |
$(0.85)
|
| |
$(0.85)
|
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on this account and management
believes the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify
as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the Company’s balance sheet, primarily due to their short-term nature, other than warrant liabilities (see note 8).
Fair Value Measurements
Fair value is defined as the price that would be received for sale of
an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
|
•
|
Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
|
|
•
|
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as
quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
|
|
•
|
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its
own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
In some circumstances, the inputs used to measure fair value might be
categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value
measurement.
Warrant Liability
The Company does not use derivative instruments to hedge exposures to
cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company accounts for the Warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s
FS-34
specific terms and applicable authoritative guidance in Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding
financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the
Company’s own ordinary shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date
while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for
equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are
required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
The Company assessed both Public and Private Warrants and determined both met the criteria for liability treatment. The Company assessed both Public and Private Warrants and determined both met the criteria for liability treatment.
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 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” (“ASU 2020-06”), which simplifies
accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and
it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The
Company adopted ASU 2020-06 effective as of January 1, 2021. The adoption of ASU 2020-06 did not have an impact on the Company’s consolidated financial statements.
Management does not believe that any other recently issued, but not
yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
NOTE 3 — INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold 15,000,000 Units at a purchase price of $10.00
per Unit. In connection with the underwriter’s full exercise of the over-allotment option on November 25, 2020, the Company sold an additional 2,250,000
Units, at a purchase price of $10.00 per Unit. Each Unit consists of one Class A ordinary share and of one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase one Class A ordinary share at an exercise price of $11.50 per
whole share (see Note 8).
NOTE 4 — PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the
Sponsor purchased an aggregate of 5,000,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, for an aggregate purchase price of $5,000,000
and Jefferies LLC purchased an aggregate of 1,859,505 Private Placement Warrants at a price of approximately $1.21 per Private Placement Warrant, for an aggregate purchase price of approximately $2,250,000. In connection with the underwriter’s full exercise of its over-allotment option, the Company also consummated the sale of an additional 728,925 Private Placement Warrants, 450,000
of which were sold to the Sponsor at $1.00 per Private Placement Warrant and 278,925 of which were sold to Jefferies LLC at approximately $1.21
per Private Placement Warrant, respectively, generating total proceeds of $787,500. Each Private Placement Warrant is exercisable to
purchase one Class A ordinary share at a price of $11.50 per share, subject to adjustment (see Note 8). A portion of the proceeds from the Private Placement Warrants was added to the proceeds from the Initial Public Offering held in the Trust Account. If the
Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Placement Warrants will be used to fund the redemption of the Public Shares (subject to the requirements of applicable
law) and the Private Placement Warrants will expire worthless. In accordance with FINRA
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NOTE 5 — RELATED PARTY TRANSACTIONS
Founder Shares
On August 28, 2020, the Sponsor paid $25,000 to cover certain offering and formation costs of the Company in consideration for 5,750,000 Class B ordinary shares (the “Founder Shares”). On November 13, 2020, the Sponsor effected a surrender of 1,437,500 Founder Shares to the Company for no
consideration, resulting in a decrease in the total number of Class B ordinary shares outstanding to 4,312,500 shares. The Founder
Shares included an aggregate of up to 562,500 shares that were subject to forfeiture depending on the extent to which the
underwriter’s over-allotment option was exercised, so that the number of Founder Shares would equal, on an as-converted basis, approximately 20%
of the Company’s issued and outstanding ordinary shares after the Initial Public Offering. As a result of the underwriter’s election to fully exercise their over-allotment option on November 25, 2020, no Founder Shares are currently subject to forfeiture.
The Sponsor has agreed, subject to limited exceptions, not to
transfer, assign or sell any of the Founder Shares until the earliest of: (A) one year after the completion of a Business
Combination and (B) subsequent to a Business Combination, (x) if the closing price of the Class A ordinary shares equals or exceeds $12.00
per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20
trading days within any 30-trading day period commencing at least 150 days after a Business Combination, or (y) the date on which the Company completes a liquidation, merger, share exchange or other similar transaction that results in all
of the Public Shareholders having the right to exchange their Class A ordinary shares for cash, securities or other property.
Administrative Support Agreement
Commencing on November 18, 2020, the Company entered into an
agreement to pay the Sponsor up to $10,000 per month for office space, utilities, secretarial and administrative support services.
Upon completion of a Business Combination or its liquidation, the Company will cease paying these monthly fees. For the year ended December 31, 2021 and for period from August 20, 2020 (inception) through December 31, 2020, the Company incurred
$120,000 and $10,000
in fees for these services, respectively. As of December 31, 2021 and 2020 $0 and $10,000 were included in accrued expenses, respectively.
Related Party Loans
In order to finance transaction costs in connection with a Business
Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business
Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event
that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans.
Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business
Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into
warrants of the post-Business Combination entity at a price of $1.00 per warrant. The warrants would be identical to the Private
Placement Warrants. As of December 31, 2021 and 2020, the Company had no outstanding borrowings under the Working Capital Loans.
NOTE 6 — COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 global
pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, its
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results of operations and/or search for a target company, the specific impact is not
readily determinable as of the date of these consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Registration and Shareholders Rights
Pursuant to a registration and shareholders rights agreement entered
into on November 23, 2020, the holders of the Founder Shares, Private Placement Warrants and any warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise of the Private
Placement Warrants and warrants that may be issued upon conversion of the Working Capital Loans) will have registration rights to require the Company to register a sale of any of securities held by them. The holders of these securities are
entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the
holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to completion of a Business Combination. The registration rights agreement does not contain liquidating damages or other cash
settlement provisions resulting from delays in registering the Company’s securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriter is entitled to a deferred fee of $0.35 per Unit, or $6,037,500 in the
aggregate. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Business Combination Agreement
On December 17, 2021, L&F Acquisition Corp., a Cayman Islands
exempted company (“LNFA”), entered into a Business Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”), by and among LNFA, L&F Acquisition Holdings, LLC, a
Delaware limited liability company (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware corporation (“ZF Merger Sub”), IDX Merger Sub, Inc., a Delaware corporation (“IDX Merger Sub”), IDX Forward Merger Sub, LLC, a Delaware limited liability
company (“IDX Forward Merger Sub”), ZeroFox, Inc., a Delaware corporation (“ZeroFox”), and ID Experts Holdings, Inc., a Delaware corporation (“IDX”). The Business Combination Agreement and the transactions contemplated thereby were approved by
the boards of directors of each of LNFA, ZeroFox and IDX and have been approved by the requisite stockholders of ZeroFox and IDX.
The Business Combination Agreement provides for, among other things,
the following transactions on the date of Closing: (i) ZF Merger Sub will merge with and into ZeroFox (the “ZF Merger”), with ZeroFox being the surviving company in the ZF Merger and, after giving effect to such merger, continuing as a
wholly-owned subsidiary of L&F Holdings, (ii) IDX Merger Sub will merge with and into IDX (the “IDX Merger”), with IDX being the surviving company in the IDX Merger (“Transitional IDX Entity”) and, after giving effect to such merger,
continuing as a wholly-owned subsidiary of L&F Holdings, and (iii) Transitional IDX Entity will merge with and into IDX Forward Merger Sub (the “IDX Forward Merger”, and collectively with the ZF Merger and IDX Merger, the “Mergers”), with
IDX Forward Merger Sub being the surviving company in the IDX Forward Merger and, after giving effect to such merger, continuing as a wholly-owned subsidiary of L&F Holdings.
The Mergers and the other transactions contemplated by the Business
Combination Agreement are hereinafter referred to as the “Business Combination”. The Business Combination is expected to close in the first half of 2022, following the receipt of the required approval by LNFA’s shareholders and the fulfillment
of other customary closing conditions.
Business Combination Consideration
In accordance with the terms and subject to the conditions of the
Business Combination Agreement, at the effective times of the Mergers, among other things, (i) each outstanding share of common stock (including shares of common stock issued upon the mandatory conversion of shares of preferred stock) of
ZeroFox, other than ZF Dissenting Shares (as defined in the Business Combination Agreement) and ZF Cancelled Shares (as defined in the Business Combination Agreement), will be automatically cancelled and converted into a right to receive a
fraction of a share of LNFA Common Stock determined in accordance with the Business Combination Agreement
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on the basis of a pre-money enterprise value of ZeroFox of $866,250,000 and a price of $10.00 per
share of LNFA Common Stock and (ii) each outstanding share of common stock and preferred stock of IDX, other than IDX Dissenting Shares (as defined in the Business Combination Agreement) and IDX Cancelled Shares (as defined in the Business
Combination Agreement), will be automatically cancelled and converted into a right to receive (x) for common stock and series a-1 and series a-2 preferred stock, a fraction of a share of LNFA Common Stock, (y) for common stock and series a-1
and series a-2 preferred stock, a portion of $50,000,000 in cash consideration (subject to certain adjustments for cash, working
capital, debt and transaction expenses, and net of liquidation preferences, as provided in the Business Combination Agreement), and (z) for series a-1, series a-2 and series b preferred stock, a liquidation preference amount of $0.361, in each case, in accordance with the Business Combination Agreement and on the basis of a pre-money enterprise value of IDX of $338,750,000 and a price of $10.00 per
share of LNFA Common Stock.
Advisory Services
The Company entered into an advisory agreement with Jefferies LLC
(“Jefferies”). Jeffries will act as (i) the Company’s exclusive financial advisor and exclusive capital markets advisor in connection with a possible Business Combination involving one or both of ZeroFOX and/or IDX (each and collectively,
together with its affiliates and subsidiaries, the “Target”) and (ii) sole and exclusive (other than with respect to Stifel Financial Corp. (“Stifel”). If the pending Business Combination with ZeroFox and/or IDX does not occur, the Company will
not be required to pay any contingent fees in connection with this agreement.
Jefferies will provide the Company with mergers and acquisition and
equity capital markets financial advice and assistance in connection with a possible acquisition or other business transaction or series of transactions involving all or a material portion of the Target’s equity or assets, whether directly or
indirectly and through any form of transaction, including, without limitation, merger, reverse merger, liquidation, stock purchase, asset purchase, recapitalization, reorganization, consolidation, amalgamation, joint venture, strategic
partnership, license or other transaction.
The Company entered into an agreement with Stifel, Nicolaus &
Company, Incorporated (“Stifel”). Stifel will endeavor to obtain one or more commitments for the Financing (individually a “Commitment” and collectively the “Commitments”) from one or more financial institutions or other sources other than any
affiliates of the Company, ZeroFOX, Inc. or ID Expert Holdings, Inc.(the “Investors”). If the Business Combination does not occur, the Company will not be required to pay any contingent fees in connection with this agreement.
There can be no assurances that the Company will complete the pending
Business Combination with ZeroFox and/or IDX.
Common Equity Investment
Concurrently with the execution of the Business Combination
Agreement, LNFA entered into subscription agreements (the “Common Equity Subscription Agreements”) with certain investors, including, among others, Victory Park Capital, certain existing stockholders of ZeroFox (certain funds affiliated with
New Enterprise Associates, Highland Capital and Alsop Louie Partners (the “ZF Investors”)), and certain existing stockholders of IDX (certain funds affiliated with Blue Venture Fund, Peloton Equity and ForgePoint Capital (the “IDX Investors”)).
Pursuant to the Common Equity Subscription Agreements, the investors agreed to subscribe for and purchase, and LNFA agreed to issue and sell to such investors, on the Closing Date (as defined in the Business Combination Agreement), an aggregate
of 2,000,000 shares of LNFA Common Stock in exchange for an aggregate purchase price of $20,000,000 (the “Common Equity PIPE Financing”).
In addition, on December 16, 2021, the ZF Investors purchased PIK
promissory notes issued by ZeroFox (the “ZF PIK Promissory Notes”) for an aggregate purchase price of $5,000,000. Such ZF PIK
Promissory Notes accrue interest that will be paid-in-kind at a rate of 5.0% per annum. If the Closing occurs, the repayment of the
original principal amount of the ZF PIK Promissory Notes may be offset against amounts owed by the ZF investors under their Common Equity Subscription Agreements. In addition, if the Closing occurs, any portion of closing cash consideration to
which the IDX Investors are entitled in connection with the consummation of the Business Combination may be reduced to fund the subscription amount the IDX Investors would otherwise be required to pay pursuant to the Common Equity Subscription
Agreements.
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The closing of the Common Equity PIPE Financing is contingent
upon, among other things, the substantially concurrent consummation of the Business Combination. The Common Equity Subscription Agreements provide that LNFA will grant the investors in the Common Equity PIPE Financing certain customary
registration rights.
Convertible Notes Investment
In connection with signing the Business Combination Agreement, LNFA
entered into convertible note subscription agreements (the “Convertible Note Subscription Agreements”) with affiliates of Monarch Alternative Capital LP, Victory Park Capital, LLC and Corbin Capital Partners, LP (the “Note Investors”), in
respect of $150,000,000 aggregate principal amount of unsecured convertible notes due in 2025 (the “Notes”) to be issued in
connection with the closing of the Business Combination (the “Convertible Notes Financing”). The principal terms of the Notes are set forth in the form of indenture attached as an exhibit to the Convertible Note Subscription Agreements, which
indenture shall be entered into by LNFA, the guarantors party thereto and the indenture trustee (the “Indenture”), and the form of global note attached thereto. The Notes will bear interest at a rate of 7.00% per annum, payable quarterly in cash; provided, that
the issuer may elect to pay interest in kind at 8.75% per annum, and the Notes will be convertible at an initial conversion price of
$11.50, subject to customary anti-dilution adjustments, including with respect to stock-splits and stock dividends, dividends and
other distributions, above-market tender offers, below-market rights offerings and spin-offs (the “Conversion Price”), and shall mature on the date that is three years following the closing of the Convertible Notes Financing. The post-Business
Combination company may, at its election, force conversion of the Notes after the first anniversary of the issuance of the Notes (the “Conversion Trigger Date”), subject to a holder’s prior right to convert, if the volume-weighted average
trading price of the post-Business Combination company’s common stock (x) for the first year after the Conversion Trigger Date, is greater than or equal to 150% of the conversion price for more than 20 trading days during a period
of 30 consecutive trading days and (y) for the second year after the Conversion Trigger Date, is greater than or equal to 130% of the conversion price for more than 20
trading days during a period of 30 consecutive trading days.
Each holder of a Note will have the right to cause the post-Business
Combination company to repurchase for cash all or a portion of the Notes held by such holder at any time upon the occurrence of a “fundamental change”, a customary definition provided in the Indenture (a “Fundamental Change”), at a price equal
to par plus accrued and unpaid interest. In the event of a conversion in connection with a Fundamental Change, the Conversion Price will be adjusted by a usual and customary Fundamental Change “make-whole table” to be agreed in the Indenture.
The Indenture will include restrictive covenants that, among other things, will limit the ability of the post-Business Combination company to incur senior debt in excess of $50,000,000, subject to certain qualifications and exceptions set forth in the Indenture. The Indenture also will include customary events of default.
The closing of the Convertible Notes Financing is contingent upon,
among other things, the substantially concurrent consummation of the Business Combination. LNFA has agreed to execute a registration rights agreement for the benefit of the Note Investors, providing for customary demand, shelf and piggyback
registration rights and otherwise in form and substance acceptable to the Note Investors and LNFA.
NOTE 7 — SHAREHOLDERS’ EQUITY
Preference Shares — The Company is authorized to issue 1,000,000 preference shares with a par
value of $0.0001 per share, with such designations, voting and other rights and preferences as may be determined from time to time
by the Company’s board of directors. At December 31, 2021 and 2020, there were no preference shares issued or outstanding.
Class A Ordinary Shares — The Company is authorized to issue 500,000,000 Class A ordinary shares, with a
par value of $0.0001 per share. Holders of Class A ordinary shares are entitled to one vote for each share. At December 31, 2021 and 2020, there were 17,250,000
and 17,250,000 Class A ordinary shares issued and outstanding subject to possible redemption which are presented as temporary
equity, respectively.
Class B Ordinary Shares — The Company is authorized to issue 50,000,000 Class B ordinary shares, with a
par value of $0.0001 per share. Holders of the Class B ordinary shares are entitled to one vote for each share. At December 31, 2021 and 2020, there were 4,312,500
Class B ordinary shares issued and outstanding.
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Only holders of the Class B ordinary shares will have the right to
vote on the appointment of directors prior to the Business Combination. Holders of Class A ordinary shares and Class B ordinary shares will vote together as a single class on all other matters submitted to a vote of shareholders, except as
required by law.
The Class B ordinary shares will automatically convert into Class A
ordinary shares concurrently with or immediately following the consummation of a Business Combination on a one-for-one basis,
subject to adjustment. In the case that additional Class A ordinary shares or equity-linked securities are issued or deemed issued in connection with a Business Combination, the number of Class A ordinary shares issuable upon conversion of all
Founder Shares will equal, in the aggregate, approximately 55.7% of the total number of Class A ordinary shares outstanding after
completion of this offering, plus the total number of Class A ordinary shares issued, or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by the Company in connection with
or in relation to the consummation of a Business Combination, excluding any Class A ordinary shares or equity-linked securities exercisable for or convertible into Class A ordinary shares issued, or to be issued, to any seller in a Business
Combination and any Private Placement Warrants issued to the Sponsor, officers or directors upon conversion of Working Capital Loans; provided that such conversion of Founder Shares will never occur on a less than one-for-one basis.
NOTE 8 —WARRANTS
At December 31, 2021 and 2020, there were 8,625,000 Public Warrants and 7,588,430
Private Placement Warrants, respectively outstanding. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination and (b) one year
from the closing of the Initial Public Offering. The Public Warrants will expire five years from the completion of a Business
Combination or earlier upon redemption or liquidation.
The Company will not be obligated to deliver any Class A ordinary
shares pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the Class A ordinary shares underlying the warrants is then
effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue a Class A ordinary share upon
exercise of a warrant unless the Class A ordinary share issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.
The Company has agreed that as soon as practicable, but in no event
later than 20 business days, after the closing of a Business Combination, it will use its best efforts to file with the SEC a
registration statement for the registration, under the Securities Act, of the Class A ordinary shares issuable upon exercise of the warrants. The Company will use its best efforts to cause the same to become effective and to maintain the
effectiveness of such registration statement and a current prospectus relating thereto until the expiration of the warrants in accordance with the provisions of the warrant agreement. If a registration statement covering the Class A ordinary
shares issuable upon exercise of the warrants is not effective by the sixtieth (60th) business day after the closing of a Business
Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis”
in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the Class A ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they
satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with
Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, it will use its best efforts
to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Redemption of warrants when
the price per Class A ordinary share equals or exceeds $18.00. Once the
warrants become exercisable, the Company may redeem the outstanding warrants (except as described with respect to the Private Placement Warrants):
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in whole and not in part;
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•
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at a price of $0.01
per warrant;
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•
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upon a minimum of 30
days’ prior written notice of redemption; and
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•
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if, and only if, the closing price of the Class A ordinary shares equals or exceeds $18.00 per share (as adjusted) for any 20 trading
days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the
warrant holders.
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If and when the warrants become redeemable by the Company, the
Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Redemption of warrants when
the price per Class A ordinary share equals or exceeds $10.00. Once the
warrants become exercisable, the Company may redeem the outstanding warrants (except as described with respect to the Private Placement Warrants):
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in whole and not in part;
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•
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at a price of $0.10
per warrant;
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•
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upon a minimum of 30
days’ prior written notice of redemption; provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined based on the redemption date and the fair
market value of the Class A ordinary shares;
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•
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if, and only if, the closing price of the Class A ordinary shares equal or exceeds $10.00 per public share (as adjusted) for any 20
trading days within the 30-trading day period ending three trading days before the Company send the notice of redemption of
the warrant holders; and
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•
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if the closing price of the Class A ordinary shares for any 20 trading days within a 30-trading day period
ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders is less than $18.00
per share (as adjusted), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants.
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If the Company calls the Public Warrants for redemption, as described
above, its management will have the option to require any holder that wishes to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of ordinary shares issuable upon
exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, except as described below, the
Public Warrants will not be adjusted for issuances of ordinary shares at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants. If the Company is unable to complete a
Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of Public Warrants will not receive any of such funds with respect to their Public Warrants, nor will they receive any
distribution from the Company’s assets held outside of the Trust Account with respect to such Public Warrants. Accordingly, the Public Warrants may expire worthless.
In addition, if (x) the Company issues additional Class A ordinary
shares or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $9.20 per Class A ordinary share (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any
such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such
issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of a Business
Combination on the date of the consummation of a Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Class A ordinary shares during the 10 trading day period starting on the trading day prior to the day on which the Company consummates a Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00
per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and
the Newly Issued Price, and the $10.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to the
higher of the Market Value and the Newly Issued Price.
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The Private Placement Warrants are identical to the Public
Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants and the Class A ordinary shares issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or
salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the
Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable, except as described above, so long as they are held by the initial purchasers, Jefferies LLC or their permitted transferees. If the Private Placement
Warrants are held by someone other than the initial purchasers, Jefferies LLC or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public
Warrants. Further, in accordance with FINRA Rule 5110(g)(8)(A), the Private Placement Warrants purchased by Jefferies LLC will not be exercisable for more than five years from the effective date of the registration statement filed in connection with the Company’s Initial Public Offering for so long as they are held by the Jefferies LLC.
NOTE 9 — FAIR VALUE MEASUREMENTS
The fair value of the Company’s financial assets and liabilities
reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the
measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable
inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order
to value the assets and liabilities:
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Level 1:
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Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in
which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
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Level 2:
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Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar
assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
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Level 3:
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Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or
liability.
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At December 31, 2021 and 2020, assets held in the Trust Account were
comprised of $175,110,029 and $175,089,531,
respectively in a money market fund which is invested in U.S. Treasury Securities. During the year ended December 31, 2021, the Company did not
withdraw any interest income from the Trust Account.
The following table presents information about the Company’s assets
and liabilities that are measured at fair value on a recurring basis at December 31, 2021 and 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
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Description
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Level as of
December 31, 2021
|
| |
December 31,
2021
|
| |
December 31,
2020
|
|
Assets:
|
| |
|
| |
|
| |
|
|
Marketable investments held in Trust Account – U.S.
Treasury Securities Money Market Fund
|
| |
1
|
| |
$175,110,029
|
| |
$175,089,531
|
|
Liabilities:
|
| |
|
| |
|
| |
|
|
Warrant liability – Public Warrants
|
| |
1
|
| |
6,028,013
|
| |
—
|
|
Warrant liability – Public Warrants
|
| |
3
|
| |
—
|
| |
14,403,750
|
|
Warrant liability – Private Placement Warrants
|
| |
3
|
| |
12,609,407
|
| |
13,659,174
|
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the
reporting period in which a change in valuation technique or methodology occurs. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement during the year ended December 31, 2021
was $6,028,013.
FS-42
The following table presents the changes in the fair value of
Level 3 warrant liabilities:
|
Fair value as of January 1, 2021
|
| |
$28,062,924
|
|
Change in fair value
|
| |
(10,825,645)
|
|
Transfer of Public warrants to level 1
|
| |
(5,778,750)
|
|
Fair value as of March 31, 2021
|
| |
11,458,529
|
|
Change in fair value
|
| |
1,081,281
|
|
Fair value as of June 30, 2021
|
| |
12,539,810
|
|
Change in fair value
|
| |
(443,828)
|
|
Fair value as of September 30, 2021
|
| |
$12,095,982
|
|
Change in fair value
|
| |
513,425
|
|
Fair value as of December 31, 2021
|
| |
$12,609,407
|
The Private Warrants were valued as of November 23, 2020 and
subsequent periods using a Modified Black Scholes Option Pricing Model, which is considered to be a Level 3 fair value measurement. The Modified Black Scholes model’s primary unobservable input utilized in determining the fair value of the
Private Warrants is the expected volatility of the ordinary shares. The expected volatility as of the Initial Public Offering date was derived from observable public warrant pricing on comparable ‘blank-check’ companies without an identified
target. The expected volatility as of subsequent valuation dates was implied from the Company’s own public warrant pricing. A Monte Carlo simulation methodology was used in estimating the fair value of the Public Warrants as of November 23,
2020 and December 31, 2020, for periods where no observable traded price was available, using the same expected volatility as was used in measuring the fair value of the Private Warrants. For periods subsequent to the detachment of the Public
Warrants from the Units, the close price of the Public Warrant price
was used as the fair value as of each relevant date.
The key inputs into the Black-Scholes-Merton model for the Private
Placement Warrants were as follows:
|
Input
|
| |
December 31,
2021
|
| |
December 31,
2020
|
|
Risk-free interest rate
|
| |
1.26%
|
| |
0.56%
|
|
Trading days per year
|
| |
252
|
| |
252
|
|
Volatility
|
| |
22.0%
|
| |
28.0%
|
|
Exercise price
|
| |
$11.50
|
| |
$11.50
|
|
Stock Price
|
| |
$10.03
|
| |
$9.54
|
NOTE 10 — SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that
occurred after the balance sheet date up to the date that the consolidated financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the
consolidated financial statements.
FS-43
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
| |
March 31,
2022
|
| |
December 31,
2021
|
|
|
| |
(dollars, except for share data)
|
|||
|
ASSETS
|
||||||
|
Current Assets:
|
| |
|
| |
|
|
Cash and cash equivalents
|
| |
$ 15,697,274
|
| |
$ 17,985,874
|
|
Accounts receivable, net of allowance of $85,000 and
$179,000 at March 31, 2022 and December 31, 2021
|
| |
11,219,090
|
| |
9,996,832
|
|
Other receivables and prepaids
|
| |
1,415,917
|
| |
953,331
|
|
Capitalized contract costs, current
|
| |
806,781
|
| |
825,530
|
|
Total current assets
|
| |
29,139,062
|
| |
29,761,567
|
|
Property and equipment, net
|
| |
141,808
|
| |
126,897
|
|
Capitalized contract costs, net of current portion
|
| |
311,779
|
| |
263,017
|
|
Deferred tax asset
|
| |
1,144,733
|
| |
1,229,237
|
|
Other long-term assets, net
|
| |
—
|
| |
36,712
|
|
Total assets
|
| |
$30,737,382
|
| |
$31,417,430
|
The accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.
FS-44
ID EXPERTS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
|
|
| |
March 31,
2022
|
| |
December 31,
2021
|
|
|
| |
(dollars, except for share data)
|
|||
|
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT
|
| |
|
| |
|
|
Current liabilities:
|
| |
|
| |
|
|
Accounts payable
|
| |
$7,470,534
|
| |
$7,286,039
|
|
Accrued expenses
|
| |
5,530,440
|
| |
6,606,507
|
|
Deferred revenue, current
|
| |
7,111,963
|
| |
7,560,192
|
|
Current portion of convertible debt, carried at fair value
|
| |
2,724,196
|
| |
2,444,924
|
|
Current portion of long-term debt
|
| |
2,500,000
|
| |
1,666,667
|
|
Total current liabilities
|
| |
25,337,133
|
| |
25,564,329
|
|
Deferred revenue, net of current portion
|
| |
2,471,674
|
| |
2,115,846
|
|
Accrued expenses, long-term
|
| |
759,728
|
| |
749,633
|
|
Long-term debt, net of current portion
|
| |
7,487,069
|
| |
8,319,407
|
|
Total liabilities
|
| |
36,055,604
|
| |
36,749,215
|
|
Commitments and contingencies (see Note 18)
|
| |
|
| |
|
|
Redeemable convertible preferred stock:
|
| |
|
| |
|
|
A-1 redeemable convertible preferred stock, $0.0001 par
value; 6,000,000 66,000,000 shares shares authorized, 5,882,350 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively; liquidation preference of $9,999,996 at March 31, 2022 and $9,999,996 at December 31,
2021
|
| |
9,999,996
|
| |
9,999,996
|
|
A-2 redeemable convertible preferred stock, $0.0001 par
value; 27,000,000 shares authorized, 26,194,324 and 26,069,330 shares issued and outstanding at March 31, 2022 December 31, 2021, respectively, liquidation preference of $55,165,745 at March 31, 2022 and liquidation preference of
$54,902,008 at December 31, 2021
|
| |
55,165,745
|
| |
54,902,008
|
|
Total redeemable convertible preferred stock
|
| |
65,165,741
|
| |
64,902,004
|
|
Stockholders’ deficit:
|
| |
|
| |
|
|
Common stock, $0.0001 par value; 53,000,000 shares
authorized, 12,673,667 and 11,671,845 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
|
| |
1,267
|
| |
1,167
|
|
Additional paid in capital
|
| |
7,755
|
| |
—
|
|
Accumulated deficit
|
| |
(70,492,985)
|
| |
(70,234,956)
|
|
Total stockholders' deficit
|
| |
(70,483,963)
|
| |
(70,233,789)
|
|
Total liabilities, redeemable convertible preferred stock,
and stockholders' deficit
|
| |
$30,737,382
|
| |
$31,417,430
|
The accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.
FS-45
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
|
|
| |
Three Months Ended March 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
|
| |
(dollars, except for share data)
|
|||
|
Revenue(1)
|
| |
$27,473,960
|
| |
$26,956,631
|
|
Cost of services(1)
|
| |
21,265,365
|
| |
20,702,148
|
|
Gross profit
|
| |
6,208,595
|
| |
6,254,483
|
|
Operating Expenses:
|
| |
|
| |
|
|
Sales and marketing(1)
|
| |
1,895,609
|
| |
1,970,867
|
|
General and administrative(1)
|
| |
2,822,750
|
| |
1,102,175
|
|
Research and development
|
| |
1,450,012
|
| |
1,127,148
|
|
Total operating expenses
|
| |
6,168,371
|
| |
4,200,190
|
|
Income from operations
|
| |
40,224
|
| |
2,054,293
|
|
Interest and other expense:
|
| |
|
| |
|
|
Interest expense
|
| |
119,636
|
| |
120,912
|
|
Other expense(1)
|
| |
272,391
|
| |
45,357
|
|
Total interest and other expense
|
| |
392,027
|
| |
166,269
|
|
(Loss) income before provision for income taxes
|
| |
(351,803)
|
| |
1,888,024
|
|
Income tax (benefit) expense
|
| |
(93,774)
|
| |
544,976
|
|
Net (loss) income
|
| |
$(258,029)
|
| |
$1,343,048
|
|
Net (loss) income attributable to common stockholders
|
| |
|
| |
|
|
Basic:
|
| |
$(258,029)
|
| |
$336,562
|
|
Diluted:
|
| |
$(258,029)
|
| |
$1,343,048
|
|
Net (loss) income per share attributable to common stockholders
|
| |
|
| |
|
|
Basic:
|
| |
$(0.02)
|
| |
$0.03
|
|
Diluted:
|
| |
$(0.02)
|
| |
$0.03
|
|
Weighted average shares used in computing net (loss)
income per share attributable to common stockholders
|
| |
|
| |
|
|
Basic:
|
| |
12,656,363
|
| |
10,726,224
|
|
Diluted:
|
| |
12,656,363
|
| |
44,385,520
|
|
(1)
|
See Note 16 for amounts attributable to related parties included in these line items.
|
The accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.
FS-46
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
|
|
| |
Series A-1 Convertible
Preferred Stock
|
| |
Series A-2 Convertible
Preferred Stock
|
| |
Common Stock
|
| |
Additional
Paid In
Capital
|
| |
Accumulated
Deficit
|
| |
Total
Stockholders’
Deficit
|
|||||||||
|
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| ||||||||
|
Balance at December 31, 2020
|
| |
5,882,350
|
| |
$4,999,998
|
| |
26,069,330
|
| |
$27,451,004
|
| |
9,674,164
|
| |
$967
|
| |
$585,503
|
| |
$(37,895,059)
|
| |
$(37,308,589)
|
|
Common stock issued
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
222,063
|
| |
22
|
| |
6,862
|
| |
—
|
| |
6,884
|
|
Stock-based compensation expense
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
5,577
|
| |
—
|
| |
5,577
|
|
Net income
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
1,343,048
|
| |
1,343,048
|
|
Balance at March 31, 2021
|
| |
5,882,350
|
| |
$4,999,998
|
| |
26,069,330
|
| |
$27,451,004
|
| |
9,896,227
|
| |
$989
|
| |
$597,942
|
| |
$(36,552,011)
|
| |
$(35,953,080)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Balance at December 31, 2021
|
| |
5,882,350
|
| |
$9,999,996
|
| |
26,069,330
|
| |
$54,902,008
|
| |
11,671,845
|
| |
$1,167
|
| |
$—
|
| |
$(70,234,956)
|
| |
$(70,233,789)
|
|
Preferred stock issued
|
| |
—
|
| |
—
|
| |
124,994
|
| |
263,737
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Common stock issued
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
1,001,822
|
| |
100
|
| |
1,414
|
| |
—
|
| |
1,514
|
|
Stock-based compensation expense
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
6,341
|
| |
—
|
| |
6,341
|
|
Net loss
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(258,029)
|
| |
(258,029)
|
|
Balance at March 31, 2022
|
| |
5,882,350
|
| |
$9,999,996
|
| |
26,194,324
|
| |
$55,165,745
|
| |
12,673,667
|
| |
$1,267
|
| |
$7,755
|
| |
$(70,492,985)
|
| |
$(70,483,963)
|
The accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.
FS-47
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
|
|
| |
Three Months Ended March 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Cash flows from operating activities:
|
| |
|
| |
|
|
Net (loss) income
|
| |
$(258,029)
|
| |
$1,343,048
|
|
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
|
| |
|
| |
|
|
Depreciation and amortization
|
| |
20,949
|
| |
31,281
|
|
Amortization of debt issuance cost
|
| |
995
|
| |
898
|
|
Stock-based compensation expense
|
| |
6,341
|
| |
5,577
|
|
Gain on warrant exercised
|
| |
(7,876)
|
| |
—
|
|
Deferred tax expense
|
| |
84,504
|
| |
—
|
|
Change in fair value of debt
|
| |
279,272
|
| |
44,458
|
|
Provision for doubtful accounts
|
| |
(97,363)
|
| |
48,799
|
|
Loss on sale of property and equipment
|
| |
—
|
| |
1,645
|
|
Changes in:
|
| |
|
| |
|
|
Accounts receivable
|
| |
(1,124,895)
|
| |
97,952
|
|
Other receivables and prepaids
|
| |
(425,874)
|
| |
(685,699)
|
|
Capitalized contract costs
|
| |
(30,013)
|
| |
252,050
|
|
Accounts payable
|
| |
184,495
|
| |
898,476
|
|
Accrued expenses and other liabilities
|
| |
(794,359)
|
| |
895,630
|
|
Deferred revenue
|
| |
(92,401)
|
| |
(2,513,791)
|
|
Net cash (used in) provided by operating activities
|
| |
(2,254,254)
|
| |
420,324
|
|
Cash flows from investing activities:
|
| |
|
| |
|
|
Purchases of property and equipment
|
| |
(35,860)
|
| |
(68,804)
|
|
Net cash used in investing activities
|
| |
(35,860)
|
| |
(68,804)
|
|
Cash flows from financing activities:
|
| |
|
| |
|
|
Proceeds from option exercise
|
| |
1,514
|
| |
6,884
|
|
Principal payments on capital lease obligations
|
| |
—
|
| |
(16,137)
|
|
Net cash provided by (used in) financing activities
|
| |
1,514
|
| |
(9,253)
|
|
Net (decrease) increase in cash and cash equivalents
|
| |
(2,288,600)
|
| |
342,267
|
|
Cash and cash equivalents beginning of period
|
| |
17,985,874
|
| |
14,742,621
|
|
Cash and cash equivalents end of period
|
| |
$15,697,274
|
| |
$15,084,888
|
|
Supplemental cash flow information:
|
| |||||
|
Cash paid during the period for:
|
| |
|
| |
|
|
Interest
|
| |
$117,153
|
| |
$123,551
|
|
Non-cash financing and investing activities:
|
| |
|
| |
|
|
Non-cash warrant exercise:
|
| |
|
| |
|
|
Increase in redeemable convertible preferred stock
|
| |
$(263,737)
|
| |
$—
|
|
Decrease in accrued expense
|
| |
$271,613
|
| |
$—
|
|
Increase in retained earnings
|
| |
$(7,876)
|
| |
$—
|
The accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.
FS-48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
|
1.
|
Organization and Description of Business
|
ID Experts Holdings, Inc. and subsidiary (the “Company”) believes it has a leading
position in the United States by revenues as a provider of data breach response services, and associated identity and privacy protection services, to both government and commercial entities. The Company's data breach solutions include
prevention, detection, forensic services, notification, and recovery assistance. The Company's membership subscriptions include credit and non-credit monitoring, prevention tools, and unlimited recovery assistance. ID Experts Holdings, Inc. was
incorporated in the State of Delaware in 2016 at which time Identity Theft Guard Solutions, Inc., the primary operating entity, became the wholly owned subsidiary of ID Experts Holdings, Inc. in 2016 during its recapitalization. The Company
serves clients throughout the United States of America and its headquarters are in Portland, Oregon.
On December 15, 2021, the Company’s board of directors approved a business combination
agreement, which was entered into as of December 17, 2021 and announced publicly on December 20, 2021. The business combination agreement details a transaction where the Company is to be merged with ZeroFox, Inc. (“ZeroFox”) and L&F
Acquisition Corp., a special purpose acquisition corporation (SPAC) and a publicly traded company. As noted in Note 2b., the transaction will be accounted for in one of two ways. In each scenario, the Company is expected to be the legal and
accounting acquiree. The transaction, which is expected to close in mid-2022, is subject to regulatory approvals and customary closing conditions.
|
2.
|
Summary of Significant Accounting Policies
|
|
a.
|
Basis of Presentation
|
The consolidated financial statements have been prepared in conformity with generally
accepted accounting principles in the United States of America (“U.S. GAAP”) set forth by the Financial Accounting Standards Board (FASB). References to U.S. GAAP issued by the FASB in these notes to the consolidated financial statements are to
the FASB Accounting Standards Codification (ASC).
|
b.
|
Emerging Growth Company Status
|
The Company is an “emerging growth company,” (“EGC”) as defined in the Jumpstart Our
Business Startups Act, (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. The Company may take advantage of these exemptions until
it is no longer an EGC under Section 107 of the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting standards. As a result of this election, the Company’s financial statements may not be
comparable to companies that comply with public company Financial Accounting Standards Board (“FASB”) standards’ effective dates.
The Company is in the process of merging with a publicly traded Special Purpose
Acquisition Company (a “SPAC”), which will be accounted for in one of two ways depending on the redemption elections of the SPAC shareholder; (1) assuming minimum redemption, the merger will be accounted for as a reverse recapitalization in
accordance with U.S. GAAP or (2) assuming maximum redemption, ZeroFox will be considered a variable interest entity and the merger will be accounted for as an acquisition by the SPAC of ZeroFox in accordance with U.S. GAAP. Refer to Note 1 for
more information regarding the transaction. If the transaction were to be consummated, the surviving company will remain an emerging growth company until the earliest of (i) the last day of the surviving company’s first fiscal year following
the fifth anniversary of the completion of the SPAC’s initial public offering, (ii) the last day of the fiscal year in which the surviving company has total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year
in which the surviving company is deemed to be a large accelerated filer, which means the market value of the surviving company’s common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th or
(iv) the date on which the surviving company’s has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
|
c.
|
Principles of Consolidation
|
The accompanying consolidated financial statements include the accounts of the Company.
All intercompany balances and transactions have been eliminated in consolidation.
FS-49
|
d.
|
Use of Estimates
|
The preparation of financial statements in conformity with U.S. GAAP requires that
management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amounts of revenues and
expenses reported during the period. Such estimates include assumptions used in the allocation of revenue, long-lived assets, liabilities, depreciable lives of assets, stock-based compensation, and deferred income taxes. Actual results could
differ from those estimates, and such differences may be material to the consolidated financial statements.
|
e.
|
Cash and Cash Equivalents
|
Cash and cash equivalents consist of business checking accounts. The Company considers
all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. The Company generally places its cash and cash equivalents with major financial institutions deemed to be of
high-credit-quality in order to limit its credit exposure. The Company maintains its cash accounts with financial institutions where, at times, deposits exceed federal insurance limits. Cash and cash equivalents are carried at cost, which, due
to their short-term nature, approximate fair value.
|
f.
|
Accounts Receivable
|
Accounts receivable are recorded at the invoiced amount and do not bear interest.
Amounts collected on accounts receivable are included in net cash provided by operating activities in the consolidated statement of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses resulting from its
accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted for current market conditions, the Company’s customers’ financial condition, any amount of receivables in dispute, and the
current receivables aging and historic payment patterns. The Company reviews its allowance for doubtful accounts at least quarterly. Accounts receivable are presented on the consolidated balance sheets net of allowance for doubtful accounts.
Receivables, net of allowance for doubtful accounts as of March 31, 2022 and
December 31, 2021 consist of the following:
|
|
| |
March 31,
2022
|
| |
December 31,
2021
|
|
Billed trade receivables
|
| |
$4,153,287
|
| |
$2,941,898
|
|
Unbilled receivables
|
| |
7,065,803
|
| |
7,054,934
|
|
Total
|
| |
$11,219,090
|
| |
$9,996,832
|
The allowance for doubtful accounts reflects the Company’s estimate of probable losses
inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence.
The following table summarizes activity for the allowance for doubtful accounts for the
three months ended March 31, 2022 and 2021:
|
|
| |
Three Months Ended
March 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Beginning balance
|
| |
$179,000
|
| |
$13,000
|
|
Additional charged to costs and expenses
|
| |
(97,363)
|
| |
49,000
|
|
Deductions(1)
|
| |
3,363
|
| |
(201)
|
|
Ending balance
|
| |
$85,000
|
| |
$61,799
|
|
(1)
|
Represents write-offs and recoveries of prior year charges.
|
|
g.
|
Fair Value Measurement
|
Fair value is defined as the price that would be received to sell an asset, or paid to
transfer a liability, including respective accrued interest balances, in an orderly transaction between market participants at the measurement
FS-50
date. The fair value hierarchy prioritizes the inputs to valuation techniques used
to measure fair value. The hierarchy requires that the Company maximize the use of observable inputs and minimize the use of unobservable inputs. The levels of the fair value hierarchy are described below:
Level 1 – Inputs are quoted prices in active markets for identical assets or
liabilities that the Company can access at the measurement date.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities or quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets and liabilities.
Refer to Note 17 “Fair Value Measurements” for additional information on how the
Company determines fair value for its assets and liabilities.
|
h.
|
Property and Equipment
|
Property and equipment are stated at the cost of acquisition, less accumulated
depreciation and amortization. Equipment under capital leases are stated at the present value of minimum lease payments and amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset.
Depreciation and amortization of property, equipment and leasehold improvements are computed using the straight-line method.
The estimated useful lives for property and equipment categories are as follows:
|
Asset Classification
|
| |
Estimated Useful Life
|
|
Office and computer equipment
|
| |
3 years
|
|
Software
|
| |
5 years
|
|
Furniture and fixtures
|
| |
7 years
|
|
Leasehold improvements
|
| |
Lesser of lease term or useful life
|
The Company periodically reviews the carrying value of its long-lived assets, including
property and equipment, for impairment whenever events or circumstances indicate that the carrying amount of such assets may not be fully recoverable. For long-lived assets to be held and used, impairments are recognized when the carrying
amount of a long-lived asset group is not recoverable and exceeds fair value. The carrying amount of a long-lived asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset group. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset group exceeds its fair value. No impairment losses were recognized for three months ended March 31, 2022 and 2021.
|
i
|
Revenue Recognition
|
In accordance with Topic 606, revenue is recognized when a customer obtains control of
promised products or services. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to receive in exchange for those products or services. To achieve the core principle of this standard, the
Company applies the following five steps:
|
a)
|
Identify Contracts with Customers
|
|
b)
|
Identify the Performance Obligations in the Contract
|
|
c)
|
Determine the Transaction Price
|
|
d)
|
Allocate the Transaction Price to Performance Obligations in the Contract
|
|
e)
|
Recognize Revenue When or As Performance Obligations are Satisfied
|
For arrangements with multiple performance obligations, the Company allocates total
consideration to each performance obligation on a relative fair value basis based on management’s estimate of stand-alone selling price (“SSP”).
FS-51
The following table illustrates the timing of the Company’s revenue recognition:
|
|
| |
Three Months Ended
March 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Breach services – point in time
|
| |
10.9%
|
| |
8.0%
|
|
Breach services – over time
|
| |
85.1%
|
| |
89.1%
|
|
Consumer membership services – over time
|
| |
4.0%
|
| |
2.9%
|
As discussed in Note 7, all revenue was recognized over time prior to the adoption of
ASC 606.
Breach Services
IDX’s breach services revenue consists of contracts with various combinations of
notification, project management, communication services, and ongoing identity protection services. Performance periods generally range from one to three years, and payment terms are generally between thirty and sixty days. Contracts generally
do not contain significant financing components. The Company’s breach services contracts are structured as either fixed or variable. In fixed contracts, a fixed total price or fixed per-impacted individual price is charged for the total
combination of services. For variable breach services contracts, the breach communications component, which includes notifications and call center, is charged at a fixed total fee, and ongoing identity protection services are charged as
incurred using a fixed price per enrollment. Fixed fees are generally billed at the time the statement of work is executed and are due upon receipt, and large contracts are typically billed 50% upfront and due upon receipt with the remaining
50% invoiced subsequently with net 30 terms. For variable breaches the charges for identity protection services are billed monthly for the prior month and are due net 30.
Consumer Membership Services
The Company provides consumer membership services through its employer groups and
strategic partners as well as directly to end-users through its retail business. Consumer membership services consist of multiple bundled identity and privacy product offerings and provide members with ongoing monitoring services. For consumer
membership services, revenue is recognized ratably over the service period. Performance periods are generally one year. Payments from employer groups and strategic partners are generally collected monthly, and payments from end-users are
collected up front.
Provisions for estimated losses on uncompleted contracts are made in the period in
which such losses are determined. No losses on uncompleted contracts were recognized for the three months ended March 31, 2022 and 2021.
Significant Judgments
Significant judgments and estimates are required under Topic 606. Due to the complexity
of certain contracts, the actual revenue recognition treatment required under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances. The Company’s contracts with customers often
include promises to transfer multiple services, including project management services, notification services, call center services, and monitoring services. Determining whether services are distinct performance obligations that should be
accounted for separately requires significant judgment.
The Company is required to estimate the total consideration expected to be received
from contracts with customers, including any variable consideration. Once the estimated transaction price is established, amounts are allocated to performance obligations on a relative SSP basis. The Company’s breach business derives revenue
from two main performance obligations: (i) notification and (ii) combined call center and monitoring services, described further in Note 7.
At contract inception, the Company assesses the products and services promised in the
contract to identify each performance obligation and evaluate whether the performance obligations are capable of being distinct and are distinct within the context of the contract. Performance obligations that are not both capable of being
distinct and distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue. Determining whether products and services are considered distinct
performance obligations requires significant judgment. In determining whether products and services are considered distinct performance obligations, the Company assesses whether the customer can benefit from the
FS-52
products and services on their own or together with other readily available
resources and whether our promise to transfer the product or service to the customer is separately identifiable from other promises in the contract.
Judgment is required to determine the SSP for each distinct performance obligation. The
Company rarely sells its individual breach services on a standalone basis, and accordingly, the Company is required to estimate the range of SSPs for each performance obligation. In instances where the SSP is not directly observable because the
Company does not sell the service separately, the Company reviews information that includes historical discounting practices, market conditions, cost-plus analysis, and other observable inputs to determine an appropriate SSP. The Company
typically has more than one SSP for individual performance obligations due to the stratification of those items by classes of customers, size of breach, and other circumstances. In these instances, the Company may use other available
information such as service inclusions or exclusions, customizations to notifications, or varying lengths of call center or monitoring services in determining the SSP.
If a group of agreements are so closely related to each other that they are, in effect,
part of a single arrangement, such agreements are deemed to be one arrangement for revenue recognition purposes. The Company exercises judgment to evaluate the relevant facts and circumstances in determining whether the separate agreements
should be accounted for separately or as, in substance, a single arrangement. The Company’s judgments about whether a group of contracts comprises a single arrangement can affect the allocation of consideration to the distinct performance
obligations, which could have an effect on results of the Company’s operations for the periods involved.
Generally, the Company has not experienced significant returns or refunds to customers.
The Company’s estimates related to revenue recognition may require significant judgment and the change in these estimates could have an effect on the Company’s results of operations during the periods involved.
Contract Balances
The timing of revenue recognition may differ from the timing of invoicing to customers
and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on the consolidated balance sheets. The Company records a contract asset when revenue is recognized prior to invoicing and records a
deferred revenue liability when revenue is expected to be recognized subsequent to invoicing. For the Company’s breach services agreements, customers are typically invoiced at the beginning of the arrangement for the entire contract. When the
breach agreement includes variable components related to as-incurred monitoring services, customers are invoiced monthly for the duration of the enrollment or call center period.
Unbilled accounts receivable, which consists of services billed one month in arrears,
was $7,065,803 and $7,054,934 as of March 31, 2022 and December 31, 2021, respectively. These unbilled amounts are included in accounts receivable as the Company has the unconditional right to receive this consideration.
Contract assets are presented as other receivables within the consolidated balance
sheets and primarily relate to the Company’s rights to consideration for work completed but not billed on service contracts. Contract assets are transferred to receivables when the Company invoices the customer. Contract liabilities are
presented as deferred revenue and relate to payments received for services that are yet to be recognized in revenue.
During the three months ended March 31 2022, the Company recognized $2,490,462 of
revenue that was included in deferred revenue at the end of the preceding year. All other deferred revenue activity is due to the timing of invoices in relation to the timing of revenue, as described above. The Company expects to recognize as
revenue approximately 69% of its March 31, 2022 deferred revenue balance in the remaining three quarters of 2022, 11% in the three months ended March 31, 2023, and the remainder thereafter.
In instances where the timing of revenue recognition differs from that of invoicing,
the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s services,
not to facilitate financing arrangements.
Government Contracts
The Company evaluates arrangements with governmental entities containing “fiscal
funding” or “termination for convenience” provisions, when such provisions are required by law, to determine the probability of possible cancellation. The Company considers multiple factors, including the history with the customer in similar
FS-53
transactions and budgeting and approval processes undertaken by the governmental
entity. If the Company determines upon execution of these arrangements that the likelihood of cancellation is remote, it then recognizes revenues for such arrangements once all relevant criteria have been met. If such a determination cannot be
made, revenues are recognized upon the earlier of cash receipt or approval of the applicable funding provision by the governmental entity for such arrangements.
|
j.
|
Contract Costs
|
The Company capitalizes costs to obtain a contract or fulfill a contract. These costs
are recorded as capitalized contract costs on the consolidated balance sheets. Costs to obtain a contract for a new customer are generally amortized on a straight-line basis over the estimated period of benefit. The Company determined the
estimated period of benefit by taking into consideration the contractual term. The Company periodically reviews the carrying amount of the capitalized contract costs to determine whether events or changes in circumstances have occurred that
could affect the period of benefit. Amortization expense associated with costs to fulfill a contract is recorded to cost of services on the Company’s consolidated statements of income, and amortization expense associated with costs to obtain a
contract (sales commissions) is recorded to sales and marketing expense.
|
b.
|
Cost of Services
|
Cost of services consists of fees to outsourced service providers for credit
monitoring, call center operation, notification mailing, insurance, and other miscellaneous services and internal labor costs. Costs incurred for breach service contracts represent fulfillment costs. These costs are deferred within capitalized
contract costs and recognized in relation to revenue recorded over the combined service and membership terms. The remainder of cost of services are expensed as incurred. Relevant depreciation and amortization are included in cost of services.
|
i.
|
Research and Development
|
Research and development expenses primarily consist of personnel costs and contractor
fees related to the bundling of other third-party software products that are offered as one combined package within the Company’s product offerings. Personnel costs include salaries, bonuses and stock-based compensation and related
employer-paid payroll taxes, as well as an allocation of our facilities, benefits, and internal IT costs. Research and development costs are expensed as incurred.
|
m.
|
Long-term Debt
|
Convertible notes and amounts borrowed under credit agreements are carried at cost, net
of debt discounts and issuance costs, as long-term debt on the consolidated balance sheets. The debt discounts and issuance costs are amortized to interest expense on the consolidated statements of income using the straight-line method over the
contractual term of the note if that method is not materially different from the effective interest rate method. Cash interest payments are due either quarterly or semi-annually in arrears and the Company accrues interest expense monthly based
on the annual coupon rate. See Note 4 for further discussion regarding our convertible notes and credit agreement.
|
n.
|
Debt Issuance Costs
|
Fees paid to lenders and service providers in connection with the origination of debt
are capitalized as debt issuance costs and presented as a direct deduction from the carrying value of the associated debt liability. As of March 31, 2022 and December 31, 2021, the debt issuance costs presented on the consolidated balance
sheets as a reduction to debt are $12,931 and $13,926, respectively.
|
o.
|
Advertising
|
Advertising costs are expensed as incurred. Advertising costs amounted to $302,289 for
the three months ended March 31, 2022 and $480,210 for the three months ended March 31, 2021.
|
p.
|
Stock-Based Compensation
|
The Company grants stock options to purchase common stock to employees with exercise
prices equal to the fair market value of the underlying stock, as determined by the Board of Directors and management. The Board of Directors, with the assistance of outside valuation experts, determine the fair value of the underlying stock by
considering several factors, including historical and projected financial results, the risks the Company faced at the time, the preferences of the Company’s debt holders and preferred stockholders, and the lack of liquidity of the Company’s
common stock.
FS-54
The fair value of each stock option award is estimated using the
Black-Scholes-Merton valuation model. Such value is recognized as expense over the requisite service period using the straight-line method, net of forfeitures as they occur.
Excess tax benefits of awards that relate to stock option exercises are reflected as
operating cash inflows. Stock-based compensation expense recognized in the Company’s consolidated financial statements for options amounted to $6,341 for the three months ended March 31, 2022 and $5,577 for the three months ended March 31,
2021.
|
q.
|
Earnings (Loss) per Share
|
Series A-1 and A-2 Preferred Stock are participating securities, due to their rights to
receive dividends. The Company calculates EPS under the two-class method which all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities. The allocation between common stock and
participating securities is based upon the rights to dividends for the two types of securities.
For periods of net income, and when the effects are not anti-dilutive, the Company
calculates diluted earnings per share by dividing net income available to common shareholders by the weighted average number of common shares plus the weighted average number of common shares assuming the conversion of the Company’s convertible
notes, as well as the impact of all potential dilutive common shares, consisting primarily of common stock options using the treasury stock method. For periods of net loss, shares used in the diluted earnings (loss) per share calculation
represent basic shares as using potentially dilutive shares would be anti-dilutive.
|
r.
|
Concentrations of Credit Risk
|
Financial instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash balances and trade accounts receivable. The Company maintains cash balances at two financial institutions. The balances, at times, exceed federally insured limits. As of March 31, 2022, balances exceeded
federally insured limits by $15,677,654. The Company has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk from cash. Concentrations of credit with respect to accounts receivables are
generally limited due to the large number of customers, outside the U.S. Government, comprising the Company's customer base and their dispersion across different industries.
The Company generated 75% and 81% of its revenue in for the three months ended
March 31, 2022 and 2021, respectively, from the U.S. Government, who generally pays invoices in less than thirty days and is deemed to be a low credit risk. On March 31, 2022 and December 31, 2021, accounts receivables from the U.S. Government
made up 62% and 69% of the Company’s outstanding accounts receivables, respectively.
|
s.
|
Income Taxes
|
The Company provides for income taxes using the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax effect of differences between recorded assets and liabilities and their respective tax basis along with operating loss 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 reverse. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period the rate change becomes effective. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained in the event of a tax audit. Recognized income
tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related
to unrecognized tax benefits in income tax expense. $105,196 and $84,194 in penalties and interest have been accrued to expense as of March 31, 2022 and December 31, 2021, respectively, and are discussed further in Note 11.
Deferred tax assets are reduced by a valuation allowance when, in management’s opinion,
it is more likely than not that some portion or all the deferred tax assets will not be realized. The Company considers the future reversal of existing taxable temporary differences, taxable income in prior carryback years, projected future
taxable income, and tax planning strategies in making this assessment. The Company’s valuation allowance is based on all available positive and negative evidence, including its recent financial operations, evaluation of positive and negative
evidence with respect to certain specific deferred tax assets including evaluating sources of future taxable income to support the realization of the deferred tax assets.
FS-55
The Company's income tax returns are generally subject to examination by taxing
authorities for a period of three years from the date they are filed. Tax authorities may have the ability to review and adjust net operating loss or tax credit carryforwards that were generated prior to these periods if utilized in an open tax
year. As of March 31, 2022, the Company’s income tax returns for the years ended December 31, 2016 through 2021 are subject to examination by the Internal Revenue Service and applicable state and local taxing authorities.
|
t.
|
Sales and Use Taxes
|
The Company collects sales tax in various jurisdictions. Upon collection from
customers, it records the amount as a payable to the related jurisdiction. On a periodic basis, it files a sales tax return with the jurisdictions and remits the amounts indicated on the return.
|
u.
|
Segment Reporting
|
Operating segments are identified as components of an enterprise for which separate
discrete financial information is available for evaluation by the chief operating decision maker, the chief executive officer, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views
its operations and manages its business as one operating segment. All revenue has been generated in the United States, and all assets are held in the United States.
|
v.
|
Deferred Rent and Lease Incentives
|
Rent expense and lease incentives from the Company’s operating lease are recognized on
a straight-line basis over the lease term. The Company’s operating lease includes rent escalation payment terms and a rent-free period. Deferred rent represents the difference between actual operating lease payments and straight-line rent
expense over the term of the lease.
|
w.
|
Standards Issued and Adopted
|
In May 2021, the FASB issued ASU 2021-04, Earnings
per Share (“Topic 260”), Debt – Modifications and Extinguishments (“Subtopic 470-50”), Compensation – Stock Compensation (“Topic 718”), and Derivatives and Hedging – Contracts in Entity’s Own Equity (“Subtopic 815-40”). ASU 2021-04 clarifies the accounting by issuers for modifications or exchanges of equity-classified warrants and is effective
for fiscal years starting after December 15, 2021. The Company adopted the standard prospectively as of January 1, 2022, with no impact on the financial statements.
|
x.
|
Standards Issued but Not Yet Effective
|
In February 2016, the FASB issued ASU 2016-02, Leases
(“Topic 842”) aimed at making leasing activities more transparent and comparable. The new standard requires substantially all leases be recognized by lessees on their consolidated balance sheet as a right-of-use asset and a corresponding lease
liability, including leases currently classified as operating leases. Initially, ASU 2016-02 was effective for fiscal years beginning after December 15, 2019. In October 2019, the FASB decided to extend the implementation date for private
companies to be effective for annual periods beginning after December 15, 2020. However, in May 2020, the FASB decided to provide an additional one-year deferral of the mandatory effective date of the new lease standard for all private
companies. As a result, the Company’s effective date for ASU 2016-02 was deferred to accounting periods beginning after December 15, 2021. The Company will adopt this guidance for the annual period ended December 31, 2022. The Company is
currently evaluating the impact of ASU 2016-02.
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequently issued additional guidance that modified ASU 2016-13. The standard requires an entity to change its accounting approach for
measuring and recognizing credit losses on certain financial assets measured at amortized cost, including trade receivables, certain non-trade receivables, customer advances and certain off-balance sheet credit exposures, by replacing the
existing “incurred loss” framework with an expected credit loss recognition model. The new standard results in earlier recognition of credit losses based on past events, current conditions, and reasonable and supportable forecasts. FASB pushed
back the effective date of CECL from January 2021 to January 2023 for smaller reporting companies as defined
FS-56
by Securities Exchange from January 2022 to January 2023 for nonpublic companies.
The standard is effective for entities with fiscal years beginning after December 15, 2022, including interim periods within such fiscal years. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial
statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Simplifying
the Accounting for Income Taxes (“Topic 740”), the amendments which remove certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. The ASU
also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The amendments are effective for annual periods beginning after
December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. The Company is currently evaluating the impact of ASU 2019-12 on its consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU No. 2020-06, Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity (“Topics: 470-20, 815-40”). The standards reduce the number of accounting models for convertible instruments and allows more contracts to qualify for equity
classification. The standard also amends diluted EPS calculations for convertible instruments and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity’s own shares to be classified in equity.
The standard is effective for entities with fiscal years beginning after December 15, 2023, and early adoption is permitted. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements and related
disclosures.
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”). ASU 2020-06
simplifies the accounting for convertible instruments by eliminating large sections of the existing guidance in this area. It also eliminates several triggers for derivative accounting, including a requirement to settle certain contracts by
delivering registered shares. The amendments are effective for fiscal years beginning after December 15, 2023, and early adoption is permitted. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial
statements and related disclosures.
|
3.
|
Property and Equipment
|
Property and equipment, net consisted of the following amounts on March 31, 2022 and
December 31, 2021:
|
|
| |
March 31,
2022
|
| |
December 31,
2021
|
|
Furniture and office equipment
|
| |
$602,412
|
| |
$602,412
|
|
Computer equipment and software
|
| |
527,713
|
| |
521,173
|
|
Leasehold improvements
|
| |
69,116
|
| |
73,174
|
|
Total property and equipment
|
| |
1,199,241
|
| |
1,196,759
|
|
Less accumulated depreciation and amortization
|
| |
(1,057,435)
|
| |
(1,069,862)
|
|
Total property and equipment, net
|
| |
$141,806
|
| |
$126,897
|
Depreciation and amortization expense recorded related to property and equipment was
$20,949 for the three months ended March 31, 2022 and $31,281 for the three months ended March 31, 2021.
|
4.
|
Long-term Debt
|
The below table presents details of the Company’s debt on March 31, 2022 and
December 31, 2021:
|
|
| |
March 31,
2022
|
| |
December 31,
2021
|
|
Current maturity term loan
|
| |
$2,500,000
|
| |
$1,666,667
|
|
Total
|
| |
$2,500,000
|
| |
$1,666,667
|
|
|
| |
|
| |
|
|
Long-term debt
|
| |
|
| |
|
|
Term loan, net of debt issuance costs
|
| |
$ 7,487,069
|
| |
$ 8,319,407
|
|
Total long-term debt
|
| |
$ 9,987,069
|
| |
$
9,986,074
|
FS-57
The future contractual maturities for the long-term debt subsequent to March 31,
2022 are summarized as follows:
|
|
| |
Future Payments
|
|
2022 (Remaining quarters)
|
| |
$1,666,667
|
|
2023
|
| |
3,333,333
|
|
2024
|
| |
3,333,333
|
|
2025
|
| |
1,666,667
|
|
Total
|
| |
$
10,000,000
|
|
Less net debt issuance costs
|
| |
(12,931)
|
|
Total long-term debt
|
| |
$9,987,069
|
Term Loan
On December 29, 2020, the Company executed the amended and restated loan and security
agreement. This resulted in the extinguishment of the original “Term Loan” and established a new Term Loan of $10,000,000. The new Term Loan matures June 1, 2025 and bears interest at the prime referenced rate plus 1.5%, which was 5.0% as of
March 31, 2022. Monthly principal payments begin on July 1, 2022. The Company will make interest-only payments monthly beginning on February 1, 2021. The loan is subject to certain standardized financial covenants, and the carrying value of the
Term Loan approximates its fair value. The Company was in compliance with its debt covenants as of March 31, 2022.
|
5.
|
Convertible Debt Loan
|
In December 2018, the Company entered into a convertible debt loan with several of its
existing investors for $1,409,498. The convertible debt loan matures on December 20, 2022 and bears 12% interest, paid at maturity. The related party lenders have the option to convert the note in conjunction with a qualified financing at 80%
of the share price paid by other investors. The related party lenders receive 150% of the outstanding value of notes and accrued interest in conjunction with a sale of the Company. The Company, with consent from the related party lenders, may
prepay the convertible debt loan without penalty. The convertible debt loan is a general, unsecured obligation of the Company.
The Company has elected to fair value the convertible debt loan. At the end of each
period, the Company calculates the fair value of the convertible debt and any changes are recorded within other expense in the consolidated financial statements. There has been no change in fair value from a change in credit quality. For the
three months ended March 31, 2022 and 2021, the Company recorded changes in fair value of $279,272 and $44,458, respectively. See Note 17 for additional information over fair value measuring.
|
6.
|
Warrants
|
The following table summarizes activity for the Company’s preferred and common stock
warrants for the three months ended March 31, 2022 and 2021:
|
|
| |
Three Months Ended March 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Preferred Stock Warrants
|
| |
|
| |
|
|
Beginning balance
|
| |
125,000
|
| |
125,000
|
|
Warrants exercised
|
| |
(124,994)
|
| |
—
|
|
Warrants used for net exercise
|
| |
(6)
|
| |
—
|
|
Ending balance
|
| |
—
|
| |
125,000
|
|
|
| |
|
| |
|
|
Common Stock Warrants
|
| |
|
| |
|
|
Beginning balance
|
| |
1,280,506
|
| |
1,280,506
|
|
Warrants exercised
|
| |
(980,460)
|
| |
—
|
|
Warrants used for net exercise
|
| |
(46)
|
| |
—
|
|
Ending balance
|
| |
300,000
|
| |
1,280,506
|
FS-58
Preferred Stock Warrants
In connection with a Related Party Term Loan modification, dated December 18, 2018, the
Company has issued 125,000 preferred stock warrants with an exercise price of $0.0001.
The Company calculates the fair value of the vested Series A-2 preferred stock warrant
at the end of each reporting period. For the three months ended March 31, 2022 and 2021 the Company recorded a change in fair value of the preferred stock warrant of $0 and $0, respectively. The change in fair value is presented in change in
fair value of warrant liabilities in the consolidated statements of income
On February 14, 2022, the Related Party exercised their preferred stock warrants,
reducing the warrant liability included within accrued expenses on the consolidated balance sheets. The non-cash exercise resulted in an increase of 124,994 A-2 preferred stock shares, which are presented as redeemable convertible preferred
stock on the consolidated balance sheets.
Common Stock Warrants
In February 2015, the Company issued 300,000 common stock warrants at a strike price of
$0.60 to a client/vendor. The common stock warrants are exercisable upon a Liquidation Event as defined in the agreement as the first occurrence of any sale of the Company’s assets, a merger, or a firm underwritten public offering of common
stock. The warrant expires on February 10, 2025. The Company calculates the fair value of the vested common stock warrant at the end of each reporting period. For the three months ended March 31, 2022 and 2021, the Company recorded a change in
fair value of the common stock warrant of $0 and $0, respectively. The change in fair value is presented in change in fair value of warrant liabilities in the consolidated statements of income, and the common stock warrant is included in
accrued expenses on the consolidated balance sheets.
In connection with a Related Party Term Loan, dated August 2, 2016, the Company has
issued 980,506 common stock warrants with an exercise price of $0.0001. The value of these common stock warrants was initially recorded as a reduction of the face value of debt on issuance with an offset to additional paid in capital. The
warrant's value is recorded to interest expense using the effective interest method over the life of the debt. These common stock warrants were fully expensed as of December 31, 2020.
On February 14, 2022, the Related Party exercised their common stock warrants, reducing
the warrant liability included within accrued expenses on the consolidated balance sheets. The non-cash exercise resulted in an increase of 980,460 common stock shares.
|
7.
|
Revenue from Contracts with Customers
|
ASC 606
Performance Obligations
The Company’s primary performance obligations under breach services contracts are
notification services and combined call center and monitoring services. These were determined by reviewing all of the services provided within the Company’s contracts and establishing whether each service is capable of being distinct and
capable of being distinct within the context of the contract. With each performance obligation, the customer can benefit from the service either on its own or together with other resources readily available and it is separately identifiable
from other promises in the contract.
The following table summarizes breach revenue from contracts with customers for the
years ended March 31, 2022 and 2021:
|
|
| |
Three Months Ended March 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Notification services
|
| |
$2,985,152
|
| |
$2,148,876
|
|
Call center and monitoring services
|
| |
23,382,237
|
| |
24,013,137
|
|
Total breach services
|
| |
$
26,367,389
|
| |
$
26,162,013
|
|
-
|
Notification Services - The Company’s notification and mailing services include project management, postage, and setup
costs to develop notification templates that will be printed and mailed to the customer’s impacted population. These notifications are typically printed by the Company’s third-party
|
FS-59
printers and mailed via USPS. Occasionally, these notifications are emailed. The
Company recognizes revenue for notification services upfront upon the date that the notifications are mailed, which typically coincides with the call center start date. The Company is deemed to be the principal in these transactions as it is
primarily responsible for fulfilling the obligation, has full discretion in price setting, and controls the notification services before the resulting notifications are transferred to the customer or consumer.
|
-
|
Call Center and Monitoring Services - Call center services consist of fees charged to setup an incident-specific call
center and website for the customer’s impacted, notified population. The call center component of the Company’s services serves as a facilitation of its monitoring services and revenue is recognized ratably over the term of the
arrangement, which typically lasts for 15 months total (3 months for the call center/enrollment period plus 12 months of monitoring services). Monitoring services consist of fees charged to continually monitor individuals’ credit and
identity. Additional services are bundled with monitoring services such as non-credit reporting, alerts, and insurance. For fixed contracts, these services are typically invoiced upfront, and for variable contracts, the Call Center
services are invoiced upfront along with the Notification Services, with Monitoring services being invoiced monthly, as incurred over the enrollment period. The Company notes that the timing and contents of billing can vary based on
individual contract, and this usually only occurs with much larger breach deals.
|
Consumer Membership Services
For the three months ended March 31, 2022 and 2021, revenue from consumer membership
services was 4.0% and 2.9% of total revenue, respectively. For the three months ended March 31, 2022 and 2021, no single consumer membership services customer exceeded 10% of total revenue.
Timing of Revenue Recognition
As a result of the adoption of the new revenue recognition guidance, the timing of
recognition of certain performance obligations has changed. For example, most breach services contracts contain distinct performance obligations and now have a portion of revenue recognized up front, whereas these arrangements were previously
recognized over time. In addition, allocating the transaction price on a relative SSP basis under the new guidance has generally resulted in an acceleration of revenue of point-in-time performance obligations.
Contract Costs
During the three months ended March 31, 2022 and 2021, the Company recognized
$2,640,520, and $2,236,774, respectively, of amortization expense of capitalized contract costs. Contract costs include fulfillment costs and costs to obtain contracts. There were no impairment losses recognized for the three months ended
March 31, 2022 and 2021.
Remaining Performance Obligations
Remaining performance obligations represent contracted revenue that has not been
recognized, which include contract liabilities and amounts that will be billed and recognized as revenue in future periods. As of March 31, 2022, the Company had $30,247,408 of remaining performance obligations. The approximate percentages
expected to be recognized as revenue in the future are as follows:
|
|
| |
Total
Remaining
Performance
Obligations
|
| |
0 - 12
Months
|
| |
13 - 24
Months
|
| |
Over 24
Months
|
|
Breach services
|
| |
$ 29,656,472
|
| |
94%
|
| |
4%
|
| |
2%
|
|
Consumer membership services
|
| |
590,936
|
| |
100%
|
| |
—
|
| |
—
|
|
Total
|
| |
$
30,247,408
|
| |
94%
|
| |
4%
|
| |
2%
|
|
8.
|
Leases
|
The Company has two leases related to office equipment and one lease related to office
space. The two office equipment leases and the office space lease are operating leases. The Company’s operating leases have varying maturity dates through the year ending 2025.
FS-60
Rental payments under operating leases are recognized on a straight-line basis over
the term of the lease including any periods of free rent. The Company’s rental expenses for the three months ended March 31, 2022 and 2021 were $100,504 and $97,764, respectively.
Future minimum lease payments under noncancelable operating leases (with initial or
remaining lease terms in excess of one year) as of March 31, 2022 are:
|
|
| |
Operating
Leases
|
|
Years Ending December 31:
|
| |
|
|
2022 (remaining quarters)
|
| |
$ 398,850
|
|
2023
|
| |
149,363
|
|
2024
|
| |
47,856
|
|
Total minimum lease payments
|
| |
$ 596,069
|
|
9.
|
Redeemable Convertible Preferred Stock
|
(a) Series A-1 Redeemable Convertible Preferred Stock
On July 29, 2016, the Company’s board of directors approved the issuance of up to
6,000,000 shares of Series A-1 preferred stock, par value $0.0001. The original issuance price of the Series A-1 preferred stock was $0.85. Series A-1 preferred stock is recorded at the maximum redemption value per the agreement in redeemable
convertible preferred stock on the consolidated balance sheets.
Dividends
If a dividend is declared on common stock, the stockholders of Series A-1 preferred
stock are entitled to receive an amount equal to the dividend they would receive if the shares were converted to common stock. If a dividend is declared on a class of shares that is not convertible to common stock, the convertible preferred
stockholders receive an amount determined by (A) dividing the amount of the dividend payable on each class of stock by the original price of such class and (B) multiplying the faction by the original issue price of the convertible preferred
stock. The convertible preferred stockholders must receive their pro-rata dividends before or concurrent with any dividend payable to common stockholders. No dividends have been approved or declared by the board of directors related to the
Company’s Series A-1 preferred stock.
Liquidation
In a liquidation event, excluding a public offering, stockholders of the Series A-1
preferred stock shall receive any declared and unpaid dividends, plus the higher of a liquidation preference of $0.85 per share, or the value the stockholders would receive if shares were converted to common stock and Series B preferred stock.
Redemption
The Series A-1 preferred stock is redeemable at the option of the stockholders seven
years after original issuance, which is outside of the Company’s control, and therefore, is classified as temporary equity in the consolidated balance sheets. The redemption price is the higher of the fair market value of the shares upon
conversion to common stock or the original issuance price plus any declared and unpaid dividends. The fair market value of the shares shall not exceed any amount which is greater than two times (2x) the original issue price.
Conversion
Stockholders may convert their preferred shares into an equal quantity of common stock
and Series B preferred stock at their election. In the event of a Qualified IPO, which is defined in the Company’s amended and restated certificate of incorporation as upon the closing of the sale of shares of common stock to the public at a
price of $2.6325 per share, resulting in at least $50,000,000 in gross proceeds, the Series A-1 preferred stock automatically convert to common stock and Series B preferred stock.
Voting
Stockholders of Series A-1 preferred stock are entitled to cast the number of votes
equal to the number of whole shares of common stock their preferred shares would convert into as of the record date.
FS-61
(b) Series A-2 Redeemable Convertible Preferred Stock
On July 29, 2016, the Company’s board of directors approved the issuance of up to
27,000,000 of Series A-2 preferred stock, par value $0.0001. The original issuance price of the Series A-2 preferred stock was $1.053. Series A-2 preferred stock is recorded at the maximum redemption value per the agreement in redeemable
convertible preferred stock on the consolidated balance sheets.
Dividends
If a dividend is declared on common stock, the stockholders of Series A-2 preferred
stock are entitled to receive an amount equal to the dividend they would receive if the shares were converted to common stock. If a dividend is declared on a class of shares that is not convertible to common stock, the convertible preferred
stockholders receive an amount determined by (A) dividing the amount of the dividend payable on each class of share by the original price of such class and (B) multiplying the faction by the original issue price of the convertible preferred
stock. The convertible preferred stockholders must receive their pro-rata dividends before or concurrent with any dividend payable to the common stockholders. No dividends have been approved or declared by board of directors related to the
Company’s convertible Preferred A-2 stock.
Liquidation
In a liquidation event, excluding a public offering, the stockholders of the Series A-2
preferred stock shall receive any declared and unpaid dividends, plus the higher of a liquidation preference of $1.053 per share, or the value the stockholders would receive if shares were converted to common stock and Series B preferred stock.
Redemption
The Series A-2 preferred stock is redeemable at the option of the stockholders seven
years after original issuance, which is outside of the Company’s control, and therefore, is classified as temporary equity in the consolidated balance sheets. The redemption price is the higher of the fair market value of the shares upon
conversion to common stock or the original issuance price plus any declared and unpaid dividends. The fair market value of the shares shall not exceed any amount which is greater than two times (2x) the original issue price.
Conversion
Stockholders may convert their preferred shares into an equal quantity of common stock
and Series B preferred stock at their election. In the event of a Qualified IPO, which is defined in the Company’s amended and restated certificate of incorporation as upon the closing of the sale of shares of common stock to the public at a
price of $2.6325 per share, resulting in at least $50,000,000 in gross proceeds, the Series A-2 preferred stock automatically convert to common and Series B preferred stock.
Voting
Holders of Series A-2 preferred stock are entitled to cast the number of votes equal to
the number of whole shares of common stock their preferred shares would convert into as of the record date.
|
10.
|
Stockholders’ Deficit
|
(a) Series B Preferred Stock
On July 29, 2016, the Company’s board of directors approved the issuance of up to
33,000,000 shares of Series B preferred stock with a par value of $0.0001. Stockholders of Series B preferred stock are not entitled to vote and do not have preferential dividend rights.
In the event of a liquidation event, excluding a public offering, Stockholders of
Series B preferred stock receive, following all preferential distributions made to Series A-1 preferred stock and Series A-2 preferred stock, any declared and unpaid dividends, and a liquidation preference of $0.361 per share. As of March 31,
2022 and 2021, no Series B preferred stock was outstanding.
FS-62
(b) Common Stock
As of March 31, 2022 and 2021, the Company had authorized 53,000,000 shares of common
stock with a par value of $0.0001. Stockholders of common stock are entitled to one vote per share, to receive dividends, if and when declared by the board of directors, and upon liquidation or dissolution, receive a portion of the assets
available for distributions to stockholders, subject to preferential amounts owed to stockholders of the Company’s preferred stock.
Common stockholders have no preemptive or other subscription rights and there are no
redemption or sinking fund provisions with respect to such shares. Common stock is subordinate to preferred stock with respect to dividend rights and rights upon liquidation, winding up, and dissolution of the Company.
No dividends have been approved or declared by board of directors related to the
Company’s common stock.
|
11.
|
Income Taxes
|
The income before income taxes is solely from domestic sources.
The provision for income taxes for the three months ended March 31, 2022 and 2021 are
as follows:
|
|
| |
Three Months Ended March 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Income tax (benefit) expense from continuing operations
|
| |
$(93,774)
|
| |
$544,976
|
|
(Loss) income from continuing operations before income taxes
|
| |
$
(351,803)
|
| |
$ 1,888,024
|
|
Effective income tax rate
|
| |
26.7%
|
| |
28.9%
|
The effective tax rate for the three months ended March 31, 2022 differs from the
statutory rate due to
non-deductible expenses and the impact of state taxes.
The effective tax rate for the three months ended March 31, 2021 differs from the
statutory rate due to non-deductible expenses, the impact of state taxes, and the benefit of research credits.
The ending balance for the unrecognized tax benefits for uncertain tax positions was
approximately $759,727 at March 31, 2022 and $680,958 as of December 31, 2021. $105,196 and $84, 194 in penalties and interest have been accrued to expense as of March 31, 2022 and December 31, 2021, respectively. The uncertain tax positions
that are reasonably possible to decrease in the next twelve months are insignificant.
As of March 31, 2022, the Company is not currently under examination by tax
authorities.
|
12.
|
Accrued Expenses
|
The Company accrues expenses related to payroll, taxes, rent, and other expenses within
accrued expenses. The table below provides detail of the accrued expenses as of:
|
|
| |
March 31,
2022
|
| |
December 31,
2021
|
|
Accrued payroll, bonus, and employee benefits
|
| |
$ 1,358,597
|
| |
$ 2,098,907
|
|
Accrued warrant liability
|
| |
1,717,865
|
| |
1,989,478
|
|
Accrued sales taxes payable
|
| |
1,520,096
|
| |
1,368,157
|
|
Other accrued expenses
|
| |
881,785
|
| |
1,009,846
|
|
Deferred rent
|
| |
35,783
|
| |
44,962
|
|
Accrued taxes payable
|
| |
16,314
|
| |
95,157
|
|
Accrued expenses
|
| |
$ 5,530,440
|
| |
$
6,606,507
|
|
13.
|
Retirement Plan
|
The Company maintains a defined contribution 401(k) plan, whereby employees meeting
certain requirements are eligible to participate. Eligible participants may contribute a portion of their compensation to the plan. The Company may make matching contributions in a percentage set by the Company each plan year. Discretionary
contributions may be made at the option of the Company. The Company contributed $123,745 for the three months ended March 31, 2022 and $66,795 for the three months ended March 31, 2021.
FS-63
|
14.
|
Stock Incentive Plan
|
In August 2016, the Company adopted the 2016 Equity Incentive Plan (the “2016 Plan”) in
which incentive equity awards were authorized to be issued to key employees, officers, directors, and consultants of the Company. Under the terms of the 2016 Plan a maximum of 6,287,732 shares of common stock are available for issuance. The
Company may grant shares of common stock in the form of incentive stock options, nonqualified stock options, restricted stock grants, non-restricted stock grants or restricted stock units. Options granted under the 2016 Plan have a term of ten
years and vest over a period of up to 48 months, subject to modification by the Board of Directors. The exercise price of the options may not be granted at a price less than 100% of the fair value of the common stock on the date of grant. In
August 2017, the Company terminated the 2016 Plan and all shares available for issuance were rolled into the 2017 Plan. As of March 31, 2022, there were 275,000 awards outstanding and no shares available for issuance under the 2016 Plan.
In August 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan”) in
which incentive equity awards were authorized to be issued to key employees, officers, directors, and consultants of the Company. Under the terms of the 2017 Plan a maximum of 8,785,330 shares of common stock are available for issuance and
future cancellations and forfeitures from the 2016 Plan role into the available pool automatically. The Company may grant shares of common stock in the form of incentive stock options, nonqualified stock options, restricted stock grants,
non-restricted stock grants or restricted stock units. Options granted under the 2017 Plan have a term of ten years and vest over a period of up to 60 months, subject to modification by the Board of Directors. The exercise price of the options
may not be granted at a price less than 100% of the fair value of the common stock on the date of grant. As of March 31, 2022, there were 2,557,634 awards outstanding and 296,429 shares available for issuance under the 2017 Plan.
Stock based compensation expense of $6,341 and $5,577 for stock options was recorded in
general and administrative expenses in the accompanying consolidated statement of income for the three months ending March 31, 2022 and 2021, respectively. At March 31 2022, there was $82,919 of total compensation expense related to stock-based
awards granted under the plans that will be recognized from the remaining quarters in 2022 through 2026. The compensation expense of $82,919 is expected to be recognized over a weighted average period of 3.34 years.
The grant-date fair value of each option award is estimated on the date of grant using
the Black-Scholes-Merton option pricing model. The weighted average grant date fair value of options granted during the three months ended March 31, 2022 and 2021 was $0.05 and $0.03, respectively. The Company uses a simplified method to
estimate the expected term of the options. The Company utilizes a divided yield rate of 0% as it does not expect to issue dividends. Since the Company’s shares are not publicly traded, expected volatility is estimated based on the average
historical volatility of similar entities with publicly traded shares. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant. The weighted average assumptions for the three months
ended March 31, 2022 and 2021 grants are as follows:
|
|
| |
Three Months Ended March 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Valuation assumptions:
|
| |
|
| |
|
|
Expected dividend yield
|
| |
0%
|
| |
0%
|
|
Expected volatility
|
| |
33%
|
| |
36%
|
|
Expected term (years)
|
| |
7.0
|
| |
7.0
|
|
Risk free interest rate
|
| |
1.94%
|
| |
0.43%
|
FS-64
Stock option activity during for the three months ended March 31, 2022 is as
follows:
|
|
| |
Number
of Shares
|
| |
Weighted
Average
Exercise
Price
|
| |
Weighted
Average
Remaining
Contractual
Term
|
| |
Intrinsic
Value
|
|
Balance at December 31, 2021
|
| |
2,843,372
|
| |
$ 0.14
|
| |
7.3
|
| |
5,767,781
|
|
Granted
|
| |
52,500
|
| |
2.17
|
| |
|
| |
|
|
Exercised
|
| |
(21,362)
|
| |
0.05
|
| |
|
| |
|
|
Forfeited
|
| |
(41,876)
|
| |
0.41
|
| | | | ||
|
Balance at March 31, 2022
|
| |
2,832,634
|
| |
$ 0.15
|
| |
7.1
|
| |
7,020,785
|
|
Exercisable as of March 31, 2022
|
| |
1,634,431
|
| |
$ 0.16
|
| |
6.1
|
| |
3,994,826
|
The weighted average grant date fair value of options exercised during the three months
ended March 31, 2022 and 2021 was $2.17 and $0.07, respectively. The intrinsic value of options exercised during the three months ended March 31, 2022 and 2021 was $61,514 and $8,216, respectively. The fair value of shares vested during the
three months ended March 31, 2022 and 2021 was $470,701 and $42,812, respectively.
|
15.
|
Earnings per Share
|
Earnings Per Share (“EPS”) is calculated under the two-class method under which all
earnings (distributed and undistributed) are allocated to each class of common stock and participating securities based on their respective rights to receive dividends. Series A-1 and A-2 Preferred Stock are entitled to receive nonforfeitable
dividends equivalent to the dividends paid to the holders of Common Stock; the preferred shares meet the definition of participating securities. The following tables present the calculations of basic and diluted EPS for the three months ended
March 31, 2022 and 2021.
|
|
| |
March 31, 2022
|
|
Basic and Diluted Earnings per Share
|
| |
|
|
Net loss applicable to common equity
|
| |
$(258,029)
|
|
Less: undistributed earnings allocated to participating securities
|
| |
—
|
|
Net loss applicable to common stockholders
|
| |
(258,029)
|
|
|
| |
|
|
Total weighted-average basic shares outstanding
|
| |
12,656,363
|
|
Net loss per share, basic and diluted
|
| |
$(0.02)
|
Certain classifications of equity awards were excluded from the computation of dilutive
EPS because inclusion of these awards would have had an anti-dilutive effect. The following table reflects the awards excluded:
|
Employee stock options
|
| |
2,469,594
|
|
Conversion of preferred shares
|
| |
32,139,180
|
The following table presents the calculation of basic and diluted EPS for the three
months ended March 31, 2021.
|
|
| |
March 31, 2021
|
|
Basic Earnings per Share
|
| |
|
|
Net income applicable to common equity
|
| |
$1,343,048
|
|
Less: undistributed earnings allocated to participating securities
|
| |
(1,006,486)
|
|
Net income applicable to common stockholders
|
| |
336,562
|
|
|
| |
|
|
Total weighted-average common shares outstanding
|
| |
9,745,718
|
|
Total weighted average warrant common shares added to basic EPS
|
| |
980,506
|
|
Total weighted-average basic shares outstanding
|
| |
10,726,224
|
|
Net income per share
|
| |
$0.03
|
FS-65
|
|
| |
March 31, 2021
|
|
Diluted Earnings per Share
|
| |
|
|
Net income applicable to common equity
|
| |
$336,562
|
|
Add: undistributed earnings allocated to participating securities
|
| |
1,006,486
|
|
Diluted net income applicable to common stockholders
|
| |
1,343,048
|
|
|
| |
|
|
Total weighted-average basic shares outstanding
|
| |
10,726,224
|
|
Add: employee stock options
|
| |
1,582,616
|
|
Add: conversion of preferred shares
|
| |
32,076,680
|
|
Total weighted-average diluted shares outstanding
|
| |
44,385,520
|
|
Net income per share
|
| |
$0.03
|
|
16.
|
Related Party Transactions
|
As discussed further in Note 5, the Company has a convertible debt loan due to several
stockholders. The Company did not pay any loan fees or interest on the convertible debt loan to its stockholders for the three months ended March 31, 2022 and 2021.
Additionally, the Company recognized $258,821 and $434,464 in revenue from contracts
with affiliates of minority stockholders and recognized $63,199 and $100,719 in expense from contracts with affiliates of majority stockholders during the three months ended March 31, 2022 and 2021, respectively. For the three months ended
March 31, 2022, expense of $62,500 was recorded in cost of services and $699 was recorded in sales and marketing in the consolidated statements of income. For the three months ended March 31, 2021, expense of $100,000 was recorded in cost of
services and $719 was recorded in sales and marketing in the consolidated statements of income.
|
17.
|
Fair Value Measurements
|
The Company used the following methods and significant assumptions to estimate fair
value for certain liabilities measured and carried at fair value on a recurring basis:
Convertible debt – The fair value is calculated taking into consideration the original
term to maturity, weighing the possible outcomes and the current yield for similar debt. The present value of future cash flows is then calculated utilizing market-based discount rate assumptions.
|
|
| |
As of March 31, 2022
|
||||||
|
|
| |
Level 1
|
| |
Level 2
|
| |
Level 3
|
|
Assets
|
| |
|
| |
|
| |
|
|
Cash and cash equivalents
|
| |
$15,697,274
|
| |
$ —
|
| |
$—
|
|
Total fair value of assetsmeasured on a recurring basis
|
| |
$15,697,274
|
| |
$ —
|
| |
$—
|
|
Liabilities
|
| |
|
| |
|
| |
|
|
Warrant liability
|
| |
$—
|
| |
$ —
|
| |
$ 1,717,865
|
|
Convertible debt
|
| |
$—
|
| |
$ —
|
| |
$ 2,724,196
|
|
Total fair value of liabilities measured on a recurring basis
|
| |
$—
|
| |
$ —
|
| |
$
4,442,061
|
|
|
| |
As of December 31, 2021
|
||||||
|
|
| |
Level 1
|
| |
Level 2
|
| |
Level 3
|
|
Assets
|
| |
|
| |
|
| |
|
|
Cash and cash equivalents
|
| |
$17,985,874
|
| |
$ —
|
| |
$—
|
|
Total fair value of assetsmeasured on a recurring basis
|
| |
$17,985,874
|
| |
$ —
|
| |
$—
|
|
Liabilities
|
| |
|
| |
|
| |
|
|
Warrant liability
|
| |
$—
|
| |
$ —
|
| |
$ 1,989,478
|
|
Convertible debt
|
| |
$—
|
| |
$ —
|
| |
$ 2,444,924
|
|
Total fair value of liabilities measured on a recurring basis
|
| |
$—
|
| |
$ —
|
| |
$
4,434,402
|
FS-66
The following table presents additional information about financial assets measured
at fair value recurring basis for which the Company used significant unobservable inputs (Level 3):
|
|
| |
Convertible Debt
Three Months Ended
March 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Balance, beginning of period
|
| |
$ 2,444,924
|
| |
$ 1,732,686
|
|
Loss from change in fair value
|
| |
279,272
|
| |
44,458
|
|
Balance, end of period
|
| |
$ 2,724,196
|
| |
$ 1,777,144
|
The convertible debt was valued using the fair value option and is a level 3 measured
instrument. See Note 5 Convertible Debt Loan for further information. The Company elected to use the fair value option. The fair value was determined based upon a scenario-based approach that considers the provisions of the convertible debt.
The following table outlines the significant unobservable inputs as of March 31, 2022 and December 31, 2021:
|
|
| |
Assumptions
|
|||
|
Unobservable input
|
| |
March 31,
2022
|
| |
December 31,
2021
|
|
Probabilities of conversion provisions
|
| |
90%
|
| |
75%
|
|
Estimated timing of conversion
|
| |
0.72 years
|
| |
0.97 years
|
|
Time period to maturity
|
| |
0.72 years
|
| |
0.97 years
|
|
Risk-adjusted discount rate
|
| |
23.26%
|
| |
23.26%
|
The following table presents additional information about financial assets measured at
fair value on a recurring basis for which the Company used significant unobservable inputs (Level 3):
|
Warrant Liability
|
| |
|
|||
|
|
| |
March 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Balance, beginning of period
|
| |
$ 1,989,478
|
| |
$ —
|
|
Warrant reclassification
|
| |
(271,613)
|
| |
—
|
|
Balance, end of period
|
| |
$ 1,717,865
|
| |
$ —
|
|
Common Stock Warrant
|
| |
Assumptions
|
|
Unobservable input
|
| |
March 31,
2022
|
|
Volatility rate
|
| |
33%
|
|
Term
|
| |
3.75 years
|
|
Discount rate
|
| |
1.12%
|
|
18.
|
Commitments and Contingencies
|
From time to time, the Company may become involved in routine litigation arising in the
ordinary course of business. While the results of such litigation cannot be predicted with certainty, management believes that the final outcome of such matters is not likely to have a material effect on the Company’s financial position or
results of operations or cash flows.
The Company has entered a non-cancellable purchase commitment of $16,207,071 related to
three months of outsourced credit monitoring services provided to the Company’s largest customer as of March 31, 2022. This commitment amount and length is determined by the customer’s exercise of annual option periods.
|
19.
|
Subsequent Events
|
The Company has evaluated subsequent events through the date these financial statements
were available to be issued, June 14, 2022, and concluded that there are no material subsequent events which would require adjustment to or disclosure in the accompanying financial statements.
FS-67
To the shareholders and the Board of Directors of ID Experts Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of ID Experts Holdings,
Inc. and subsidiary (the “Company”) as of December 31, 2021, the related consolidated statements of income, redeemable convertible preferred stock and stockholders’ deficit, and cash flows, for the year ended December 31, 2021, and the related
notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations
and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the Company's financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB and in accordance
with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement
of the 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 financial statements.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis
for our opinion.
/s/ Deloitte & Touche LLP
McLean, Virginia
April 8, 2022
We have served as the Company's auditor since 2022.
FS-68
To the Stockholders and Board of Directors
ID Experts Holdings, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of ID Experts Holdings,
Inc. and subsidiary (the Company) as of December 31, 2020, the related consolidated statements of income, redeemable convertible preferred stock and stockholders’ deficit, and cash flows for each of the years in the two-year period ended
December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these 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 and in accordance
with auditing standards generally accepted in the United States of America. 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.
Explanatory Paragraph
As discussed in Note 2 to the consolidated financial statements, as of January 1, 2020,
the Company has changed its method of accounting for revenue due to the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. Our opinion is not modified with respect to this matter.
/s/ KPMG LLP
We served as the Company’s auditor from 2016 to 2022.
Portland, Oregon
September 30, 2021
FS-69
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2021 AND 2020
|
|
| |
2021
|
| |
2020
|
|
|
| |
(dollars, except for share data)
|
|||
|
ASSETS
|
| |
|
| |
|
|
Current assets:
|
| |
|
| |
|
|
Cash and cash equivalents
|
| |
$17,985,874
|
| |
$14,742,621
|
|
Accounts receivable, net of allowance of $179,000 and
$13,000 at December 31, 2021 and 2020, respectively
|
| |
9,996,832
|
| |
8,822,904
|
|
Other receivables and prepaid expenses
|
| |
953,331
|
| |
882,736
|
|
Capitalized contract costs, current
|
| |
825,530
|
| |
819,427
|
|
Total current assets
|
| |
29,761,567
|
| |
25,267,688
|
|
Property and equipment, net
|
| |
126,897
|
| |
125,584
|
|
Capitalized contract costs, non-current
|
| |
263,017
|
| |
200,363
|
|
Deferred tax asset
|
| |
1,229,237
|
| |
1,428,112
|
|
Other long-term assets, net
|
| |
36,712
|
| |
36,712
|
|
Total assets
|
| |
$31,417,430
|
| |
$27,058,459
|
The accompanying notes are an integral part of these consolidated financial statements.
FS-70
ID EXPERTS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 2021 AND 2020
|
|
| |
2021
|
| |
2020
|
|
|
| |
(dollars, except for share data)
|
|||
|
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK, AND STOCKHOLDERS' DEFICIT
|
| |
|
| |
|
|
Current liabilities:
|
| |
|
| |
|
|
Accounts payable
|
| |
$7,286,039
|
| |
$6,365,715
|
|
Accrued expenses
|
| |
6,606,507
|
| |
4,052,692
|
|
Deferred revenue, current
|
| |
7,560,192
|
| |
7,504,651
|
|
Current installments of obligations under capital leases
|
| |
—
|
| |
68,011
|
|
Current portion of convertible debt, carried at fair value
|
| |
2,444,924
|
| |
—
|
|
Current portion of long-term debt
|
| |
1,666,667
|
| |
—
|
|
Total current liabilities
|
| |
25,564,329
|
| |
17,991,069
|
|
Deferred revenue, net of current portion
|
| |
2,115,846
|
| |
1,744,068
|
|
Accrued expenses, long-term
|
| |
749,633
|
| |
464,402
|
|
Convertible debt, carried at fair value
|
| |
—
|
| |
1,732,686
|
|
Long-term debt, net of current portion
|
| |
8,319,407
|
| |
9,983,821
|
|
Total liabilities
|
| |
36,749,215
|
| |
31,916,046
|
|
Commitments and contingencies (see Note 17)
|
| |
|
| |
|
|
Redeemable convertible preferred stock:
|
| |
|
| |
|
|
A-1 redeemable convertible preferred stock, $0.0001 par
value; 6,000,000 66,000,000 shares 6,000,000 shares authorized, 5,882,350 shares issued and outstanding at December 31, 2021 and 2020, respectively; liquidation preference of $9,999,996 at December 31, 2021 and $4,999,998 at December
31, 2020
|
| |
9,999,996
|
| |
4,999,998
|
|
A-2 redeemable convertible preferred stock, $0.0001 par
value; 27,000,000 shares authorized, 26,069,330 shares issued and outstanding at December 31, 2021 and 2020, respectively; liquidation preference of $54,902,008 at December 31, 2021 and $27,451,004 at December 31, 2020
|
| |
54,902,008
|
| |
27,451,004
|
|
Total redeemable convertible preferred stock
|
| |
64,902,004
|
| |
32,451,002
|
|
Stockholders’ deficit:
|
| |
|
| |
|
|
Common stock, $0.0001 par value; 53,000,000 shares
authorized, 11,671,845 and 9,674,164 shares issued and outstanding at December 31, 2021 and 2020, respectively
|
| |
1,167
|
| |
967
|
|
Additional paid in capital
|
| |
—
|
| |
585,503
|
|
Accumulated deficit
|
| |
(70,234,956)
|
| |
(37,895,059)
|
|
Total stockholders' deficit
|
| |
(70,233,789)
|
| |
(37,308,589)
|
|
Total liabilities, redeemable convertible preferred stock,
and stockholders' deficit
|
| |
$31,417,430
|
| |
$27,058,459
|
The accompanying notes are an integral part of these consolidated financial statements.
FS-71
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2021, 2020, AND 2019
|
|
| |
2021
|
| |
2020
|
| |
2019
|
|
|
| |
(dollars, except for share data)
|
||||||
|
Revenue(1)
|
| |
$106,072,400
|
| |
$103,536,322
|
| |
$103,104,381
|
|
Cost of services(1)
|
| |
82,745,572
|
| |
77,900,185
|
| |
83,388,438
|
|
Gross profit
|
| |
23,326,828
|
| |
25,636,137
|
| |
19,715,943
|
|
Operating Expenses:
|
| |
|
| |
|
| |
|
|
Sales and marketing(1)
|
| |
7,181,577
|
| |
6,988,426
|
| |
6,896,820
|
|
General and administrative(1)
|
| |
6,872,551
|
| |
4,341,507
|
| |
4,451,895
|
|
Research and development
|
| |
4,940,558
|
| |
4,112,543
|
| |
3,839,350
|
|
Total operating expenses
|
| |
18,994,686
|
| |
15,442,476
|
| |
15,188,065
|
|
Income from operations
|
| |
4,332,142
|
| |
10,193,661
|
| |
4,527,878
|
|
Interest and other expense:
|
| |
|
| |
|
| |
|
|
Interest expense
|
| |
483,326
|
| |
985,542
|
| |
1,263,008
|
|
Change in fair value of warrant liabilities
|
| |
1,943,228
|
| |
—
|
| |
—
|
|
Other expense(1)
|
| |
716,083
|
| |
471,174
|
| |
536,299
|
|
Total interest and other expense
|
| |
3,142,637
|
| |
1,456,716
|
| |
1,799,307
|
|
Income before provision for income taxes
|
| |
1,189,505
|
| |
8,736,945
|
| |
2,728,571
|
|
Income tax expense (benefit)
|
| |
1,716,095
|
| |
2,082,863
|
| |
(424,862)
|
|
Net (loss) income
|
| |
$(526,590)
|
| |
$6,654,082
|
| |
$3,153,433
|
|
Net (loss) income attributable to common stockholders, see
Note 14
|
| |
|
| |
|
| |
|
|
Basic:
|
| |
$(32,977,592)
|
| |
$1,651,227
|
| |
$652,154
|
|
Diluted:
|
| |
$(32,977,592)
|
| |
$6,654,082
|
| |
$3,153,433
|
|
Net (loss) income per share attributable to common
stockholders, see Note 14
|
| |
|
| |
|
| |
|
|
Basic:
|
| |
$(2.80)
|
| |
$0.16
|
| |
$0.08
|
|
Diluted:
|
| |
$(2.80)
|
| |
$0.15
|
| |
$0.07
|
|
Weighted average shares used in computing net (loss)
income per share attributable to common stockholders, see Note 14
|
| |
|
| |
|
| |
|
|
Basic:
|
| |
11,777,989
|
| |
10,587,132
|
| |
8,363,288
|
|
Diluted:
|
| |
11,777,989
|
| |
44,077,521
|
| |
42,844,976
|
|
(1)
|
See Note 15 for amounts attributable to related parties included in these line items.
|
The accompanying notes are an integral part of these consolidated financial statements.
FS-72
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2021, 2020, AND 2019
|
(dollars, except for share data)
|
|||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
|
| |
Series A-1 Redeemable
Convertible
Preferred Stock
|
| |
Series A-2 Redeemable
Convertible
Preferred Stock
|
| |
Common Stock
|
| |
Additional
Paid In
Capital
|
| |
Accumulated
Deficit
|
| |
Total
Stockholders'
Deficit
|
|||||||||
|
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| ||||||||
|
Balance at December 31, 2018
|
| |
5,882,350
|
| |
$ 4,999,998
|
| |
26,069,330
|
| |
$27,451,004
|
| |
5,565,377
|
| |
$557
|
| |
$326,890
|
| |
$(48,613,413)
|
| |
$(48,285,966)
|
|
Common stock issued
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
3,844,003
|
| |
384
|
| |
148,781
|
| |
—
|
| |
149,165
|
|
Stock-based compensation expense
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
63,510
|
| |
—
|
| |
63,510
|
|
Net income
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
3,153,433
|
| |
3,153,433
|
|
Balance at December 31, 2019
|
| |
5,882,350
|
| |
4,999,998
|
| |
26,069,330
|
| |
27,451,004
|
| |
9,409,380
|
| |
941
|
| |
539,181
|
| |
(45,459,980)
|
| |
(44,919,858)
|
|
Adoption of ASC 606
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
910,839
|
| |
910,839
|
|
Adjusted balance at January 1, 2020
|
| |
5,882,350
|
| |
4,999,998
|
| |
26,069,330
|
| |
27,451,004
|
| |
9,409,380
|
| |
941
|
| |
539,181
|
| |
(44,549,141)
|
| |
(44,009,019)
|
|
Common stock issued
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
264,784
|
| |
26
|
| |
8,678
|
| |
—
|
| |
8,704
|
|
Stock-based compensation expense
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
37,644
|
| |
—
|
| |
37,644
|
|
Net Income
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
6,654,082
|
| |
6,654,082
|
|
Balance at December 31, 2020
|
| |
5,882,350
|
| |
$ 4,999,998
|
| |
26,069,330
|
| |
$27,451,004
|
| |
9,674,164
|
| |
$967
|
| |
$585,503
|
| |
$(37,895,059)
|
| |
$(37,308,589)
|
|
Common stock issued
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
1,997,681
|
| |
200
|
| |
69,949
|
| |
—
|
| |
70,149
|
|
Stock-based compensation expense
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
28,493
|
| |
—
|
| |
28,493
|
|
Change in preferred share fair value
|
| |
—
|
| |
4,999,998
|
| |
—
|
| |
27,451,004
|
| |
—
|
| |
—
|
| |
(683,945)
|
| |
(31,767,057)
|
| |
(32,451,002)
|
|
Warrant reclassification
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(46,250)
|
| |
(46,250)
|
|
Net loss
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(526,590)
|
| |
(526,590)
|
|
Balance at December 31, 2021
|
| |
5,882,350
|
| |
$
9,999,996
|
| |
26,069,330
|
| |
$54,902,008
|
| |
11,671,845
|
| |
$
1,167
|
| |
$—
|
| |
$(70,234,956)
|
| |
$(70,233,789)
|
The accompanying notes are an integral part of these consolidated financial statements.
FS-73
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2021, 2020, AND 2019
|
|
| |
2021
|
| |
2020
|
| |
2019
|
|
Cash flows from operating activities:
|
| |
|
| |
|
| |
|
|
Net (loss) income
|
| |
$(526,590)
|
| |
$6,654,082
|
| |
$3,153,433
|
|
Adjustments to reconcile net income to net cash provided
by operating activities:
|
| |
|
| |
|
| |
|
|
Depreciation and amortization
|
| |
120,736
|
| |
136,470
|
| |
198,901
|
|
Amortization of debt issuance cost
|
| |
3,979
|
| |
289,999
|
| |
362,436
|
|
Stock-based compensation expense
|
| |
28,493
|
| |
37,644
|
| |
63,510
|
|
Deferred tax expense
|
| |
198,875
|
| |
(898,619)
|
| |
(790,858)
|
|
Change in fair value of debt
|
| |
712,238
|
| |
180,612
|
| |
186,419
|
|
Change in fair value of warrant liabilities
|
| |
1,943,228
|
| |
—
|
| |
—
|
|
Other
|
| |
174,802
|
| |
1,227
|
| |
(6,543)
|
|
Changes in:
|
| |
|
| |
|
| |
|
|
Accounts receivable
|
| |
(1,345,877)
|
| |
766,199
|
| |
2,042,564
|
|
Other receivables and prepaid expenses
|
| |
(70,595)
|
| |
(224,977)
|
| |
(187,323)
|
|
Other long-term assets
|
| |
—
|
| |
(36,712)
|
| |
161,322
|
|
Capitalized contract costs
|
| |
(68,757)
|
| |
795,809
|
| |
(4,663,002)
|
|
Accounts payable
|
| |
920,324
|
| |
(20,313)
|
| |
4,603,630
|
|
Accrued expenses and other liabilities
|
| |
849,568
|
| |
387,434
|
| |
(8,866,166)
|
|
Deferred revenue
|
| |
427,319
|
| |
(454,189)
|
| |
9,543,460
|
|
Net cash provided by operating activities
|
| |
3,367,743
|
| |
7,614,666
|
| |
5,801,783
|
|
Cash flows from investing activities:
|
| |
|
| |
|
| |
|
|
Purchases of property and equipment
|
| |
(124,902)
|
| |
(14,849)
|
| |
(47,928)
|
|
Net cash used in investing activities
|
| |
(124,902)
|
| |
(14,849)
|
| |
(47,928)
|
|
Cash flows from financing activities:
|
| |
|
| |
|
| |
|
|
Principal issued from refinance
|
| |
—
|
| |
10,000,000
|
| |
—
|
|
Principal extinguished as part of the refinance
|
| |
—
|
| |
(9,408,333)
|
| |
—
|
|
Proceeds from option exercise
|
| |
70,149
|
| |
8,704
|
| |
149,165
|
|
Payments of debt issuance costs
|
| |
(1,726)
|
| |
(16,180)
|
| |
—
|
|
Principal payments on long-term debt
|
| |
—
|
| |
(1,091,666)
|
| |
(2,033,333)
|
|
Principal payments on capital lease obligations
|
| |
(68,011)
|
| |
(59,292)
|
| |
(51,689)
|
|
Net cash provided by (used in) financing activities
|
| |
412
|
| |
(566,767)
|
| |
(1,935,857)
|
|
Net increase in cash and restricted cash
|
| |
3,234,253
|
| |
7,033,050
|
| |
3,817,998
|
|
Cash, cash equivalents, and restricted cash, beginning of period
|
| |
14,742,621
|
| |
7,709,571
|
| |
3,891,573
|
|
Cash, cash equivalents, and restricted cash end of period
|
| |
$17,985,874
|
| |
$
14,742,621
|
| |
$7,709,571
|
|
Supplemental cash flow information:
|
| |
|
| |
|
| |
|
|
Cash paid during the period for:
|
| |
|
| |
|
| |
|
|
Interest
|
| |
$488,604
|
| |
$988,103
|
| |
$1,263,008
|
|
Income taxes
|
| |
$2,350,134
|
| |
$1,712,665
|
| |
$132,134
|
|
Transaction costs included in accounts payable and accrued expenses
|
| |
$689,544
|
| |
$—
|
| |
$—
|
|
Non-cash financing and investing activities:
|
| |
|
| |
|
| |
|
|
Warrant reclassification
|
| |
$46,250
|
| |
$—
|
| |
$—
|
|
Non-cash investing activities from fair value adjustment
of preferred shares:
|
| |
|
| |
|
| |
|
|
Increase in fair value of preferred shares
|
| |
$32,451,002
|
| |
$—
|
| |
$—
|
|
Decrease in accumulated deficit
|
| |
$ (31,767,057)
|
| |
$—
|
| |
$—
|
|
Decrease in additional paid in capital
|
| |
$(683,945)
|
| |
$—
|
| |
$—
|
|
Non-cash operating activities from adoption of ASC 606:
|
| |
|
| |
|
| |
|
|
Decrease in capitalized contract costs
|
| |
$—
|
| |
$4,901,538
|
| |
$—
|
|
Decrease in deferred revenue
|
| |
$—
|
| |
$(6,073,742)
|
| |
$—
|
|
Decrease in accumulated deficit
|
| |
$—
|
| |
$910,839
|
| |
$—
|
|
Decrease in deferred tax asset
|
| |
$—
|
| |
$261,365
|
| |
$—
|
The accompanying notes are an integral part of these consolidated financial statements.
FS-74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020, AND 2019
|
1.
|
Organization and Description of Business
|
ID Experts Holdings, Inc. and subsidiary (the “Company”) believes it
has a leading position in the United States by revenues as a provider of data breach response services, and associated identity and privacy protection services, to both government and commercial entities. The Company's data breach solutions
include prevention, detection, forensic services, notification, and recovery assistance. The Company's membership subscriptions include credit and non-credit monitoring, prevention tools, and unlimited recovery assistance. ID Experts Holdings,
Inc. was incorporated in the State of Delaware in 2016 at which time Identity Theft Guard Solutions, Inc., the primary operating entity, became the wholly owned subsidiary of ID Experts Holdings, Inc. in 2016 during its recapitalization. The
Company serves clients throughout the United States of America and its headquarters are in Portland, Oregon.
On December 15, 2021, the Company’s board of directors approved a
business combination agreement, which was entered into as of December 17, 2021 and announced publicly on December 20, 2021. The business combination agreement details a transaction where the Company is to be merged with ZeroFox, Inc.
(“ZeroFox”) and L&F Acquisition Corp., a special purpose acquisition corporation (SPAC) and a publicly traded company. As noted in Note 2b., the transaction will be accounted for in one of two ways. In each scenario, the Company is expected
to be the legal and accounting acquiree. The transaction, which is expected to close in mid-2022, is subject to regulatory approvals and customary closing conditions.
|
2.
|
Summary of Significant Accounting Policies
|
|
a.
|
Basis of Presentation
|
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) set forth by the Financial Accounting Standards Board (FASB). References to U.S. GAAP issued by the FASB in these notes to the consolidated
financial statements are to the FASB Accounting Standards Codification (ASC).
|
b.
|
Emerging Growth Company Status
|
The Company is an “emerging growth company,” (“EGC”) as defined in
the Jumpstart Our Business Startups Act, (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. The Company may take advantage of these
exemptions until it is no longer an EGC under Section 107 of the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting standards. As a result of this election, the Company’s financial
statements may not be comparable to companies that comply with public company Financial Accounting Standards Board (“FASB”) standards’ effective dates.
The Company is in the process of merging with a publicly traded
Special Purpose Acquisition Company (a “SPAC”), which will be accounted for in one of two ways depending on the redemption elections of the SPAC shareholder; (1) assuming minimum redemption, the merger will be accounted for as a reverse
recapitalization in accordance with U.S. GAAP or (2) assuming maximum redemption, ZeroFox will be considered a variable interest entity and the merger will be accounted for as an acquisition by the SPAC of ZeroFox in accordance with U.S. GAAP.
Refer to Note 1 for more information regarding the transaction. If the transaction were to be consummated, the surviving company will remain an emerging growth company until the earliest of (i) the last day of the surviving company’s first
fiscal year following the fifth anniversary of the completion of the SPAC’s initial public offering, (ii) the last day of the fiscal year in which the surviving company has total annual gross revenue of at least $1.07 billion, (iii) the last
day of the fiscal year in which the surviving company is deemed to be a large accelerated filer, which means the market value of the surviving company’s common stock that is held by non-affiliates exceeds $700.0 million as of the prior June
30th or (iv) the date on which the surviving company’s has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
|
c.
|
Principles of Consolidation
|
The accompanying consolidated financial statements include the
accounts of the Company. All intercompany balances and transactions have been eliminated in consolidation.
FS-75
|
d.
|
Use of Estimates
|
The preparation of financial statements in conformity with U.S. GAAP
requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amounts of
revenues and expenses reported during the period. Such estimates include assumptions used in the allocation of revenue, long-lived assets, liabilities, depreciable lives of assets, stock-based compensation, and deferred income taxes. Actual
results could differ from those estimates, and such differences may be material to the consolidated financial statements.
|
e.
|
Cash and Cash Equivalents
|
Cash and cash equivalents consist of business checking accounts. The
Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. The Company generally places its cash and cash equivalents with major financial institutions
deemed to be of high-credit-quality in order to limit its credit exposure. The Company maintains its cash accounts with financial institutions where, at times, deposits exceed federal insurance limits. Cash and cash equivalents are carried at
cost, which, due to their short-term nature, approximate fair value.
|
f.
|
Restricted Cash
|
Cash that is unavailable for general operating purposes is classified
as restricted cash and is included on the consolidated statements of cash flows. Restricted cash included on the consolidated statements of cash flows represents amounts required to be always maintained in the bank by the Company’s lenders. The
restricted cash covenant was removed by lenders in the Fourth Amendment and Waiver to Loan and Security Agreement dated May 26, 2020.
|
g.
|
Accounts Receivable
|
Accounts receivable are recorded at the invoiced amount and do not
bear interest. Amounts collected on accounts receivable are included in net cash provided by operating activities in the consolidated statement of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses
resulting from its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted for current market conditions, the Company’s customers’ financial condition, any amount of receivables in
dispute, and the current receivables aging and historic payment patterns. The Company reviews its allowance for doubtful accounts at least quarterly. Accounts receivable are presented on the consolidated balance sheets net of allowance for
doubtful accounts.
Receivables, net of allowance for doubtful accounts for the years
ended December 31, 2021 and 2020 consist of the following:
|
|
| |
2021
|
| |
2020
|
|
Billed trade receivables
|
| |
$2,941,898
|
| |
$1,790,325
|
|
Unbilled receivables
|
| |
7,054,934
|
| |
7,032,579
|
|
Total
|
| |
$9,996,832
|
| |
$8,822,904
|
The allowance for doubtful accounts reflects the Company’s estimate
of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence.
The following table summarizes activity for the allowance for
doubtful accounts for the years ended December 31, 2021, 2020, and 2019:
|
|
| |
2021
|
| |
2020
|
| |
2019
|
|
Beginning balance
|
| |
$13,000
|
| |
$52,664
|
| |
$65,476
|
|
Additional charged to costs and expenses
|
| |
171,949
|
| |
(36,128)
|
| |
—
|
|
Deductions(1)
|
| |
(5,949)
|
| |
(3,536)
|
| |
(12,812)
|
|
Ending balance
|
| |
$179,000
|
| |
$13,000
|
| |
$52,664
|
|
(1)
|
Represents write-offs and recoveries of prior year charges.
|
FS-76
|
h.
|
Fair Value Measurement
|
Fair value is defined as the price that would be received to sell an
asset, or paid to transfer a liability, including respective accrued interest balances, in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used
to measure fair value. The hierarchy requires that the Company maximize the use of observable inputs and minimize the use of unobservable inputs. The levels of the fair value hierarchy are described below:
Level 1 – Inputs are quoted prices in active markets for identical assets or
liabilities that the Company can access at the measurement date.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities or quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets and liabilities.
Refer to Note 16 “Fair Value Measurements” for additional information
on how the Company determines fair value for its assets and liabilities.
|
i.
|
Property and Equipment
|
Property and equipment are stated at the cost of acquisition, less
accumulated depreciation and amortization. Equipment under capital leases are stated at the present value of minimum lease payments and amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset.
Depreciation and amortization of property, equipment and leasehold improvements are computed using the straight-line method.
The estimated useful lives for property and equipment categories
are as follows:
|
Asset Classification
|
| |
Estimated Useful Life
|
|
Office and computer equipment
|
| |
3 years
|
|
Software
|
| |
5 years
|
|
Furniture and fixtures
|
| |
7 years
|
|
Leasehold improvements
|
| |
Lesser of lease term or useful life
|
The Company periodically reviews the carrying value of its long-lived
assets, including property and equipment, for impairment whenever events or circumstances indicate that the carrying amount of such assets may not be fully recoverable. For long-lived assets to be held and used, impairments are recognized when
the carrying amount of a long-lived asset group is not recoverable and exceeds fair value. The carrying amount of a long-lived asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use
and eventual disposition of the asset group. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset group exceeds its fair value. No impairment losses were recognized in 2021, 2020, or 2019.
|
j.
|
Revenue Recognition
|
On January 1, 2020, the Company adopted the new revenue standard, ASC
606 Revenue Recognition – Contracts with Customers (“Topic 606”), on a modified retrospective basis, applying the practical expedient to all uncompleted contracts as of January 1, 2020. The Company has
also adopted the practical expedient for contract modifications, which allows the Company to reflect the aggregate effect of all modifications occurring prior to January 1, 2020, as of the date of adoption. As a result, the consolidated
financial statements for the years ended December 31, 2021 and 2020 are presented under the new revenue recognition guidance, while prior period amounts are not adjusted and continue to be reported under the prior revenue recognition guidance.
See Note 6 for further discussion on the Company’s revenue recognition policies and the impacts of the new guidance.
FS-77
In accordance with Topic 606, revenue is recognized when a
customer obtains control of promised products or services. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to receive in exchange for those products or services. To achieve the core principle
of this standard, the Company applies the following five steps:
|
a)
|
Identify Contracts with Customers
|
|
b)
|
Identify the Performance Obligations in the Contract
|
|
c)
|
Determine the Transaction Price
|
|
d)
|
Allocate the Transaction Price to Performance Obligations in the Contract
|
|
e)
|
Recognize Revenue When or As Performance Obligations are Satisfied
|
For arrangements with multiple performance obligations, the Company
allocates total consideration to each performance obligation on a relative fair value basis based on management’s estimate of stand-alone selling price (“SSP”).
The following table illustrates the timing of the Company’s revenue
recognition:
|
|
| |
2021
|
| |
2020
|
|
Breach services – point in time
|
| |
8.3%
|
| |
3.1%
|
|
Breach services – over time
|
| |
88.5%
|
| |
94.1%
|
|
Consumer membership services – over time
|
| |
3.2%
|
| |
2.8%
|
As discussed in Note 6, all revenue was recognized over time prior to
the adoption of ASC 606.
Breach Services
IDX’s breach services revenue consists of contracts with various
combinations of notification, project management, communication services, and ongoing identity protection services. Performance periods generally range from one to three years, and payment terms are generally between thirty and sixty days.
Contracts generally do not contain significant financing components. The Company’s breach services contracts are structured as either fixed or variable. In fixed contracts, a fixed total price or fixed per-impacted individual price is charged
for the total combination of services. For variable breach services contracts, the breach communications component, which includes notifications and call center, is charged at a fixed total fee, and ongoing identity protection services are
charged as incurred using a fixed price per enrollment. Fixed fees are generally billed at the time the statement of work is executed and are due upon receipt, and large contracts are typically billed 50% upfront and due upon receipt with the
remaining 50% invoiced subsequently with net 30 terms. For variable breaches the charges for identity protection services are billed monthly for the prior month and are due net 30.
Consumer Membership Services
The Company provides consumer membership services through its
employer groups and strategic partners as well as directly to end-users through its retail business. Consumer membership services consist of multiple bundled identity and privacy product offerings and provide members with ongoing monitoring
services. For consumer membership services, revenue is recognized ratably over the service period. Performance periods are generally one year. Payments from employer groups and strategic partners are generally collected monthly, and payments
from end-users are collected up front.
Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. No losses on uncompleted contracts were recognized in 2021, 2020, or 2019.
Significant Judgments
Significant judgments and estimates are required under Topic 606. Due
to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances. The Company’s contracts with
customers often include promises to transfer multiple services, including project management services, notification services, call center services, and monitoring services. Determining whether services are distinct performance obligations that
should be accounted for separately requires significant judgment.
FS-78
The Company is required to estimate the total consideration
expected to be received from contracts with customers, including any variable consideration. Once the estimated transaction price is established, amounts are allocated to performance obligations on a relative SSP basis. The Company’s breach
business derives revenue from two main performance obligations: (i) notification and (ii) combined call center and monitoring services, described further in Note 6.
At contract inception, the Company assesses the products and services
promised in the contract to identify each performance obligation and evaluate whether the performance obligations are capable of being distinct and are distinct within the context of the contract. Performance obligations that are not both
capable of being distinct and distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue. Determining whether products and services are
considered distinct performance obligations requires significant judgment. In determining whether products and services are considered distinct performance obligations, the Company assesses whether the customer can benefit from the products and
services on their own or together with other readily available resources and whether our promise to transfer the product or service to the customer is separately identifiable from other promises in the contract.
Judgment is required to determine the SSP for each distinct
performance obligation. The Company rarely sells its individual breach services on a standalone basis, and accordingly, the Company is required to estimate the range of SSPs for each performance obligation. In instances where the SSP is not
directly observable because the Company does not sell the service separately, the Company reviews information that includes historical discounting practices, market conditions, cost-plus analysis, and other observable inputs to determine an
appropriate SSP. The Company typically has more than one SSP for individual performance obligations due to the stratification of those items by classes of customers, size of breach, and other circumstances. In these instances, the Company may
use other available information such as service inclusions or exclusions, customizations to notifications, or varying lengths of call center or monitoring services in determining the SSP.
If a group of agreements are so closely related to each other that
they are, in effect, part of a single arrangement, such agreements are deemed to be one arrangement for revenue recognition purposes. The Company exercises judgment to evaluate the relevant facts and circumstances in determining whether the
separate agreements should be accounted for separately or as, in substance, a single arrangement. The Company’s judgments about whether a group of contracts comprises a single arrangement can affect the allocation of consideration to the
distinct performance obligations, which could have an effect on results of the Company’s operations for the periods involved.
Generally, the Company has not experienced significant returns or
refunds to customers. The Company’s estimates related to revenue recognition may require significant judgment and the change in these estimates could have an effect on the Company’s results of operations during the periods involved.
Contract Balances
The timing of revenue recognition may differ from the timing of
invoicing to customers and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on the consolidated balance sheets. The Company records a contract asset when revenue is recognized prior to
invoicing and records a deferred revenue liability when revenue is expected to be recognized subsequent to invoicing. For the Company’s breach services agreements, customers are typically invoiced at the beginning of the arrangement for the
entire contract. When the breach agreement includes variable components related to as-incurred monitoring services, customers are invoiced monthly for the duration of the enrollment or call center period.
Unbilled accounts receivable, which consists of services billed one
month in arrears, was $7,054,934 and $7,032,578 as of December 31, 2021 and 2020, respectively. These unbilled amounts are included in accounts receivable as the Company has the unconditional right to receive this consideration.
Contract assets are presented as other receivables within the
consolidated balance sheets and primarily relate to the Company’s rights to consideration for work completed but not billed on service contracts. Contract assets are transferred to receivables when the Company invoices the customer. Contract
liabilities are presented as deferred revenue and relate to payments received for services that are yet to be recognized in revenue.
FS-79
During 2021, the Company recognized $7,504,651 of revenue that was
included in deferred revenue at the end of the preceding year. All other deferred revenue activity is due to the timing of invoices in relation to the timing of revenue, as described above. The Company expects to recognize as revenue
approximately 78% of its December 31, 2021 deferred revenue balance in 2022 and the remainder thereafter.
In instances where the timing of revenue recognition differs from
that of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing the
Company’s services, not to facilitate financing arrangements.
Government Contracts
The Company evaluates arrangements with governmental entities
containing “fiscal funding” or “termination for convenience” provisions, when such provisions are required by law, to determine the probability of possible cancellation. The Company considers multiple factors, including the history with the
customer in similar transactions and budgeting and approval processes undertaken by the governmental entity. If the Company determines upon execution of these arrangements that the likelihood of cancellation is remote, it then recognizes
revenues for such arrangements once all relevant criteria have been met. If such a determination cannot be made, revenues are recognized upon the earlier of cash receipt or approval of the applicable funding provision by the governmental entity
for such arrangements.
|
k.
|
Contract Costs
|
The Company capitalizes costs to obtain a contract or fulfill a
contract. These costs are recorded as capitalized contract costs on the consolidated balance sheets. Costs to obtain a contract for a new customer are generally amortized on a straight-line basis over the estimated period of benefit. The
Company determined the estimated period of benefit by taking into consideration the contractual term. The Company periodically reviews the carrying amount of the capitalized contract costs to determine whether events or changes in circumstances
have occurred that could affect the period of benefit. Amortization expense associated with costs to fulfill a contract is recorded to cost of services on the Company’s consolidated statements of income, and amortization expense associated with
costs to obtain a contract (sales commissions) is recorded to sales and marketing expense.
For periods prior to January 1, 2020, under ASC 605, Revenue Recognition – Multiple Element Arrangements, incremental direct costs were capitalized as setup costs and amortized ratably over the contractual period. Beginning January 1, 2020, notification costs
are being expensed as fulfillment costs and recognized at a point in time. Call center costs, also fulfillment costs, are being capitalized and amortized over time. Sales commissions, which are incremental costs to obtain contracts, are
generally recognized ratably over the contractual period of the applicable agreement.
|
l.
|
Cost of Services
|
Cost of services consists of fees to outsourced service providers for
credit monitoring, call center operation, notification mailing, insurance, and other miscellaneous services and internal labor costs. Costs incurred for breach service contracts represent fulfillment costs. These costs are deferred within
capitalized contract costs and recognized in relation to revenue recorded over the combined service and membership terms. The remainder of cost of services are expensed as incurred. Relevant depreciation and amortization are included in cost of
services.
|
m.
|
Research and Development
|
Research and development expenses primarily consist of personnel
costs and contractor fees related to the bundling of other third-party software products that are offered as one combined package within the Company’s product offerings. Personnel costs include salaries, bonuses and stock-based compensation and
related employer-paid payroll taxes, as well as an allocation of our facilities, benefits, and internal IT costs. Research and development costs are expensed as incurred.
|
n.
|
Long-term Debt
|
Convertible notes and amounts borrowed under credit agreements are
carried at cost, net of debt discounts and issuance costs, as long-term debt on the consolidated balance sheets. The debt discounts and issuance costs are amortized to interest expense on the consolidated statements of income using the
straight-line method over
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the contractual term of the note if that method is not materially different from the
effective interest rate method. Cash interest payments are due either quarterly or semi-annually in arrears and the Company accrues interest expense monthly based on the annual coupon rate. See Note 4 for further discussion regarding our
convertible notes and credit agreement.
|
o.
|
Debt Issuance Costs
|
Fees paid to lenders and service providers in connection with the
origination of debt are capitalized as debt issuance costs and presented as a direct deduction from the carrying value of the associated debt liability. As of December 31, 2021 and 2020, the debt issuance costs presented on the consolidated
balance sheets as a reduction to debt are $13,926 and $37,284, respectively.
|
p.
|
Advertising
|
Advertising costs are expensed as incurred. Advertising costs
amounted to $1,151,100 in 2021, $1,097,941 in 2020, and $1,101,285 in 2019 and are included in sales and marketing expense on the consolidated statements of income.
|
q.
|
Stock-Based Compensation
|
The Company grants stock options to purchase common stock to
employees with exercise prices equal to the fair market value of the underlying stock, as determined by the Board of Directors and management. The Board of Directors, with the assistance of outside valuation experts, determine the fair value of
the underlying stock by considering several factors, including historical and projected financial results, the risks the Company faced at the time, the preferences of the Company’s debt holders and preferred stockholders, and the lack of
liquidity of the Company’s common stock.
The fair value of each stock option award is estimated using the
Black-Scholes-Merton valuation model. Such value is recognized as expense over the requisite service period using the straight-line method, net of forfeitures as they occur.
Excess tax benefits of awards that relate to stock option exercises
are reflected as operating cash inflows. Stock-based compensation expense recognized in the Company’s consolidated financial statements for options amounted to $28,493 for the year ended December 31, 2021, $37,644 for the year ended
December 31, 2020, and $63,510 for the year ended December 31, 2019.
|
r.
|
Earnings (Loss) per Share
|
Series A-1 and A-2 Preferred Stock are participating securities, due
to their rights to receive dividends. The Company calculates EPS under the two-class method which all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities. The allocation between
common stock and participating securities is based upon the rights to dividends for the two types of securities.
For periods of net income, and when the effects are not
anti-dilutive, the Company calculates diluted earnings per share by dividing net income available to common shareholders by the weighted average number of common shares plus the weighted average number of common shares assuming the conversion
of the Company’s convertible notes, as well as the impact of all potential dilutive common shares, consisting primarily of common stock options using the treasury stock method. For periods of net loss, shares used in the diluted earnings (loss)
per share calculation represent basic shares as using potentially dilutive shares would be anti-dilutive.
|
s.
|
Concentrations of Credit Risk
|
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash balances and trade accounts receivable. The Company maintains cash balances at two financial institutions. The balances, at times, exceed federally insured limits. As of December 31,
2021, balances exceeded federally insured limits by $17,746,280. The Company has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk from cash. Concentrations of credit with respect to
accounts receivables are generally limited due to the large number of customers, outside the U.S. Government, comprising the Company's customer base and their dispersion across different industries.
FS-81
The Company generated 79%, 80%, and 83% of its revenue in 2021,
2020, 2019 respectively, from the U.S. Government, who generally pays invoices in less than thirty days and is deemed to be a low credit risk. On December 31, 2021, 2020, and 2019 accounts receivables from the U.S. Government made up 69%, 78%,
and 74% of the Company’s outstanding accounts receivables, respectively.
|
t.
|
Income Taxes
|
The Company provides for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax effect of differences between recorded assets and liabilities and their respective tax basis along with operating loss 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 reverse. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period the rate change becomes effective. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained in the event of a tax audit. Recognized
income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest
related to unrecognized tax benefits in income tax expense. $84,194 and $32,043 in penalties and interest have been accrued to expense as of December 31, 2021 and December 31, 2020, respectively, and are discussed further in Note 10. No
interest or penalties have been accrued or charged to expense as of the year ended December 31, 2019.
Deferred tax assets are reduced by a valuation allowance when, in
management’s opinion, it is more likely than not that some portion or all the deferred tax assets will not be realized. The Company considers the future reversal of existing taxable temporary differences, taxable income in prior carryback
years, projected future taxable income, and tax planning strategies in making this assessment. The Company’s valuation allowance is based on all available positive and negative evidence, including its recent financial operations, evaluation of
positive and negative evidence with respect to certain specific deferred tax assets including evaluating sources of future taxable income to support the realization of the deferred tax assets.
The Company's income tax returns are generally subject to examination
by taxing authorities for a period of three years from the date they are filed. Tax authorities may have the ability to review and adjust net operating loss or tax credit carryforwards that were generated prior to these periods if utilized in
an open tax year. As of December 31, 2021, the Company’s income tax returns for the years ended December 31, 2016 through 2021 are subject to examination by the Internal Revenue Service and applicable state and local taxing authorities.
|
u.
|
Sales and Use Taxes
|
The Company collects sales tax in various jurisdictions. Upon
collection from customers, it records the amount as a payable to the related jurisdiction. On a periodic basis, it files a sales tax return with the jurisdictions and remits the amounts indicated on the return.
|
v.
|
Segment Reporting
|
Operating segments are identified as components of an enterprise for
which separate discrete financial information is available for evaluation by the chief operating decision maker, the chief executive officer, or decision-making group, in making decisions on how to allocate resources and assess performance. The
Company views its operations and manages its business as one operating segment. All revenue has been generated in the United States, and all assets are held in the United States.
|
w.
|
Deferred Rent and Lease Incentives
|
Rent expense and lease incentives from the Company’s operating lease
are recognized on a straight-line basis over the lease term. The Company’s operating lease includes rent escalation payment terms and a rent-free period. Deferred rent represents the difference between actual operating lease payments and
straight-line rent expense over the term of the lease.
|
x.
|
Standards Issued and Adopted
|
In May 2014, the FASB issued Accounting Standards Update (“ASU”)
2014-09, Revenue from Contracts with Customers (“Topic 606”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or
services to customers. ASU 2014-09 outlines a single
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comprehensive model for entities to use in accounting for revenue arising from
contracts with customers and supersedes most current revenue recognition guidance. Initially, the ASU was effective for reporting periods beginning after December 15, 2018. However, in May 2020, the FASB decided to provide a one-year deferral
of the mandatory effective date of the new revenue recognition standard for all private companies. As a result, the Company’s effective date for ASU 2014-09 was deferred to accounting periods beginning after December 15, 2019. The Company has
adopted ASU 2014-09 as of January 1, 2020, and notes and disclosures are discussed in Note 6.
|
y.
|
Standards Issued but Not Yet Effective
|
In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”) aimed at making leasing activities more transparent and comparable. The new standard requires substantially all leases be recognized by lessees on their consolidated balance sheet as a
right-of-use asset and a corresponding lease liability, including leases currently classified as operating leases. Initially, ASU 2016-02 was effective for fiscal years beginning after December 15, 2019. In October 2019, the FASB decided to
extend the implementation date for private companies to be effective for annual periods beginning after December 15, 2020. However, in May 2020, the FASB decided to provide an additional one-year deferral of the mandatory effective date of the
new lease standard for all private companies. As a result, the Company’s effective date for ASU 2016-02 was deferred to accounting periods beginning after December 15, 2021. The Company will adopt this guidance on January 1, 2022, which will
result in recognition of right-of-use assets and related lease liabilities recorded for its operating leases of approximately $536,000 and $583,000, respectively. The right-of-use assets and related lease liabilities recorded upon adoption will
be based on the present value of future minimum lease payments, the amount of which will depend on the population leases in effect at the date of adoption. Management expects the adoption of the guidance will increase assets and liabilities but
does not expect it will materially impact the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequently issued additional guidance that modified ASU 2016-13. The standard requires an entity to change its
accounting approach for measuring and recognizing credit losses on certain financial assets measured at amortized cost, including trade receivables, certain non-trade receivables, customer advances and certain off-balance sheet credit
exposures, by replacing the existing “incurred loss” framework with an expected credit loss recognition model. The new standard results in earlier recognition of credit losses based on past events, current conditions, and reasonable and
supportable forecasts. FASB pushed back the effective date of CECL from January 2021 to January 2023 for smaller reporting companies as defined by Securities Exchange from January 2022 to January 2023 for nonpublic companies. The standard is
effective for entities with fiscal years beginning after December 15, 2022, including interim periods within such fiscal years. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements and related
disclosures.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“Topic 740”), the amendments which remove certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating
income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The amendments are effective for
annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. The Company is currently evaluating the impact of ASU 2019-12 on its consolidated financial statements and related
disclosures.
In March 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“Topics: 470-20, 815-40”). The standards reduce the number of accounting models for convertible instruments and allows more
contracts to qualify for equity classification. The standard also amends diluted EPS calculations for convertible instruments and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity’s own
shares to be classified in equity. The standard is effective for entities with fiscal years beginning after December 15, 2023, and early adoption is permitted. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated
financial statements and related disclosures.
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”).
FS-83
ASU 2020-06 simplifies the accounting for convertible instruments by eliminating
large sections of the existing guidance in this area. It also eliminates several triggers for derivative accounting, including a requirement to settle certain contracts by delivering registered shares. The amendments are effective for fiscal
years beginning after December 15, 2023, and early adoption is permitted. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements and related disclosures.
In May 2021, the FASB issued ASU 2021-04, Earnings per Share (“Topic 260”), Debt – Modifications and Extinguishments (“Subtopic 470-50”), Compensation – Stock Compensation (“Topic
718”), and Derivatives and Hedging – Contracts in Entity’s Own Equity (“Subtopic 815-40”). ASU 2021-04 clarifies the accounting by issuers for modifications or exchanges of equity-classified warrants
and is effective for fiscal years starting after December 15, 2021. The Company is currently evaluating the impact of ASU 2021-04 on its consolidated financial statements and related disclosures.
|
3.
|
Property and Equipment
|
Property and equipment, net consisted of the following amounts on
December 31, 2021 and 2020:
|
|
| |
2021
|
| |
2020
|
|
Furniture and office equipment
|
| |
$602,412
|
| |
$605,354
|
|
Computer equipment and software
|
| |
521,173
|
| |
561,919
|
|
Leasehold improvements
|
| |
73,174
|
| |
77,334
|
|
Total property and equipment
|
| |
1,196,759
|
| |
1,244,607
|
|
Less accumulated depreciation and amortization
|
| |
(1,069,862)
|
| |
(1,119,023)
|
|
Total property and equipment, net
|
| |
$126,897
|
| |
$125,584
|
Depreciation and amortization expense recorded related to property
and equipment was $120,736 in 2021, $136,470 in 2020, and $198,901 in 2019.
|
4.
|
Long-term Debt
|
The below table presents details of the Company’s debt on
December 31, 2021 and 2020:
|
|
| |
2021
|
| |
2020
|
|
Current portion of long-term debt
|
| |
|
| |
|
|
Current maturity term loan
|
| |
$1,666,667
|
| |
$—
|
|
Total
|
| |
$1,666,667
|
| |
$—
|
|
|
| |
|
| |
|
|
Long-term debt
|
| |
|
| |
|
|
Term loan, net of debt issuance costs
|
| |
$8,319,407
|
| |
$9,983,821
|
|
Total long-term debt
|
| |
$9,986,074
|
| |
$9,983,821
|
The future contractual maturities for the long-term debt subsequent
to December 31, 2021 are summarized as follow:
|
|
| |
Future Payments
|
|
2022
|
| |
$1,666,667
|
|
2023
|
| |
3,333,333
|
|
2024
|
| |
3,333,333
|
|
2025
|
| |
1,666,667
|
|
Total
|
| |
$10,000,000
|
|
Less net deferred loan fees
|
| |
(13,926)
|
|
Total long-term debt
|
| |
$9,986,074
|
FS-84
Term Loan
In August 2016, the Company entered into a senior term loan (“Term
Loan”) to provide funding in conjunction with recapitalization of the Company for $8.5 million with an original maturity date of December 31, 2018. The term loan interest rate at the date of extinguishment, which was December 29, 2020, was 5%.
On December 18, 2018, the Company entered into an amendment on its
Term Loan that extended the maturity date of the loan from December 31, 2018 to August 1, 2021.
On May 26, 2020, the Company executed the fourth amendment and waiver
to its Term Loan. In this amendment, regularly scheduled principal payments were deferred beginning on April 1, 2020 and ending on March 1, 2021. These deferred principal payments shall be paid, along with all other amounts outstanding under
the agreement, on July 15, 2021. A waiver was also issued for the Company’s Q1 2020 event of default.
On December 29, 2020, the Company executed the amended and restated
loan and security agreement. This resulted in the extinguishment of the original Term Loan and established a new Term Loan of $10,000,000. The new Term Loan matures June 1, 2025 and bears interest at the prime referenced rate plus 1.5%, which
was 4.75% as of December 31, 2021. Monthly principal payments begin on July 1, 2022. The Company will make interest-only payments monthly beginning on February 1, 2021. The loan is subject to certain standardized financial covenants, and the
carrying value of the Term Loan approximates its fair value. The Company was in compliance with its debt covenants as of December 31, 2021.
Related Party Term Loan
In August 2016, the Company entered into a term loan with a minority
stockholder (“Related Party Term Loan”) to provide funding for $6 million with an original maturity date of December 31, 2018. The Related Party Term Loan boar interest at 12%.
On December 18, 2018, the Company entered into an amendment of its
Related Party Term Loan that extended the maturity date of the loan from December 31, 2018 to August 1, 2021.
On May 26, 2020, the Company executed the fourth amendment and waiver
to its loan and security agreement with a related party. In this amendment, the related party agreed to defer regularly scheduled principal payments beginning on April 1, 2020 and ending on March 1, 2021. The deferred principal payments were to
be paid, along with all other amounts outstanding under the Agreement, on July 15, 2021. A waiver was also issued for the Company’s Q1 2020 event of default.
On December 30, 2020, the Company repaid its related party term loan
in full in conjunction with its new term loan agreement. The remaining unamortized debt issuance costs were expensed at the time of the payoff, and the common and preferred stock warrants issued to the related party and as described below are
still outstanding as of December 31, 2021.
Common Stock Warrants
In connection with the Related Party Term Loan, on August 2, 2016,
the Company issued 1,376,050 warrants to purchase common stock to a related party for $1 and as additional loan consideration. The initial exercise price was $0.0001 per share with an expiration date of August 2, 2026. Per the original warrant
to purchase common stock agreement, 889,071 shares vested immediately, and the additional 486,979 shares would vest upon the date that an incremental advance of $4,500,000 was received by the Company. If the initial advance was less than
$4,500,000, the shares vested would be reduced on a pro-rata basis.
An additional 216,435 shares vested on April 21, 2017. The second
round of vesting occurred upon the receipt of a $2,000,000 incremental advance from the related party. Since the $2,000,000 incremental advance represents 44.44% of the incremental advance referenced in the original agreement, 44.44% of the
shares vested. On April 21, 2017, 270,544 warrants were unvested.
The value of the common stock warrants was initially recorded as a
reduction of the face value of debt on issuance with an offset to additional paid in capital. The warrant's value is recorded to interest expense using the effective interest method over the life of the debt. For the years ended December 31,
2021, 2020, and 2019 respectively, warrant interest expense of $0, $207,549, and $245,830 was recorded within other expense. The common stock warrant expires on August 2, 2026.
FS-85
Preferred Stock Warrants
On December 18, 2018, all unvested common stock warrants issued to
the related party were cancelled. In total, 270,544 unvested common stock warrants were cancelled. An amended and restated warrant to purchase common stock was issued, and the total number of shares was decreased from 1,376,050 to 980,506. The
remaining difference, 125,000 of the originally vested 889,071 warrants, were converted from common stock warrants to preferred stock warrants. This was done in conjunction with a debt modification (third amendment to loan and security
agreement and limited wavier) with the related party. This leaves the total common stock warrant for the related party at 980,506 shares in total and the preferred stock warrant at 125,000 shares in total, all fully vested.
The Company calculates the fair value of the vested Series A-2
preferred stock warrant at the end of reporting periods. For the years ended December 31, 2021, 2020, and 2019, the Company recorded a change in fair value of the preferred stock warrant of $225,364, $0, and $0, respectively. The change in fair
value is presented in change in fair value of warrant liabilities in the consolidated statements of income, and the preferred stock warrant is included within accrued liabilities on the consolidated balance sheets. The Series A-2 preferred
stock warrant expires on December 18, 2028.
|
5.
|
Convertible Debt Loan
|
In December 2018, the Company entered into a convertible debt loan
with several of its existing investors for $1,409,498. The convertible debt loan matures on December 20, 2022 and bears 12% interest, paid at maturity. The related party lenders have the option to convert the note in conjunction with a
qualified financing at 80% of the share price paid by other investors. The related party lenders receive 150% of the outstanding value of notes and accrued interest in conjunction with a sale of the Company. The Company, with consent from the
related party lenders, may prepay the convertible debt loan without penalty. The convertible debt loan is a general, unsecured obligation of the Company.
The Company has elected to fair value the convertible debt loan. At
the end of each year, the Company calculates the fair value of the convertible debt and any changes are recorded within other expense in the consolidated financial statements. There has been no change in fair value from a change in credit
quality. For the years ended December 31, 2021, 2020 and 2019, the Company recorded changes in fair value of $712,238, $180,612, and $186,149, respectively. See Note 16 for additional information over fair value measuring.
|
6.
|
Revenue from Contracts with Customers
|
ASC 606
The Company adopted FASB Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (“Topic 606”), on January 1, 2020, using the modified retrospective method. Under this method of adoption, the Company recognized the cumulative effect of initially
applying the new revenue standard as an adjustment to the opening balance of accumulated deficit. Comparative prior periods were not adjusted.
Financial Statement Impact of Adopting ASC 606
When the modified retrospective method is used, ASC 606 requires the
amount by which each financial statement line item is affected in the current reporting period by the application of the new standard as compared with the guidance that was in effect before the change. As a result of applying the modified
retrospective method to adopt the new revenue guidance, the following adjustments were made to accounts on the consolidated balance sheet as of January 1, 2020:
|
Opening balance of accumulated deficit – January 1, 2020
|
| |
$45,459,980
|
|
Deferred revenue
|
| |
(6,073,742)
|
|
Capitalized contract costs
|
| |
4,901,538
|
|
Deferred tax asset
|
| |
261,365
|
|
Restated opening balance of accumulated deficit – January 1, 2020
|
| |
$44,549,141
|
Performance Obligations
The Company’s primary performance obligations under breach services
contracts are notification services and combined call center and monitoring services. These were determined by reviewing all of the services
FS-86
provided within the Company’s contracts and establishing whether each service is
capable of being distinct and capable of being distinct within the context of the contract. With each performance obligation, the customer can benefit from the service either on its own or together with other resources readily available and it
is separately identifiable from other promises in the contract.
The following table summarizes breach revenue from contracts with
customers for the years ended December 31, 2021 and 2020:
|
|
| |
2021
|
| |
2020
|
|
Notification services
|
| |
$8,834,167
|
| |
$3,253,359
|
|
Call center and monitoring services
|
| |
93,884,988
|
| |
97,413,416
|
|
Total breach services
|
| |
$102,719,155
|
| |
$100,666,775
|
|
-
|
Notification Services – The Company’s notification and mailing services include project management, postage, and setup
costs to develop notification templates that will be printed and mailed to the customer’s impacted population. These notifications are typically printed by the Company’s third-party printers and mailed via USPS. Occasionally, these
notifications are emailed. The Company recognizes revenue for notification services upfront upon the date that the notifications are mailed, which typically coincides with the call center start date. The Company is deemed to be the
principal in these transactions as it is primarily responsible for fulfilling the obligation, has full discretion in price setting, and controls the notification services before the resulting notifications are transferred to the
customer or consumer.
|
|
-
|
Call Center and Monitoring Services – Call center services consist of fees charged to setup an incident-specific call
center and website for the customer’s impacted, notified population. The call center component of the Company’s services serves as a facilitation of its monitoring services and revenue is recognized ratably over the term of the
arrangement, which typically lasts for 15 months total (3 months for the call center/enrollment period plus 12 months of monitoring services). Monitoring services consist of fees charged to continually monitor individuals’ credit and
identity. Additional services are bundled with monitoring services such as non-credit reporting, alerts, and insurance. For fixed contracts, these services are typically invoiced upfront, and for variable contracts, the Call Center
services are invoiced upfront along with the Notification Services, with Monitoring services being invoiced monthly, as incurred over the enrollment period. The Company notes that the timing and contents of billing can vary based on
individual contract, and this usually only occurs with much larger breach deals.
|
Consumer Membership Services
For the year ended December 31, 2021, revenue from consumer
membership services, was 3.2% of total revenue under ASC 606. For the years ended December 31, 2020 and December 31, 2019, revenue from consumer memberships was 2.8% and 2.5% of total revenue under ASC 606 and ASC 605, respectively. For the
years ended December 31, 2021, 2020, and 2019, no single consumer membership services customer exceeded 10% of total revenue.
Timing of Revenue Recognition
As a result of the adoption of the new revenue recognition guidance,
the timing of recognition of certain performance obligations has changed. For example, most breach services contracts contain distinct performance obligations and now have a portion of revenue recognized up front, whereas these arrangements
were previously recognized over time. In addition, allocating the transaction price on a relative SSP basis under the new guidance has generally resulted in an acceleration of revenue of point-in-time performance obligations.
FS-87
The following table provides the Company’s revenue disaggregated
by the timing of recognition under both the new guidance and the legacy guidance (ASC 605) during the year ended December 31, 2020:
|
|
| |
As Reported
|
| |
Amounts
Without
Adoption of
New Standard
|
| |
Effect of Change
|
|
Breach Services
|
| |
|
| |
|
| |
|
|
Services transferred at a point in time
|
| |
$3,253,359
|
| |
$—
|
| |
$3,253,359
|
|
Services transferred over time
|
| |
97,413,416
|
| |
99,344,607
|
| |
(1,931,191)
|
|
|
| |
|
| |
|
| |
|
|
Consumer Membership Services
|
| |
|
| |
|
| |
|
|
Services transferred over time
|
| |
2,869,547
|
| |
2,869,547
|
| |
—
|
|
|
| |
|
| |
|
| |
|
|
Total
|
| | | | | | |||
|
Services transferred at a point in time
|
| |
3,253,359
|
| |
—
|
| |
3,253,359
|
|
Services transferred over time
|
| |
$100,282,963
|
| |
$102,214,154
|
| |
$(1,931,191)
|
Contract Costs
During the years ended December 31, 2021, 2020, and 2019, the Company
recognized $8,659,871, $4,836,376, and $6,842,040, respectively, of amortization expense of capitalized contract costs. Contract costs include fulfillment costs and costs to obtain contracts. There were no impairment losses recognized during
2021, 2020, and 2019.
Remaining Performance Obligations
Remaining performance obligations represent contracted revenue that
has not been recognized, which include contract liabilities and amounts that will be billed and recognized as revenue in future periods. As of December 31, 2021, the Company had $51,006,888 of remaining performance obligations. The approximate
percentages expected to be recognized as revenue in the future are as follows:
|
|
| |
Total
Remaining
Performance
Obligations
|
| |
0 - 12
Months
|
| |
13 - 24
Months
|
| |
Over 24
Months
|
|
Breach Services
|
| |
$50,355,344
|
| |
96%
|
| |
3%
|
| |
1%
|
|
Consumer Membership Services
|
| |
651,544
|
| |
100%
|
| |
—
|
| |
—
|
|
Total
|
| |
$51,006,888
|
| |
96%
|
| |
3%
|
| |
1%
|
ASC 605
For periods prior to January 1, 2020, revenue was recognized in
accordance with ASC 605. Under ASC 605, the Company recognized revenue when all the following conditions were satisfied:
|
-
|
There is persuasive evidence of an arrangement
|
|
-
|
The service has been delivered to the customer
|
|
-
|
The amount of fees to be paid by the customer is fixed or determinable
|
|
-
|
The collection of the related fees is reasonably assured
|
The Company assesses whether the fee is fixed or determinable based
on the nature of the fee charged for the products or services delivered and whether there are existing contractual arrangements. Revenues are deferred for payments received before the earnings process is complete.
For consumer memberships, revenue is recognized ratably over the
service period.
FS-88
Breach service revenue was recognized ratably over the combined
service and membership terms, including any renewal periods that were probable. Breach service revenue was recognized ratably over the combined service period because the Company concluded that the notifications did not qualify as a separate
unit of accounting under ASC 605.
Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. No losses on uncompleted contracts were recognized in 2019.
Reseller Arrangements
The Company enters arrangements with third parties that allow those
parties to resell the Company’s products to end users. In accordance with ASC 606-10, Revenue Recognition—Principal Agent Consideration, the Company evaluates whether it is the principal or the agent
based on the terms of the arrangement with the reseller. In instances in which the Company acts as the principal, it reports gross revenue for the transaction. In instances in which the Company acts as the agent, net revenue is reported.
Agent vs. Principal Considerations
The Company is the principal on all non-forensics contracts with
customers where a third-party is involved in delivering a portion of the overall service the customer is contracting for given the following:
|
-
|
The Company is responsible for fulfilling the promise to provide specified services to the customer.
|
|
-
|
The Company directs third parties involved in the delivery of the contractually promised services and has “inventory” risk.
|
|
-
|
Third-party providers negotiate the pricing of their services with the Company and are not involved in decisions related to
pricing of the Company’s services.
|
|
-
|
IDX has complete discretion in pricing of services to be delivered to the customer.
|
|
7.
|
Leases
|
The Company has two leases related to office equipment and one lease
related to office space. One of two office equipment leases and the office space lease are operating leases. The other office equipment lease is a capital lease. The Company is obligated under outstanding capital leases covering office
equipment that expire through December 1, 2021. On December 31, 2021 and 2020, the gross amount of office equipment, furniture and the related accumulated amortization recorded under capital leases were as follows:
|
|
| |
2021
|
| |
2020
|
|
Gross value of leased office equipment
|
| |
$251,836
|
| |
$251,836
|
|
Less accumulated amortization
|
| |
(251,836)
|
| |
(207,865)
|
|
Leased office equipment, net of amortization
|
| |
$—
|
| |
$43,971
|
Amortization of office equipment held under capital lease is recorded
as depreciation expense within cost of services.
Rental payments under operating leases are recognized on a
straight-line basis over the term of the lease including any periods of free rent. Rental expense for operating leases was $424,162, $407,809, and $376,725 for 2021, 2020, and 2019, respectively. Additionally, the Company had a sublease for
certain office space. The sublease ended February 29, 2020. Sublease income is included in general and administrative expenses on the consolidated statements of income.
With the Company’s office space lease agreement terminating on
October 31, 2020, the Company signed the Fourth Amendment to its Lease on April 23, 2020. The lease extension extended the term by two months through December 31, 2020. The fifth amendment to the Company’s lease was executed on October 9, 2020.
This amendment is for two years and two months commencing on January 1, 2021 and ending February 28, 2023. An abatement was provided for January 1, 2021 through February 28, 2021.
FS-89
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) as of December 31, 2021 are:
|
|
| |
Operating Leases
|
|
Years Ending December 31:
|
| |
|
|
2022
|
| |
$531,799
|
|
2023
|
| |
163,406
|
|
2024
|
| |
47,856
|
|
Total minimum lease payments
|
| |
$743,061
|
|
8.
|
Redeemable Convertible Preferred Stock
|
(a) Series A-1 Redeemable Convertible Preferred Stock
On July 29, 2016, the Company’s board of directors approved the
issuance of up to 6,000,000 shares of Series A-1 preferred stock, par value $0.0001. The original issuance price of the Series A-1 preferred stock was $0.85.
Dividends
If a dividend is declared on common stock, the stockholders of Series
A-1 preferred stock are entitled to receive an amount equal to the dividend they would receive if the shares were converted to common stock. If a dividend is declared on a class of shares that is not convertible to common stock, the convertible
preferred stockholders receive an amount determined by (A) dividing the amount of the dividend payable on each class of stock by the original price of such class and (B) multiplying the faction by the original issue price of the convertible
preferred stock. The convertible preferred stockholders must receive their pro-rata dividends before or concurrent with any dividend payable to common stockholders. No dividends have been approved or declared by the board of directors related
to the Company’s Series A-1 preferred stock.
Liquidation
In a liquidation event, excluding a public offering, stockholders of
the Series A-1 preferred stock shall receive any declared and unpaid dividends, plus the higher of a liquidation preference of $0.85 per share, or the value the stockholders would receive if shares were converted to common stock and Series B
preferred stock.
Redemption
The Series A-1 preferred stock is redeemable at the option of the
stockholders seven years after original issuance, which is outside of the Company's control and, therefore, is classified as temporary equity in the consolidated balance sheets. The redemption price is the higher of the fair market value of the
shares upon conversion to common stock or the original issuance price plus any declared and unpaid dividends. The fair market value of the shares shall not exceed any amount which is greater than two times (2x) the original issue price.
Conversion
Stockholders may convert their preferred shares into an equal
quantity of common stock and Series B preferred stock at their election. In the event of a Qualified IPO, which is defined in the Company’s amended and restated certificate of incorporation as upon the closing of the sale of shares of common
stock to the public at a price of $2.6325 per share, resulting in at least $50,000,000 in gross proceeds, the Series A-1 preferred stock automatically convert to common stock and Series B preferred stock.
Voting
Stockholders of Series A-1 preferred stock are entitled to cast the
number of votes equal to the number of whole shares of common stock their preferred shares would convert into as of the record date.
FS-90
|
(b)
|
Series A-2 Redeemable Convertible Preferred Stock
|
On July 29, 2016, the Company’s board of directors approved the
issuance of up to 27,000,000 of Series A-2 preferred stock, par value $0.0001. The original issuance price of the Series A-2 preferred stock was $1.053.
Dividends
If a dividend is declared on common stock, the stockholders of Series
A-2 preferred stock are entitled to receive an amount equal to the dividend they would receive if the shares were converted to common stock. If a dividend is declared on a class of shares that is not convertible to common stock, the convertible
preferred stockholders receive an amount determined by (A) dividing the amount of the dividend payable on each class of share by the original price of such class and (B) multiplying the faction by the original issue price of the convertible
preferred stock. The convertible preferred stockholders must receive their pro-rata dividends before or concurrent with any dividend payable to the common stockholders. No dividends have been approved or declared by board of directors related
to the Company’s convertible Preferred A-2 stock.
Liquidation
In a liquidation event, excluding a public offering, the stockholders
of the Series A-2 preferred stock shall receive any declared and unpaid dividends, plus the higher of a liquidation preference of $1.053 per share, or the value the stockholders would receive if shares were converted to common stock and Series
B preferred stock.
Redemption
The Series A-2 preferred stock is redeemable at the option of the
stockholders seven years after original issuance which is outside of the Company's control and, therefore, is classified as temporary equity in the consolidated balance sheets. The redemption price is the higher of the fair market value of the
shares upon conversion to common stock or the original issuance price plus any declared and unpaid dividends. The fair market value of the shares shall not exceed any amount which is greater than two times (2x) the original issue price.
Conversion
Stockholders may convert their preferred shares into an equal
quantity of common stock and Series B preferred stock at their election. In the event of a Qualified IPO, which is defined in the Company’s amended and restated certificate of incorporation as upon the closing of the sale of shares of common
stock to the public at a price of $2.6325 per share, resulting in at least $50,000,000 in gross proceeds, the Series A-2 preferred stock automatically convert to common and Series B preferred stock.
Voting
Holders of Series A-2 preferred stock are entitled to cast the number
of votes equal to the number of whole shares of common stock their preferred shares would convert into as of the record date.
|
9.
|
Stockholders’ Deficit
|
(a) Series B Preferred Stock
On July 29, 2016, the Company’s board of directors approved the
issuance of up to 33,000,000 shares of Series B preferred stock with a par value of $0.0001. Stockholders of Series B preferred stock are not entitled to vote and do not have preferential dividend rights.
In the event of a liquidation event, excluding a public offering,
Stockholders of Series B preferred stock receive, following all preferential distributions made to Series A-1 preferred stock and Series A-2 preferred stock, any declared and unpaid dividends, and a liquidation preference of $0.361 per share.
As of December 31, 2021 and 2020, no Series B preferred stock was outstanding.
(b) Common Stock
As of December 31, 2021 and 2020, the Company had authorized
53,000,000 shares of common stock with a par value of $0.0001. Stockholders of common stock are entitled to one vote per share, to receive dividends, if and when declared by the board of directors, and upon liquidation or dissolution, receive a
portion of the assets available for distributions to stockholders, subject to preferential amounts owed to stockholders of the Company’s preferred stock.
FS-91
Common stockholders have no preemptive or other subscription
rights and there are no redemption or sinking fund provisions with respect to such shares. Common stock is subordinate to preferred stock with respect to dividend rights and rights upon liquidation, winding up, and dissolution of the Company.
No dividends have been approved or declared by board of directors
related to the Company’s common stock.
(c) Stock Warrants
In February 2015, the Company issued a warrant to purchase common
stock to a client/vendor. The warrant, which was repriced in August 2016 in a 10:1 stock split from 30,000 shares at a strike price of $6.00 per share to 300,000 shares at a strike price of $0.60, is exercisable upon a Liquidation Event as
defined in the agreement as the first occurrence of any sale of the Company’s assets, a merger, or a firm underwritten public offering of common stock. The warrant expires on February 10, 2025. The Company calculates the fair value of the
vested common stock warrant at the end of each reporting period. For the years ended December 31, 2021, 2020, and 2019 the Company recorded a change in fair value of the common stock warrant of $1,767,864, $0, and $0, respectively. The change
in fair value is presented in change in fair value of warrant liabilities in the consolidated statements of income, and the common stock warrant is included within accrued expenses on the consolidated balance sheets.
A minority stockholder has a fully vested and unexercised warrant to
purchase 980,506 shares of common stock at a price of $0.0001 and a fully vested and unexercised warrant to purchase 125,000 shares of Series A-2 preferred stock at a price of $0.0001. The common stock warrant expires on August 2, 2026, and the
Series A-2 preferred stock warrant expires on December 18, 2028.
|
10.
|
Income Taxes
|
The income before income taxes is solely from domestic sources.
The provision for income taxes for the years ended December 31, 2021,
2020, and 2019 is as follows:
|
Current tax provision:
|
| |
2021
|
| |
2020
|
| |
2019
|
|
Federal
|
| |
$913,316
|
| |
$2,520,312
|
| |
$321,146
|
|
State
|
| |
603,904
|
| |
461,170
|
| |
44,850
|
|
Total current tax expense
|
| |
1,517,220
|
| |
2,981,482
|
| |
365,996
|
|
|
| |
|
| |
|
| |
|
|
Deferred tax expense (benefit):
|
| |
|
| |
|
| |
|
|
Federal
|
| |
186,418
|
| |
(756,696)
|
| |
(643,893)
|
|
State
|
| |
12,457
|
| |
(141,923)
|
| |
(146,965)
|
|
Total deferred tax expense (benefit)
|
| |
198,875
|
| |
(898,619)
|
| |
(790,858)
|
|
Income tax expense (benefit)
|
| |
$1,716,095
|
| |
$2,082,863
|
| |
$(424,862)
|
The income tax provision differs from the amount computed by applying
the statutory federal income tax rate of 21% to the income before income tax as a result of the following differences:
|
|
| |
2021
|
| |
2020
|
| |
2019
|
|
Income taxes at statutory rate
|
| |
$249,796
|
| |
$1,834,758
|
| |
$573,000
|
|
State income tax, net of federal benefit
|
| |
242,000
|
| |
286,782
|
| |
34,637
|
|
Permanent items
|
| |
25,007
|
| |
41,102
|
| |
48,876
|
|
Non-deductible transaction costs
|
| |
368,339
|
| |
—
|
| |
—
|
|
Non-deductible convertible debt and warrant expenses
|
| |
553,215
|
| |
—
|
| |
—
|
|
Tax credits
|
| |
(52,855)
|
| |
(33,045)
|
| |
(111,389)
|
|
Loss of attributes
|
| |
58,604
|
| |
—
|
| |
—
|
|
Uncertain tax positions
|
| |
144,979
|
| |
—
|
| |
—
|
|
Other
|
| |
86,047
|
| |
64,093
|
| |
2,009
|
|
Valuation allowance
|
| |
40,963
|
| |
(110,827)
|
| |
(971,995)
|
|
Income tax expense (benefit)
|
| |
$1,716,095
|
| |
$2,082,863
|
| |
$(424,862)
|
FS-92
The key differences resulting in income tax expense that differs from the statutory
rate for the year ended December 31, 2021 relate to the impact of non-deductible transaction costs and convertible debt and warrant expenses as well as the accrual of uncertain positions. The key differences resulting in income tax expense that
differs from the statutory rate for the year ended December 31, 2020 relate to the accrual of uncertain positions. The key differences resulting in income tax benefit that differs from the statutory rate for the year ended December 31, 2019
relate to the release of the valuation allowances against deferred tax assets.
The types of temporary differences that give rise to the Company’s deferred tax assets
and liabilities as of December 31, 2021 and 2020 are as follows:
|
|
| |
2021
|
| |
2020
|
|
Net operating losses
|
| |
$142,641
|
| |
$145,874
|
|
Accrued expenses
|
| |
843,449
|
| |
487,075
|
|
Deferred revenue
|
| |
422,994
|
| |
734,902
|
|
Tax credits
|
| |
12,259
|
| |
41,561
|
|
Stock compensation
|
| |
42,857
|
| |
83,431
|
|
Other, net
|
| |
10,905
|
| |
32,812
|
|
Total deferred tax assets
|
| |
$1,475,105
|
| |
$1,525,655
|
|
|
| |
|
| |
|
|
Fixed and intangible assets
|
| |
(6,433)
|
| |
(3,872)
|
|
Other, net
|
| |
(139,014)
|
| |
(34,212)
|
|
Valuation allowance
|
| |
(100,421)
|
| |
(59,459)
|
|
Net deferred tax assets
|
| |
$1,229,237
|
| |
$1,428,112
|
As of December 31, 2021 and 2020, the Company has state net operating loss
carryforwards available of approximately $2,739,481 and $2,800,337, respectively, to offset future taxable income, if any, for state income tax purposes. As of December 31, 2021, state net operating loss carryforwards begin to expire in 2028.
The Company has recorded valuation allowances of $100,421 and $59,459 as of
December 31, 2021 and 2020, respectively. The valuation allowance at December 31, 2021 represents a partial reserve against certain state net operating losses and credits. In evaluating its valuation allowance, the Company considers all
available positive and negative evidence, including future reversal of existing taxable temporary differences, taxable income in prior carryback years, projected future taxable income, tax planning strategies, and recent financial performance.
Realization of the Company’s deferred tax assets is dependent on generating sufficient taxable income prior to the expiration of net operating loss and credit carryforwards. Management believes that it is more-likely-than-not that the results
of future operations will generate sufficient taxable income to realize the balance of the deferred tax assets as of December 31, 2021.
The Company recognizes a tax benefit from an uncertain tax position when it is more
likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition at the
effective date to be recognized. As of December 31, 2021 and 2020, the unrecognized tax benefits recorded were approximately $680,958 and $484,967, respectively. The Company does not anticipate a significant change in the unrecognized tax
benefits within the next 12 months. If the unrecognized tax positions were recognized, an income tax benefit of $575,328 would be recognized.
|
|
| |
2021
|
| |
2020
|
|
Uncertain tax positions:
|
| |
|
| |
|
|
Balance at beginning of year
|
| |
$484,967
|
| |
$287,181
|
|
Accrual for positions taken in a prior year
|
| |
211,291
|
| |
170,808
|
|
Accrual for positions taken in current year
|
| |
60,214
|
| |
49,439
|
|
Reversals due to lapse of statute of limitations
|
| |
(37,091)
|
| |
(22,461)
|
|
Decreases for positions taken in a prior year
|
| |
(38,423)
|
| |
—
|
|
Balance at end of year
|
| |
$680,958
|
| |
$484,967
|
|
Interest
|
| |
$41,284
|
| |
$11,120
|
|
Penalties
|
| |
42,910
|
| |
20,923
|
|
Net of tax attributes
|
| |
(15,519)
|
| |
(52,609)
|
|
Total at end of year
|
| |
$749,633
|
| |
464,401
|
FS-93
Accrued interest and penalties related to unrecognized tax benefits are classified
as income tax expense. During 2021 and 2020, the Company recognized interest of $30,164 and $11,120, respectively, and penalties of $21,987 and $20,923, respectively. As of December 31, 2021 and 2020, interest and penalties of $84,194 and
$32,043, respectively, have been accrued. The Company files federal income tax returns in the United States and various state jurisdictions. As of December 31, 2021, the Company’s statutes of limitations are open for most federal and state
filings for the years ended December 31, 2018 through December 31, 2021. Net operating loss and credit carryforwards from all years are subject to examination and adjustments for the three years following the year in which the carryforwards are
utilized. The Company is not currently undergoing any federal or state income tax examinations.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
was enacted and signed into law in response to coronavirus disease 2019 (“COVID-19”). The CARES Act, among other things, included several significant provisions that impacted corporate taxpayers’ accounting for income taxes. Prior to the
enactment of the CARES Act, the 2017 Tax Cuts and Jobs Act generally eliminated the ability to carryback net operating losses (“NOLs”) and permitted the NOLs arising in tax years beginning after December 31, 2017 to be carried forward
indefinitely, limited to 80% of the taxpayer’s income. The CARES Act amended the NOL rules, suspending the 80% limitation on the utilization of NOLs generated after December 31, 2017 and before January 1, 2021. Additionally, the CARES Act
allows corporate NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021, to be carried back to each of the five taxable years preceding the taxable year of the loss. Also, the CARES Act allows companies to
defer making certain payroll tax payments until future years. There was no impact to the financial statements due to the enactment of the CARES Act.
|
11.
|
Accrued Expenses
|
The Company accrues expenses related to payroll, taxes, rent, and
other expenses within accrued expenses. The table below provides detail of the accrued expenses as December 31:
|
|
| |
2021
|
| |
2020
|
|
|
| |
|
| |
|
|
Accrued payroll, bonus, and employee benefits
|
| |
$2,098,907
|
| |
$1,466,698
|
|
Accrued warrant liability
|
| |
1,989,478
|
| |
—
|
|
Accrued sales taxes payable
|
| |
1,368,157
|
| |
691,953
|
|
Other accrued expenses
|
| |
1,009,846
|
| |
809,410
|
|
Accrued taxes payable
|
| |
95,157
|
| |
1,084,631
|
|
Deferred rent
|
| |
44,962
|
| |
—
|
|
Accrued expenses
|
| |
$6,606,507
|
| |
$4,052,692
|
|
12.
|
Retirement Plan
|
The Company maintains a defined contribution 401(k) plan, whereby
employees meeting certain requirements are eligible to participate. Eligible participants may contribute a portion of their compensation to the plan. The Company may make matching contributions in a percentage set by the Company each plan year.
Discretionary contributions may be made at the option of the Company. The Company contributed $298,671 in 2021, $272,211 in 2020, and $245,016 in 2019.
|
13.
|
Stock Incentive Plan
|
In August 2016, the Company adopted the 2016 Equity Incentive Plan
(the “2016 Plan”) in which incentive equity awards were authorized to be issued to key employees, officers, directors, and consultants of the Company. Under the terms of the 2016 Plan a maximum of 6,287,732 shares of common stock are available
for issuance. The Company may grant shares of common stock in the form of incentive stock options, nonqualified stock options, restricted stock grants, non-restricted stock grants or restricted stock units. Options granted under the 2016 Plan
have a term of ten years and vest over a period of up to 48 months, subject to modification by the Board of Directors. The exercise price of the options may not be granted at a price less than 100% of the fair value of the common stock on the
date of grant. In August 2017, the Company terminated the 2016 Plan and all shares available for issuance were rolled into the 2017 Plan. As of December 31, 2021, there were 275,000 awards outstanding and no shares available for issuance under
the 2016 Plan.
FS-94
In August 2017, the Company adopted the 2017 Equity Incentive Plan
(the “2017 Plan”) in which incentive equity awards were authorized to be issued to key employees, officers, directors, and consultants of the Company. Under the terms of the 2017 Plan a maximum of 8,785,330 shares of common stock are available
for issuance and future cancellations and forfeitures from the 2016 Plan role into the available pool automatically. The Company may grant shares of common stock in the form of incentive stock options, nonqualified stock options, restricted
stock grants, non-restricted stock grants or restricted stock units. Options granted under the 2017 Plan have a term of ten years and vest over a period of up to 60 months, subject to modification by the Board of Directors. The exercise price
of the options may not be granted at a price less than 100% of the fair value of the common stock on the date of grant. As of December 31, 2021, there were 2,568,372 awards outstanding and 307,053 shares available for issuance under the 2017
Plan.
Stock based compensation expense of $28,493, $37,644, and $63,510 for
stock options was recorded in general and administrative expenses in the accompanying consolidated statement of income for the periods ending December 31, 2021, 2020, and 2019, respectively. At December 31, 2021, there was $61,536 of total
compensation expense related to stock-based awards granted under the plans that will be recognized from 2022 through 2025. The compensation expense of $61,536 is expected to be recognized over a weighted average period of 3.07 years.
The grant-date fair value of each option award is estimated on the
date of grant using the Black-Scholes-Merton option pricing model. The weighted average grant date fair value of options granted during the years-ended December 31, 2021, 2020, and 2019 was $0.09, $0.02, and $0.02 respectively. The Company uses
a simplified method to estimate the expected term of the options. The Company utilizes a divided yield rate of 0% as it does not expect to issue dividends. Since the Company’s shares are not publicly traded, expected volatility is estimated
based on the average historical volatility of similar entities with publicly traded shares. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant. The weighted average assumptions
for 2021, 2020, and 2019 grants are as follows:
|
|
| |
2021
|
| |
2020
|
| |
2019
|
|
Valuation assumptions:
|
| |
|
| |
|
| |
|
|
Expected dividend yield
|
| |
0%
|
| |
0%
|
| |
0%
|
|
Expected volatility
|
| |
36%
|
| |
35%
|
| |
32%
|
|
Expected term (years)
|
| |
7.0
|
| |
7.0
|
| |
6.1
|
|
Risk free interest rate
|
| |
0.60%
|
| |
0.27%
|
| |
1.5%
|
Stock option activity during the year ended December 31, 2021 is as
follows:
|
|
| |
Number of
Shares
|
| |
Weighted
Average
Exercise Price
|
| |
Weighted
Average
Remaining
Contractual
Term
|
| |
Intrinsic
Value
|
|
Balance at December 31, 2020
|
| |
4,714,617
|
| |
$0.08
|
| |
7.6
|
| |
(42,580)
|
|
Granted
|
| |
485,500
|
| |
0.24
|
| |
|
| |
|
|
Exercised
|
| |
(1,997,681)
|
| |
0.04
|
| |
|
| |
|
|
Forfeited
|
| |
(359,064)
|
| |
0.07
|
| | | | ||
|
Balance at December 31, 2021
|
| |
2,843,372
|
| |
$0.14
|
| |
7.3
|
| |
5,767,781
|
|
Exercisable as of December 31, 2021
|
| |
1,488,572
|
| |
$0.17
|
| |
6.2
|
| |
2,985,483
|
The weighted average grant date fair value of options exercised
during 2021, 2020 and 2019 was $0.24, $0.07, and $0.07, respectively. The intrinsic value of options exercised during 2021, 2020, and 2019 was $192,231, $8,597, and $100,696, respectively. The fair value of shares vested during 2021, 2020, and
2019 was $358,287, $146,424, and $151,949, respectively.
|
14.
|
Earnings per Share
|
Earnings Per Share (“EPS”) is calculated under the two-class method
under which all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities based on their respective rights to receive dividends. Series A-1 and A-2 Preferred Stock are entitled to receive
nonforfeitable
FS-95
dividends equivalent to the dividends paid to the holders of Common Stock; the
preferred shares meet the definition of participating securities. The following table presents the calculation of basic and diluted EPS for the year ended December 31, 2021.
|
|
| |
2021
|
|
Basic and Diluted Earnings per Share
|
| |
|
|
Net loss applicable to common equity
|
| |
$(526,590)
|
|
Less: undistributed earnings allocated to participating securities
|
| |
—
|
|
Less: deemed dividend to preferred shareholders
|
| |
(32,451,002)
|
|
Net loss applicable to common stockholders
|
| |
(32,977,592)
|
|
|
| |
|
|
Total weighted-average common shares outstanding
|
| |
10,797,483
|
|
Total weighted average warrant common shares added to basic EPS
|
| |
980,506
|
|
Total weighted-average basic shares outstanding
|
| |
11,777,989
|
|
Net loss per share, basic and diluted
|
| |
$(2.80)
|
Certain classifications of equity awards were excluded from the
computation of dilutive EPS because inclusion of these awards would have had an anti-dilutive effect. The following table reflects the awards excluded:
|
Employee stock options
|
| |
2,612,413
|
|
Conversion of preferred shares
|
| |
32,076,680
|
The following table presents the calculation of basic and diluted EPS
for the years ended December 31, 2020 and 2019.
|
|
| |
2020
|
| |
2019
|
|
Basic Earnings per Share
|
| |
|
| |
|
|
Net income applicable to common equity
|
| |
$6,654,082
|
| |
$3,153,433
|
|
Less: undistributed earnings allocated to participating securities
|
| |
(5,002,855)
|
| |
(2,501,279)
|
|
Net income applicable to common stockholders
|
| |
1,651,227
|
| |
652,154
|
|
|
| |
|
| |
|
|
Total weighted-average common shares outstanding
|
| |
9,606,626
|
| |
7,382,782
|
|
Total weighted average warrant common shares added to basic EPS
|
| |
980,506
|
| |
980,506
|
|
Total weighted-average basic shares outstanding
|
| |
10,587,132
|
| |
8,363,288
|
|
Net income per share
|
| |
$0.16
|
| |
$0.08
|
|
|
| |
|
| |
|
|
Diluted Earnings per Share
|
| |
|
| |
|
|
Net income applicable to common equity
|
| |
$1,651,227
|
| |
$652,154
|
|
Add: undistributed earnings allocated to participating securities
|
| |
5,002,855
|
| |
2,501,279
|
|
Diluted net income applicable to common stockholders
|
| |
6,654,082
|
| |
3,153,433
|
|
|
| |
|
| |
|
|
Total weighted-average basic shares outstanding
|
| |
10,587,132
|
| |
8,363,288
|
|
Add: employee stock options
|
| |
1,413,709
|
| |
2,405,008
|
|
Add: conversion of preferred shares
|
| |
32,076,680
|
| |
32,076,680
|
|
Total weighted-average diluted shares outstanding
|
| |
44,077,521
|
| |
42,844,976
|
|
Net income per share
|
| |
$0.15
|
| |
$0.07
|
|
15.
|
Related Party Transactions
|
As discussed further in Note 4, the Company has a convertible debt
loan due to several stockholders. The Company did not pay any loan fees or interest on the convertible debt loan to its stockholders in the years ended December 31, 2021, 2020, and 2019.
Additionally, the Company recognized $1,235,751, $1,403,395, and
$896,604 in revenue from contracts with affiliates of a minority stockholder and recognized $516,283, $565,611, and $0 in expense from contracts with affiliates of majority stockholders during 2021, 2020, and 2019, respectively. For the year
ended December 31,
FS-96
2021, expense of $501,170 was recorded in cost of services, $3,203 was recorded in
sales and marketing, and $11,910 was recorded in general and administrative in the consolidated statements of income. For the year ended December 31, 2020, $565,611 was recorded in cost of services in the consolidated statements of income.
As discussed further in Note 4, the Company had a Related Party Loan
from a minority stockholder. The Company paid interest to the related party of $0, $805,944, and $960,556 in 2021, 2020, and 2019, respectively. The stockholder also received stock warrants to purchase shares of common and preferred stock in
conjunction with the debt. See Note 4 and Note 9 for additional details.
|
16.
|
Fair Value Measurements
|
The Company used the following methods and significant assumptions to
estimate fair value for certain liabilities measured and carried at fair value on a recurring basis:
Convertible debt – The fair value is calculated taking into
consideration the original term to maturity, weighing the possible outcomes and the current yield for similar debt. The present value of future cash flows is then calculated utilizing market-based discount rate assumptions.
|
|
| |
As of December 31, 2021
|
||||||
|
|
| |
Level 1
|
| |
Level 2
|
| |
Level 3
|
|
|
| |
|
| |
|
| |
|
|
Assets
|
| |
|
| |
|
| |
|
|
Cash and cash equivalents
|
| |
$17,985,874
|
| |
$—
|
| |
$—
|
|
Total fair value of assets measured on a recurring basis
|
| |
$17,985,874
|
| |
$—
|
| |
$—
|
|
Liabilities
|
| |
|
| |
|
| |
|
|
Warrant liability
|
| |
$—
|
| |
$—
|
| |
$1,989,478
|
|
Convertible debt
|
| |
—
|
| |
—
|
| |
2,444,924
|
|
Total fair value of liabilities measured on a recurring basis
|
| |
$—
|
| |
$—
|
| |
$4,434,402
|
|
|
| |
As of December 31, 2020
|
||||||
|
|
| |
Level 1
|
| |
Level 2
|
| |
Level 3
|
|
Assets
|
| |
|
| |
|
| |
|
|
Cash and cash equivalents
|
| |
$14,742,621
|
| |
$—
|
| |
$—
|
|
Total fair value of assets measured on a recurring basis
|
| |
$14,742,621
|
| |
$—
|
| |
$—
|
|
Liabilities
|
| |
|
| |
|
| |
|
|
Convertible debt
|
| |
$—
|
| |
$—
|
| |
$1,732,686
|
|
Total fair value of liabilities measured on a recurring basis
|
| |
$—
|
| |
$—
|
| |
$1,732,686
|
The following table presents additional information about financial
assets measured at fair value on a recurring basis for which the Company used significant unobservable inputs (Level 3):
|
|
| |
Convertible Debt
|
|||
|
|
| |
2021
|
| |
2020
|
|
Balance, beginning of period
|
| |
$1,732,686
|
| |
$1,552,074
|
|
Loss from change in fair value
|
| |
712,238
|
| |
180,612
|
|
Balance, end of period
|
| |
$2,444,924
|
| |
$1,732,686
|
FS-97
The convertible debt was valued using the fair value option and is
a level 3 measured instrument. See Note 5 Convertible Debt Loan for further information. The Company elected to use the fair value option. The fair value was determined based upon a scenario-based approach that considers the provisions of the
convertible debt. The following table outlines the significant unobservable inputs as of December 31, 2021 and 2020:
|
|
| |
Assumption
|
|||
|
Unobservable input
|
| |
2021
|
| |
2020
|
|
Probabilities of conversion provisions
|
| |
75%
|
| |
25%
|
|
Estimated timing of conversion
|
| |
.97 years
|
| |
1.97 years
|
|
Time period to maturity
|
| |
.97 years
|
| |
1.97 years
|
|
Risk-adjusted discount rate
|
| |
23.26%
|
| |
23.26%
|
The following table presents additional information about financial
assets measured at fair value on a recurring basis for which the Company used significant unobservable inputs (Level 3):
|
|
| |
Warrant
Liability
|
|
|
| |
2021
|
|
Balance, beginning of period
|
| |
$—
|
|
Warrant reclassification
|
| |
46,250
|
|
Loss from change in fair value
|
| |
1,943,228
|
|
Balance, end of period
|
| |
$1,989,478
|
|
Common Stock Warrant Unobservable input
|
| |
Assumption
|
|
|
| |
2021
|
|
Volatility rate
|
| |
33%
|
|
Term
|
| |
4 years
|
|
Discount rate
|
| |
1.12%
|
|
Preferred Stock Warrant Unobservable input
|
| |
Assumption
|
|
|
| |
2021
|
|
Volatility rate
|
| |
33%
|
|
Term
|
| |
7 years
|
|
Discount rate
|
| |
1.44%
|
Impacts in prior periods were immaterial.
|
17.
|
Commitments and Contingencies
|
From time to time, the Company may become involved in routine
litigation arising in the ordinary course of business. While the results of such litigation cannot be predicted with certainty, management believes that the final outcome of such matters is not likely to have a material effect on the Company’s
financial position or results of operations or cash flows.
The Company has entered a non-cancellable purchase commitment of
$32,414,142 related to six months of outsourced credit monitoring services provided to the Company’s largest customer as of December 31, 2021. This commitment amount and length is determined by the customer’s exercise of annual option periods.
|
18.
|
Subsequent Events
|
The Company has evaluated subsequent events through the date these
financial statements were available to be issued, April 8, 2022, and concluded that there are no material subsequent events which would require adjustment to or disclosure in the accompanying financial statements.
FS-98
Condensed Consolidated Balance Sheets (Unaudited)
|
(in thousands, except for share data)
|
| |
April 30,
2022
|
| |
January 31,
2022
|
|
Assets
|
| |
|
| |
|
|
Current assets:
|
| |
|
| |
|
|
Cash and cash equivalents
|
| |
$10,110
|
| |
$10,274
|
|
Accounts receivable, net of allowance for doubtful
accounts of $61 and $68, respectively
|
| |
12,476
|
| |
17,046
|
|
Deferred contract acqusition costs, current
|
| |
4,594
|
| |
4,174
|
|
Prepaid expenses and other assets
|
| |
2,404
|
| |
1,276
|
|
Total current assets
|
| |
29,584
|
| |
32,770
|
|
|
| |
|
| |
|
|
Property and equipment, net of accumulated depreciation
of $2,174 and $2,022, respectively
|
| |
625
|
| |
694
|
|
Capitalized software, net of accumulated amortization
of $3,809 and $3,657, respectively
|
| |
983
|
| |
914
|
|
Deferred contract acqusition costs, net of current portion
|
| |
6,869
|
| |
7,481
|
|
Acquired intangible assets - net of accumulated
amortization of $4,729 and $3,940, respectively
|
| |
13,421
|
| |
14,210
|
|
Goodwill
|
| |
35,002
|
| |
35,002
|
|
Other assets
|
| |
344
|
| |
319
|
|
Total assets
|
| |
$86,828
|
| |
$91,390
|
|
|
| |
|
| |
|
|
Liabilities, redeemable convertible preferred stock, and
stockholders' deficit
|
| |
|
| |
|
|
Current liabilities:
|
| |
|
| |
|
|
Accounts payable
|
| |
$4,181
|
| |
$4,276
|
|
Accrued compensation, accrued expenses, and other current liabilities
|
| |
3,319
|
| |
7,020
|
|
Current portion of long-term debt
|
| |
6,031
|
| |
5,970
|
|
Deferred revenue, current
|
| |
32,855
|
| |
29,532
|
|
Total current liabilities
|
| |
46,386
|
| |
46,798
|
|
|
| |
|
| |
|
|
Deferred revenue—net of current portion
|
| |
6,806
|
| |
9,299
|
|
Long term debt—net of deferred financing costs of
$2,052 and $1,627, respectively
|
| |
52,359
|
| |
45,503
|
|
Warrants
|
| |
11,891
|
| |
10,709
|
|
Total liabilities
|
| |
117,442
|
| |
112,309
|
|
|
| |
|
| |
|
|
Commitments and contingencies (Note 9)
|
| |
|
| |
|
|
|
| |
|
| |
|
|
Redeemable convertible preferred stock
|
| |
132,229
|
| |
132,229
|
|
|
| |
|
| |
|
|
Stockholders' deficit
|
| |
|
| |
|
|
Common stock, $0.00001 par value; 319,462,878
authorized shares; 43,207,753 and 42,892,897 shares issued and outstanding, respectively
|
| |
—
|
| |
—
|
|
Additional paid-in capital
|
| |
4,327
|
| |
3,873
|
|
Accumulated deficit
|
| |
(167,023)
|
| |
(156,820)
|
|
Accumulated other comprehensive loss
|
| |
(147)
|
| |
(201)
|
|
Total stockholders’ deficit
|
| |
(162,843)
|
| |
(153,148)
|
|
|
| |
|
| |
|
|
Total liabilities, redeemable convertible preferred stock, and
stockholders' deficit
|
| |
$86,828
|
| |
$91,390
|
See notes to condensed consolidated financial statements
FS-99
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
|
|
| |
For the three months ended April 30,
|
|||
|
(in thousands, except for share and per share data)
|
| |
2022
|
| |
2021
|
|
Revenue
|
| |
$13,591
|
| |
$10,987
|
|
|
| |
|
| |
|
|
Cost of revenue
|
| |
4,249
|
| |
3,615
|
|
|
| |
|
| |
|
|
Gross profit
|
| |
9,342
|
| |
7,372
|
|
|
| |
|
| |
|
|
Operating expenses
|
| |
|
| |
|
|
Research and development
|
| |
3,961
|
| |
2,389
|
|
Sales and marketing
|
| |
8,534
|
| |
6,449
|
|
General and administrative
|
| |
4,946
|
| |
2,031
|
|
Total operating expenses
|
| |
17,441
|
| |
10,869
|
|
|
| |
|
| |
|
|
Loss from operations
|
| |
(8,099)
|
| |
(3,497)
|
|
|
| |
|
| |
|
|
Other expense
|
| |
|
| |
|
|
Interest expense, net
|
| |
(1,386)
|
| |
(698)
|
|
Change in fair value of warrant liability
|
| |
(663)
|
| |
(31)
|
|
Total other expense
|
| |
(2,049)
|
| |
(729)
|
|
Loss before income taxes
|
| |
(10,148)
|
| |
(4,226)
|
|
|
| |
|
| |
|
|
Income taxes
|
| |
55
|
| |
15
|
|
|
| |
|
| |
|
|
Net loss after tax
|
| |
$(10,203)
|
| |
$(4,241)
|
|
Net loss per share attributable to common stockholders, basic and diluted
|
| |
$(0.24)
|
| |
$(0.10)
|
|
Weighted-average shares used in computation of net loss
per share attributable to common stockholders, basic and diluted:
|
| |
42,962,226
|
| |
41,914,026
|
|
|
| |
|
| |
|
|
Other comprehensive income (loss)
|
| |
|
| |
|
|
Foreign currency translation
|
| |
54
|
| |
(37)
|
|
Total other comprehensive income (loss)
|
| |
54
|
| |
(37)
|
|
|
| |
|
| |
|
|
Total comprehensive loss
|
| |
$(10,149)
|
| |
$(4,278)
|
See notes to condensed consolidated financial statements
FS-100
Condensed Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Deficit (Unaudited)
|
|
| |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
(in thousands, except for share data)
|
| |
Series E
Redeemable
Convertible
Preferred
Stock
|
| |
Series D-2
Redeemable
Convertible
Preferred
Stock
|
| |
Series D-1
Redeemable
Convertible
Preferred
Stock
|
| |
Series D
Redeemable
Convertible
Preferred
Stock
|
| |
Series C-1
Redeemable
Convertible
Preferred
Stock
|
| |
Series C
Redeemable
Convertible
Preferred
Stock
|
| |
Series B
Redeemable C
onvertible
Preferred
Stock
|
| |
Series A
Redeemable
Convertible
Preferred
Stock
|
| |
Series Seed
Redeemable
Convertible
Preferred
Stock
|
| |
Total
Redeemable
Convertible
Preferred
Stock
|
| |
Common
Stock
|
| |
Additional
Paid-in
Capital
|
| |
Accumulated
Deficiit
|
| |
Accumulated
Other
Comprehensive
Income
|
| |
Stockholders'
Deficit
|
|||||||||||||||||||||||||||||||||
|
Balance—January 31, 2021
|
| |
12,006,090
|
| |
25,409
|
| |
993,868
|
| |
1,451
|
| |
5,878,303
|
| |
8,171
|
| |
13,871,547
|
| |
21,067
|
| |
11,376,115
|
| |
13,979
|
| |
21,124,699
|
| |
19,899
|
| |
26,914,949
|
| |
22,047
|
| |
15,997,285
|
| |
10,159
|
| |
9,198,372
|
| |
2,208
|
| |
117,361,228
|
| |
124,390
|
| |
41,904,944
|
| |
—
|
| |
2,975
|
| |
(118,381)
|
| |
(123)
|
| |
(115,529)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Issuance of Series E convertible preferred stock
|
| |
2,199,174
|
| |
5,014
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
2,199,174
|
| |
5,014
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
5,014
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Stock-based compensation expense
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
133
|
| |
—
|
| |
—
|
| |
133
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Exercise of options
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
46,563
|
| |
—
|
| |
8
|
| |
—
|
| |
—
|
| |
8
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(4,241)
|
| |
—
|
| |
(4,241)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Foreign currency translation adjustment
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(43)
|
| |
(43)
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||
|
Balance—April 30, 2021
|
| |
14,205,264
|
| |
$30,423
|
| |
993,868
|
| |
$1,451
|
| |
5,878,303
|
| |
$8,171
|
| |
13,871,547
|
| |
$21,067
|
| |
11,376,115
|
| |
$13,979
|
| |
21,124,699
|
| |
$19,899
|
| |
26,914,949
|
| |
$22,047
|
| |
15,997,285
|
| |
$10,159
|
| |
9,198,372
|
| |
$2,208
|
| |
119,560,402
|
| |
$129,404
|
| |
41,951,507
|
| |
$—
|
| |
$3,116
|
| |
$(122,622)
|
| |
$(166)
|
| |
$(114,658)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||
|
Balance—January 31, 2022
|
| |
15,227,437
|
| |
33,248
|
| |
993,868
|
| |
1,451
|
| |
5,878,303
|
| |
8,171
|
| |
13,871,547
|
| |
21,067
|
| |
11,376,115
|
| |
13,979
|
| |
21,124,699
|
| |
19,899
|
| |
26,914,949
|
| |
22,047
|
| |
15,997,285
|
| |
10,159
|
| |
9,198,372
|
| |
2,208
|
| |
120,582,575
|
| |
132,229
|
| |
42,892,927
|
| |
—
|
| |
3,873
|
| |
(156,820)
|
| |
(201)
|
| |
(153,148)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Stock-based compensation expense
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
374
|
| |
—
|
| |
—
|
| |
374
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Exercise of options
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
314,826
|
| |
—
|
| |
80
|
| |
—
|
| |
—
|
| |
80
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(10,203)
|
| |
—
|
| |
(10,203)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Foreign currency translation adjustment
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
54
|
| |
54
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||
|
Balance—April 30, 2022
|
| |
15,227,437
|
| |
$33,248
|
| |
993,868
|
| |
$1,451
|
| |
5,878,303
|
| |
$8,171
|
| |
13,871,547
|
| |
$21,067
|
| |
11,376,115
|
| |
$13,979
|
| |
21,124,699
|
| |
$19,899
|
| |
26,914,949
|
| |
$22,047
|
| |
15,997,285
|
| |
$10,159
|
| |
9,198,372
|
| |
$2,208
|
| |
120,582,575
|
| |
$132,229
|
| |
43,207,753
|
| |
$—
|
| |
$4,327
|
| |
$(167,023)
|
| |
$(147)
|
| |
$(162,843)
|
See notes to condensed consolidated financial statements
FS-101
Condensed Consolidated Statements of Cash Flows (Unaudited)
|
|
| |
For the three months ended April 30,
|
|||
|
(in thousands)
|
| |
2022
|
| |
2021
|
|
Cash flows from operating activities:
|
| |
|
| |
|
|
Net loss
|
| |
$(10,203)
|
| |
$(4,241)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
| |
|
| |
|
|
Depreciation and amortization
|
| |
160
|
| |
107
|
|
Amortization of software development costs
|
| |
153
|
| |
142
|
|
Amortization of acquired intangible assets
|
| |
789
|
| |
688
|
|
Stock-based compensation and consulting expense
|
| |
374
|
| |
133
|
|
Provision for bad debts
|
| |
(7)
|
| |
—
|
|
Change in fair value of warrants
|
| |
663
|
| |
31
|
|
Change in fair value of contingent consideration
|
| |
—
|
| |
(170)
|
|
Noncash interest expense
|
| |
258
|
| |
116
|
|
Changes in operating assets and liabilities:
|
| |
|
| |
|
|
Accounts receivable
|
| |
4,578
|
| |
1,549
|
|
Deferred contract acquisition costs
|
| |
192
|
| |
181
|
|
Prepaid expenses and other assets
|
| |
(1,128)
|
| |
(779)
|
|
Accounts payable, accrued compensation, accrued
|
| |
|
| |
|
|
expenses, and other current liabilities
|
| |
(3,797)
|
| |
(2,147)
|
|
Deferred revenue
|
| |
830
|
| |
79
|
|
Other liabilities
|
| |
(26)
|
| |
—
|
|
Net cash used in operating activities
|
| |
(7,164)
|
| |
(4,311)
|
|
|
| |
|
| |
|
|
Cash flows from investing activities:
|
| |
|
| |
|
|
Business acquistion
|
| |
—
|
| |
(38)
|
|
Purchases of property and equipment
|
| |
(97)
|
| |
(149)
|
|
Capitalized software
|
| |
(221)
|
| |
(130)
|
|
Net cash used in investing activities
|
| |
(318)
|
| |
(317)
|
|
|
| |
|
| |
|
|
Cash flows from financing activities:
|
| |
|
| |
|
|
Exercise of stock options
|
| |
80
|
| |
8
|
|
Proceeds from issuance of debt, net of issuance costs
paid in cash of $88 and $0
|
| |
7,412
|
| |
—
|
|
Repyament of debt
|
| |
(234)
|
| |
—
|
|
Net cash provided by financing activities
|
| |
7,258
|
| |
8
|
|
|
| |
|
| |
|
|
Foreign exchange translation adjustment
|
| |
60
|
| |
(42)
|
|
|
| |
|
| |
|
|
Net change in cash, cash equivalents, and restricted cash
|
| |
(164)
|
| |
(4,662)
|
|
|
| |
|
| |
|
|
Cash, cash equivalents, and restricted cash beginning of year
|
| |
10,374
|
| |
13,864
|
|
|
| |
|
| |
|
|
Cash, cash equivalents, and restricted cash end of year
|
| |
$10,210
|
| |
$9,202
|
|
|
| |
|
| |
|
|
Supplemental Cash Flow Information:
|
| |
|
| |
|
|
Cash paid for interest
|
| |
$1,043
|
| |
$578
|
|
Cash paid for income taxes
|
| |
23
|
| |
12
|
|
|
| |
|
| |
|
|
Non-cash investing and financing activities:
|
| |
|
| |
|
|
Issuance of warrants along with issuance of debt
|
| |
$518
|
| |
$—
|
|
Issuance of redeemable convertible preferred stock in
connection with acquisition
|
| |
—
|
| |
5,014
|
See notes to condensed consolidated financial statements
FS-102
The following table provided a reconcilation of cash, cash equivalents, and
restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows.
|
Cash and cash equivalents
|
| |
$10,110
|
| |
$9,102
|
|
Restricted cash included in other assets
|
| |
100
|
| |
100
|
|
Total cash, cash equivalents, and restricted cash shown in
the condensed consolidated statements of cash flows
|
| |
$10,210
|
| |
$9,202
|
See notes to condensed consolidated financial statements
FS-103
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
1.
|
ORGANIZATION AND DESCRIPTION OF BUSINESS
|
The accompanying condensed consolidated financial statements include the assets,
liabilities, revenues, expenses, and cash flows of ZeroFox, Inc., ZeroFox’s Inc.’s subsidiaries, and the acquired sets of assets and activities obtained by ZeroFox, Inc. that are accounted for as business combinations (collectively, the
“Company”) under accounting principles generally accepted in the United States of America (US GAAP).
The Company is an enterprise cybersecurity software-as-a-service provider of digital
attack detection and protection services. The Company’s patented technology collects and processes content, rich media, electronic posts, messages, global intelligence and threat actor activity across the digital landscape, including social
media sites, public, deep and dark web forums, mobile app stores and other digital platforms and discrete content sources. Using artificial intelligence-based analysis and threat intelligence capabilities, the ZeroFox platform identifies and
remediates targeted phishing attacks, credential and account compromise, data exfiltration and brand hijacking threats. The Company offers its services on a subscription basis.
On December 17, 2021, the Company entered into a business combination agreement with
L&F Acquisition Corp. (“L&F”), which is a Special Purpose Acquisition Company (a “SPAC”), and ID Experts Holdings, Inc. (“IDX”). Pursuant to the business combination agreement, ZeroFox will become a publicly listed company, as the
surviving business post-merger. Upon consummation of the business combination, it is expected that at least $170.0 million of cash will be raised through the issuance of certain convertible notes and a contemporaneous sale of common stock in
connection with the closing of the business combination.
There can be no assurance that the business combination will occur, as the
consummation of the transaction is subject to (A) the affirmative vote of at least a two-thirds of the votes cast by L&F’s pre-merger shareholders at an L&F special meeting for which a quorum is present and (B) a minimum of
$170.0 million of aggregate required funds becoming available to the combined company based upon the summation of (i) the cash proceeds from L&F’s contemporaneous PIPE investment pursuant to which common stock will be sold, (ii) the
proceeds from the issuance of certain convertible notes, and (iii) cash and marketable securities held in trust, after permitted redemptions of Class A common shares held by L&F’s public shareholders. Neither approval of the merger
transaction by L&F’s shareholders nor the amount of cash and marketable securities that would remain in L&F’s trust account after permitted redemptions of Class A common shares by L&F’s public stockholders is within the control of
the Company, L&F, or IDX. If the business combination does occur, L&F’s name will be changed to ZeroFox Holdings, Inc. (See note 10).
Segment Information—Operating
segments are defined as components of an enterprise for which discrete financial information is made available for evaluation by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing
performance. The CODM is the Company’s chief executive officer. The CODM views the Company’s operations and manages its activities as a single operating segment, which is the business of providing cybersecurity intelligence, analytics, and
protection services to its customers. The Company’s assets are primarily located in the United States.
Liquidity and Going Concern—For
the three months ended April 30, 2022 and 2021, the Company incurred net losses of $10.2 million and $4.2 million, respectively, and incurred negative cash flows from operating activities of $7.2 million and $4.3 million, respectively. The
Company has incurred operating losses since inception and continues to face significant risks associated with successful execution of the Company’s business plan that include, but are not limited to, customer acquisition, competition, market
risk, and liquidity risk. The Company has historically funded its operations through the issuance of redeemable convertible preferred stock (see Note 2) and debt (see Note 5). The Company evaluated its financial condition as of April 30, 2022
and determined it is probable that, without consideration of a remediation plan to refinance or renegotiate existing debt facilities or raise new sources of capital, the Company would be unable to meet working capital shortfalls in the next
twelve months from the date the condensed consolidated financial statements are available to be issued.
FS-104
On December 17, 2021, the Company entered into a definitive agreement for a merger
that would result in the Company becoming a publicly listed company. There can be no assurance that the Company will continue to raise additional funds to maintain sufficient liquidity, and accordingly there is substantial doubt about the
Company’s ability to continue as a going concern.
The condensed consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States (“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.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation—The
accompanying condensed consolidated financial statements have been prepared in accordance with US GAAP as set forth by the Financial Accounting Standards Board (FASB). References to US GAAP issued by the FASB in these notes to the
consolidated financial statements are to the FASB Accounting Standards Codifications (“ASC”).
Unaudited Interim Financial Information— The interim condensed consolidated financial statements have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information
and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in
these condensed consolidated financial statements comply with the requirements of the SEC and are adequate to make the information presented not misleading. The interim condensed financial statements included herein reflect all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the balance sheet, comprehensive loss and cash flows for the interim periods presented. These interim condensed
consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this registration statement for the year ended January 31, 2022. The condensed consolidated
statement of comprehensive loss for the three months ended April 30, 2022 is not necessarily indicative of the results to be anticipated for the entire year ending January 31, 2023 or thereafter. All references to April 30, 2022 and 2021 in
the notes to condensed consolidated financial statements are unaudited.
Emerging Growth Company Status—The
Company is an “emerging growth company,” (“EGC”) as defined in the Jumpstart Our Business Startups Act, (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public
companies that are not EGCs. The Company may take advantage of these exemptions until it is no longer an EGC under Section 107 of the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting
standards. As a result of this election, the Company’s financial statements may not be comparable to companies that comply with public company Financial Accounting Standards Board (“FASB”) standards’ effective dates.
The Company is in the process of merging with a publicly traded SPAC, which will be
accounted for in one of two ways depending on the redemption elections of the SPAC shareholders; assuming minimum redemptions, the business combination will be accounted for as a reverse recapitalization in accordance with U.S. GAAP; and
assuming maximum redemptions, the Company will be considered a variable interest entity and the business combination will be accounted for as an acquisition by the SPAC of the Company in accordance with U.S. GAAP. Refer to Note 10 for more
information regarding the transaction. If the transaction is consummated, the surviving company will remain an emerging growth company until the earliest of (i) the last day of the surviving company’s first fiscal year following the fifth
anniversary of the completion of the SPAC’s initial public offering, (ii) the last day of the fiscal year in which the surviving company has total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which
the surviving company is deemed to be a large accelerated filer, which means the market value of the Company’s common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th or (iv) the date on which the surviving
company has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
FS-105
Principles of Consolidation—The
accompanying condensed consolidated financial statements include the accounts of ZeroFox and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates—The preparation
of the accompanying condensed consolidated financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the condensed consolidated financial statements, and the reported results of operations during the reporting periods. Significant estimates and judgments are included within, but not limited to: (1)
revenue recognition, (2) capitalization of internally developed software costs, (3) forecasts and assumptions used in determining the fair value of stock-based compensation, (4) valuation of assets acquired and liabilities assumed in business
combinations, (5) useful lives of contract acquisition costs, (6) warrant valuation, (7) valuation of the Company’s stock, and (8) valuation allowances associated with deferred tax assets. Management bases its estimates and assumptions on
historical experience, expectations, forecasts, and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods
may differ results of prior periods.
Revenue Recognition—The Company
derives its revenue from (i) providing its customers with subscription access to the Company’s enterprise cloud platform (“subscription revenue”) and (ii) revenue from professional services (“professional services revenue”).
The Company generates cloud-based subscription revenue primarily from sales of
subscriptions to access the ZeroFox cloud platform, together with related support and intelligence services to customers. These arrangements do not provide the customer with the right to take possession of the Company’s software operating on
its cloud platform at any time. These arrangements represent a combined, stand-ready performance obligation to provide access to the software together with related support and intelligence services. Customers are granted continuous access to
the Company’s cloud platform over the contractual period. Revenue is recognized over time on a ratable basis over the contract term beginning on the date that the Company’s service is made available to the customer. The Company’s cloud-based
subscription contracts generally have terms of one to three years, which are billed in advance and are noncancelable.
The Company offers several types of professional services, including security advisory
and training services. All of the Company’s professional services are considered distinct performance obligations from the cloud-based subscriptions services within the context of the Company’s contracts. Revenue is recognized over time when
the customers benefit from the services as performed or as control of the promised services is transferred to the customer, as this reflects the pattern of transfer for these professional services. These contracts are available via hourly rate
and fixed fee arrangements and normally have terms of one year or less.
For the three months ended April 30, 2022, subscription revenue, defined as revenue
from subscriptions for cloud-based services with related support and intelligence services, was 94% of total revenue. For the three months ended April 30, 2021, subscription revenue was 95% of total revenue.
Reseller Arrangements— The
Company enters into arrangements with third parties that allow those parties to resell the Company’s services to end users. The partners negotiate pricing with the end customer and the Company does not have visibility into the price paid by
the end customer. For these arrangements, revenue is recognized at the amount charged to the reseller and does not reflect any mark-up to the end user.
As of April 30, 2022, the Company has approximately $59.0 million of revenue that is
expected to be recognized from remaining performance obligations that are unsatisfied (or partially unsatisfied) under non-cancelable contracts. Of this $59.0 million, the Company expects to recognize revenue of approximately $40.0 million in
the period May 2022 through April 2023, approximately $13.1 million in the period May 2023 through April 2024, and approximately $5.9 million thereafter.
FS-106
Disaggregation of Revenue —
The table below provides revenues earned by line of service for the three months ended April 30, 2022 and 2021 (in thousands).
|
Revenue Line
|
| |
2022
|
| |
2021
|
|
Subscription revenue
|
| |
$12,778
|
| |
$10,391
|
|
Professional services
|
| |
813
|
| |
596
|
|
Total
|
| |
$13,591
|
| |
$10,987
|
The table below provides revenues earned based on geographic locations of our
customers for the three months ended April 30, 2022 and 2021 (in thousands).
|
Country
|
| |
2022
|
| |
2021
|
|
United States
|
| |
$10,134
|
| |
$8,398
|
|
Other
|
| |
3,457
|
| |
2,589
|
|
Total
|
| |
$13,591
|
| |
$10,987
|
Goodwill and Intangible Assets–
Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed when a business is acquired. The valuation of intangible assets and goodwill involves the use of management’s
estimates and assumptions and can have a significant impact on future operating results. The Company initially records its intangible assets at fair value. Intangible assets with finite lives are amortized over their estimated useful lives
while goodwill is not amortized but is evaluated for impairment at least annually. Goodwill is evaluated for impairment as of November 30 of each year, by comparing the fair value of a reporting unit to its carrying value including goodwill
recorded by the reporting unit.
The Company has a single reporting unit. Accordingly, the impairment assessment for
goodwill is performed at the enterprise level. Goodwill is reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its
carrying value. The Company initially assesses qualitative factors to determine if it is necessary to perform the goodwill impairment review. Goodwill is reviewed for impairment if, based on an assessment of the qualitative factors, it is
determined that it is more likely than not that the fair value of the reporting unit is less than its carrying value, or the Company decides to bypass the qualitative assessment. The carrying value of the reporting unit is reviewed utilizing a
combination of the discounted cash flow model and a market value approach. The estimated fair value of a reporting unit is determined based on assumptions regarding estimated future cash flows, discount rates, long-term growth rates and market
values. Additionally, the Company considers income tax effects from any tax-deductible goodwill (if applicable) on the carrying amount of the reporting unit when measuring the goodwill impairment loss.
The Company monitors for events and circumstances that could negatively impact the key
assumptions in determining fair value, including long-term growth projections, profitability, discount rates, volatility in the Company’s market capitalization, general industry, and market and macro-economic conditions. It is possible that
future changes in such circumstances, or in the variables associated with the judgments, assumptions and estimates used in assessing the fair value of the reporting unit, would require the Company to record a non-cash impairment charge.
The Company completed its annual assessment on November 30, 2021, and there was no
impairment of goodwill at the assessment date. There were no events or circumstances that occurred during the three month period ending April 30, 2022, and through the date these condensed consolidated financial statements were available to be
issued, that indicated that goodwill might be impaired.
FS-107
Fair Value of Financial Instruments—ASC 820-10, Fair Value Measurements and Disclosures: Overall, defines fair value, establishes a fair value hierarchy for assets
and liabilities measured at fair value, and expands required disclosures about fair value measurements. The fair value of an asset and liability is defined as an exit price and represents the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants. The three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value, is as follows:
Level 1—Inputs are quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
Assets and liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurements. The Company’s assessment of the significance of an input to the fair value measurement requires judgment and may affect the valuation of the asset or liability being measured and its
placement within the fair value hierarchy. The Company effectuates transfers between levels of the fair value hierarchy, if any, as of the date of the actual circumstance that caused the transfer.
Certain assets and liabilities, including goodwill and intangible assets, are subject
to measurement at fair value on a non-recurring basis if there are indicators of impairment or if they are deemed to be impaired as a result of an impairment review.
As of April 30, 2022 and January 31, 2022, respectively, the Company had warrant
liabilities measured based on Level 3 inputs. A summary of the changes in the fair value of warrants for the three months ended April 30, 2022 and 2021, respectively, are as follows (in thousands):
|
Warrant liability - January 31, 2021
|
| |
$2,806
|
|
Issuance of warrants
|
| |
—
|
|
Loss due to change in fair value of warrants
|
| |
31
|
|
Warrant liability - April 30, 2021
|
| |
$2,837
|
|
|
| |
|
|
Warrant liability - January 31, 2022
|
| |
$10,709
|
|
Issuance of warrants
|
| |
519
|
|
Loss due to change in fair value of warrants
|
| |
663
|
|
Warrant liability - April 30, 2022
|
| |
$11,891
|
The assumptions used to value the warrants are described in Note 6.
The carrying amounts of accounts receivable, accounts payable, and accrued expenses
approximate fair value because of the short maturity terms of these instruments.
Contingent consideration liabilities related to acquisitions (see Note 4) are measured
at fair value each reporting period using Level 3 unobservable inputs. The Company’s estimates of fair value are based on assumptions believed to be reasonable, but which are uncertain and involve significant judgments by management. Any
changes in the fair value of these contingent consideration liabilities are included in general and administrative expenses in the consolidated statements of comprehensive loss. There were no changes in fair value of contingent consideration
during the three months ended April 30, 2022, as the contingent consideration liability was settled as of July 31, 2021. A summary of the changes in fair value of contingent consideration for the three months ended April 30, 2021 are as follows
(in thousands):
|
Balance as of January 31, 2021
|
| |
$7,871
|
|
Gain recognized in the consolidated statement of comprehensive loss
|
| |
(170)
|
|
Issuance of redeemable convertible preferred stock
|
| |
(5,014)
|
|
Balance as of April 30, 2021
|
| |
$2,687
|
FS-108
Transaction Fees—As discussed
in Note 10, the accounting treatment of the Merger Transaction is not within the Company’s control. Transaction fees and expenses associated with the Merger Transaction are being accounted for under the assumption of a forward merger
transaction and being expensed as incurred. Accordingly, the Company has recorded approximately $0.8 million and $0.1 million of professional and other transaction fees related to the Merger Transaction in general and administrative expenses
in the Condensed Consolidated Statement of Comprehensive Loss for the three months ended April 30, 2022 and 2021, respectively.
Net Loss Per Share Attributable to Common Stockholders— Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period.
Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share
attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common stock. For
the purposes of this calculation, outstanding stock options, unvested restricted stock, stock warrants, and redeemable convertible preferred stock are considered potential dilutive common stock and are excluded from the computation of net
loss per share as their effect is anti-dilutive.
The following table sets forth computation of basic loss per share attributable to
common stockholders (in thousands, except share and per share data):
|
|
| |
Three Months Ended April 30,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Numerator:
|
| |
|
| |
|
|
Net loss
|
| |
$(10,203)
|
| |
$(4,241)
|
|
Net loss per share attributable to common stockholders
|
| |
$(10,203)
|
| |
$(4,241)
|
|
|
| |
|
| |
|
|
Denominator:
|
| |
|
| |
|
|
Weighted-average common stock outstanding
|
| |
42,962,226
|
| |
41,914,026
|
|
Net loss per share attributable to common stockholders -
basic and diluted
|
| |
$(0.24)
|
| |
$(0.10)
|
The Company’s redeemable convertible preferred stock and restricted common stock
contractually entitle the holders of such shares to participate in dividends but do not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss,
such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss
per share attributable to common stockholders, since dilutive common shares are not assumed to be outstanding if their effect is anti-dilutive. The following is a summary of the weighted average common stock equivalents for the securities
outstanding during the period the respective periods that have been excluded from the computation of diluted net loss per common share, as their effect would be anti-dilutive:
|
|
| |
Three Months Ended April 30,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Preferred stock, all series (on an as-converted basis)
|
| |
241,165,150
|
| |
237,759,383
|
|
Common stock options outstanding
|
| |
22,109,489
|
| |
18,908,159
|
|
Warrants to purchase preferred stock, all series
|
| |
5,879,562
|
| |
5,267,696
|
|
|
| |
269,154,201
|
| |
261,935,238
|
Redeemable convertible preferred stock—The Series Preferred is not mandatorily redeemable. The Series Preferred is contingently redeemable upon the occurrence of a deemed liquidation event and a majority vote of the holders of Series Preferred and Series Seed to redeem
all outstanding shares of the Company’s
FS-109
redeemable convertible preferred stock. The contingent redemption upon the
occurrence of a deemed liquidation is not within the Company’s control and therefore the Series Preferred is classified outside of permanent equity in mezzanine equity on the Company’s condensed consolidated balance sheets.
Liquidation Rights—In the event
of any liquidation or dissolution of the Company (“Liquidation Event”), the holders of common stock are entitled to the remaining assets of the Company legally available for distribution after the payment of the full liquidation preference
for all series of outstanding redeemable convertible preferred stock (“Preferred Stock”).
The Company’s redeemable convertible preferred stock consists of (in thousands
except share data):
Standards Issued and Adopted—In
October 2021, the FASB issued ASU No. 2021-08, Accounting Standards Update No. 2021-08—Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to require
acquiring entities to
FS-110
apply Topic 606 to recognize and measure contract assets and contract liabilities
in a business combination. As a result of the amendments, it is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and
measured them in its preacquisition financial statements. The standard is effective for the Company for annual reporting periods beginning after December 15, 2022, and early adoption is permitted. The Company elected to early adopt ASU No.
2021-08 for fiscal year 2023. There was no impact to the Company’s condensed consolidated financial statements for the three months ended April 30, 2022. The Company expects that the adoption of ASU No. 2021-08 will simplify the accounting for
the anticipated merger transaction (see Note 10), as it will permit the Company to record the contract liabilities acquired from IDX to be recorded at book value rather than an estimated fair value.
In December 2019, the FASB issued ASU No. 2019-12, Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent
application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The standard is effective for the Company for annual reporting periods beginning after December 15, 2021, and early adoption is
permitted. The Company adopted ASU No. 2019-12 for fiscal year 2023. There was no impact on its condensed consolidated financial statements for the three months ended April 30, 2022.
Standards Issued, but Not Yet Effective—In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance is intended to improve financial reporting
about leasing transactions. This ASU affects all companies and other organizations that lease assets. Under Topic 842, the critical determination is whether a contract is or contains a lease because lessees are required to recognize lease
assets and lease liabilities for all leases—finance and operating—other than short-term leases. The standard is effective for the Company for annual reporting periods beginning after December 15, 2021, and early adoption is permitted. The
Company is currently in the planning stage and will adopt the guidance for the financial statements for the year ending January 31, 2023. Upon adoption, the Company will be required to report operating leases on its consolidated balance sheet
for the first time. However, at this time, the Company has not yet begun its adoption efforts and cannot reasonably estimate the impact to its condensed consolidated financial statements for the year ending January 31, 2023.
In June 2016 the FASB issued ASU 2016-13, Measurement
of Credit Losses on Financial Instruments, which amends the accounting for credit losses for most financial assets and certain other instruments. The standard requires that entities holding financial
assets that are not accounted for at fair value through net income be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the
financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The standard is effective for the Company for annual reporting periods beginning in fiscal year 2024. The Company believes the
adoption will not have a material impact on its condensed consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Accounting
Standards Update No. 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, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06
removes the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, a convertible debt instrument will be accounted for as a single liability measured at its amortized
cost and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. Additionally, ASU 2020-06 requires the
application of the if-converted method for all convertible instruments in the diluted earnings per share calculation and the inclusion of the effect of share settlement for instruments that may be settled in cash or shares, except for certain
liability-classified share-based payment awards. The amendments in this ASU are effective for all public entities for fiscal years beginning after December 15, 2021. For all other entities, including the Company, the amendments are effective
for fiscal years beginning after December 15, 2023. Accordingly, the Company is planning to adopt the guidance of ASU No. 2020-06 in the year ending January 31, 2024. Or, after the successful completion of the anticipated merger transaction
(see Note 10)
FS-111
which will cause the Company to become a public company, the combined, public
company will adopt ASU No. 2020-06 for the year ending January 31, 2023. The Company is in the process of evaluating the guidance and the impact it will have on its condensed consolidated financial statements.
|
3.
|
FAIR VALUE MEARSURMENTS
|
The following table sets forth by level, within the fair value hierarchy, the
assets/(liabilities) carried at fair value (in thousands):
The following table sets forth by level, within the fair value hierarchy, the assets
(liabilities) carried at fair value (in thousands):
The cash equivalents are comprised of funds held in an exchange traded money market
fund and the fair value of the cash equivalents is determined based upon quoted market price for that fund. There were no transfers among Level 1, Level 2, or Level 3 categories in the periods presented.
The assumptions used to value the warrants are described in Note 6. The assumptions
used to value the contingent consideration are described in Note 4.
The carrying amounts of accounts receivable, accounts payable, and accrued expenses
approximate fair value because of the short maturity terms of these instruments.
|
4.
|
ACQUISITIONS
|
Cyveillance Acquisition — On September 30, 2020, the Company executed an asset purchase agreement with Lookingglass Cyber Solutions, Inc. (“Lookingglass”) and Cyveillance, Inc. (collectively, the “Sellers”) to acquire
substantially all of the assets and to assume certain liabilities attributable to Lookingglass’ Cyveillance business unit (the “Cyveillance Acquisition”). The Cyveillance business unit is an intelligence-led cybersecurity solutions provider.
The Cyveillance Acquisition allows the Company to further scale its digital risk protection services and expand its threat intelligence capabilities. The Cyveillance Acquisition has been accounted for as a business combination in accordance
with ASC 805, Business Combinations. The Company has estimated a fair value of the aggregate consideration transferred to effect the
Cyveillance Acquisition of $39.2 million, of which $7.2 million was paid in cash, $17.0 million was comprised of 8,110,058 shares of Series E redeemable convertible preferred stock, and $15.0 million was comprised of 10,171,735 shares of
Series E redeemable convertible preferred stock held in escrow as contingent consideration.
There was no remaining contingent consideration liability as of April 30, 2022 and
January 31, 2022. During the three months ended April 30, 2021, the Company released 2,199,174 shares of Series E preferred shares with a fair value of $5.0 million, as a result the Company recorded general and administrative gain of
$0.2 million, due to the remeasurement of the contingent consideration liability. As of April 30, 2021, the estimated fair value of the contingent consideration liability totaled $2.7 million.
FS-112
|
5.
|
DEBT
|
The tables below summarize key terms of the Company’s debt that was outstanding as of
April 30, 2022 and January 31, 2022 (amounts in thousands, except for interest rates).
|
|
| |
As of April 30, 2022
|
||||||||||||||||||
|
Lender
|
| |
Stated
Interest
Rate
|
| |
Effective
Interst
Rate
|
| |
Gross
Balance
|
| |
Unamortized
Debt Discount
|
| |
Unamortized
Deferred Debt
Issuance Costs
|
| |
Discount
on Note
Payable
|
| |
Net
Carrying
Value
|
|
Stifel Bank
|
| |
4.50%
|
| |
6.50%
|
| |
$15,000
|
| |
$84
|
| |
$500
|
| |
$—
|
| |
$14,416
|
|
Orix Growth Capital, LLC
|
| |
10.00%
|
| |
11.87%
|
| |
37,500
|
| |
410
|
| |
1,058
|
| |
—
|
| |
36,032
|
|
InfoArmor
|
| |
5.50%
|
| |
5.50%
|
| |
3,047
|
| |
—
|
| |
—
|
| |
198
|
| |
2,849
|
|
PIPE Investors
|
| |
5.00%
|
| |
5.00%
|
| |
5,093
|
| |
—
|
| |
—
|
| |
—
|
| |
5,093
|
|
|
| |
|
| |
|
| |
$60,640
|
| |
$494
|
| |
$1,558
|
| |
$198
|
| |
$58,390
|
|
|
| ||||||||||||||||||||
|
|
| |
Current portion of long-term debt
|
| |
$6,031
|
|||||||||||||||
|
|
| |
Long-term debt
|
| |
52,359
|
|||||||||||||||
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$58,390
|
|
|
| |
As of January 31, 2022
|
||||||||||||||||||
|
Lender
|
| |
Stated
Interest
Rate
|
| |
Effective
Interst
Rate
|
| |
Gross
Balance
|
| |
Unamortized
Debt Discount
|
| |
Unamortized
Deferred Debt
Issuance Costs
|
| |
Discount
on Note
Payable
|
| |
Net
Carrying
Value
|
|
Stifel Bank
|
| |
4.50%
|
| |
6.50%
|
| |
$15,000
|
| |
$96
|
| |
$574
|
| |
$—
|
| |
$14,330
|
|
Orix Growth Capital, LLC
|
| |
10.00%
|
| |
12.13%
|
| |
30,000
|
| |
349
|
| |
608
|
| |
—
|
| |
29,043
|
|
InfoArmor
|
| |
5.50%
|
| |
5.50%
|
| |
3,281
|
| |
—
|
| |
—
|
| |
213
|
| |
3,068
|
|
PIPE Investors
|
| |
5.00%
|
| |
5.00%
|
| |
5,032
|
| |
—
|
| |
—
|
| |
—
|
| |
5,032
|
|
|
| |
|
| |
|
| |
$53,313
|
| |
$445
|
| |
$1,182
|
| |
$213
|
| |
$51,473
|
|
|
| |
Current portion of long-term debt
|
| |
$5,970
|
|||||||||||||||
|
|
| |
Long-term debt
|
| |
45,503
|
|||||||||||||||
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$51,473
|
On February 10, 2022, the Company amended its loan and security agreement with Orix
Growth Capital, LCC (Orix) and provided an additional $7.5 million in borrowing. From the amended loan and security agreement with Orix, in February 2022, the Company borrowed $7.5 million, from which it received approximately $7.4 million of
proceeds net of issuance cost of $0.1 million, and issued 161,112 warrants to purchase Series E redeemable convertible preferred stock at an exercise price of $1.86205. As of April 30, 2022, the outstanding principal of the loan was
$37.5 million.
The terms of the loan and security agreements with Stifel Bank and Orix include
financial covenants whereby ZeroFox must be in compliance with the following: a) at any time, the ratio of Total Debt (as defined in the loan and security agreements) to Annual Recurring Revenue (“ARR”) (as defined in the loan and security
agreements) shall not be more than 1.00:1.00, and b) the Company shall maintain a minimum ARR, which increases over time, as defined in the loan and security agreements, measured as of the last day of each quarter. The Company was in compliance
with its financial covenants as of April 30, 2022.
Upon the closing of the anticipated merger transaction, the PIPE Investors note
holders may direct the Company to satisfy its payment obligations to under the PIPE Investors note by paying the investors obligation under certain subscription agreements those investors have entered into with L&F Acquisition Corp. See
note 10, “ZeroFox Merger with L&F Acquisition Corp. and ID Experts Holdings, Inc.” for further description of the merger transaction to which the subscription agreements relate.
|
6.
|
WARRANTS
|
The Company, in connection with several loan and security agreements, agreed to issue
lenders warrants to purchase common shares, Series A preferred shares, Series B preferred shares, Series C-1 preferred shares, and Series E preferred shares.
In February 2022, along with the amendment to the loan and security agreement with
Orix, the Company issued 161,112 warrants to purchase Series E redeemable convertible preferred stock at an exercise price of $1.86205.
FS-113
The initial fair values of the Company’s warrants were determined using a
Black-Scholes-Merton model. The assumptions used in estimating the fair values of the Company’s warrants at issuance are as follows:
|
Assumptions
|
| |
Series E
Warrants
|
| |
Series C-1
Warrants
|
| |
Common
Warrants
|
| |
Series B
Warrants
|
| |
Series A
Warrants
|
|
Initial Valuation Date:
|
| |
February 10, 2022,
December 8, 2021 &
January 27, 2021
|
| |
June 26, 2019
|
| |
June 1, 2017
|
| |
September 1, 2016
|
| |
May 22, 2015
|
|
Exercise price of the warrant
|
| |
$1.86205
|
| |
$1.23390
|
| |
$0.20000
|
| |
$0.82200
|
| |
$0.64050
|
|
Expected term of the warrant (in years)
|
| |
10.0
|
| |
10.0
|
| |
10.0
|
| |
10.0
|
| |
10.0
|
|
Price of the underlying share - stay private
|
| |
$2.20 - $3.79
|
| |
$1.25
|
| |
$0.20
|
| |
$0.82
|
| |
$0.74
|
|
Volatility
|
| |
36.38% - 40.64%
|
| |
51.90%
|
| |
60.00%
|
| |
60.41%
|
| |
66.74%
|
|
Risk-free rate
|
| |
0.87% - 2.03%
|
| |
2.05%
|
| |
2.21%
|
| |
1.57%
|
| |
2.21%
|
As a result of the potential merger (see Note 10), the Company began utilizing a
Probability-Weighted Expected Return Method (“PWERM”) to determining the fair value of the Company’s warrants. The Company utilized a PWERM relying on (1) a Black-Scholes-Merton model to value continued operations scenario where the Company
remained a private entity (the “Stay Private Scenario”) and (2) a transaction scenario that reflected the merger with a SPAC (the “Transaction Scenario”).
The assumptions used in estimating the fair values of the Company’s warrants as of
April 30, 2022 are as follows:
|
|
| |
April 30, 2022
|
||||||||||||
|
Assumptions
|
| |
Series E
Warrants
|
| |
Series C-1
Warrants
|
| |
Common
Warrants
|
| |
Series B
Warrants
|
| |
Series A
Warrants
|
|
Exercise price of the warrant
|
| |
$1.86205
|
| |
$1.23390
|
| |
$0.20000
|
| |
$0.82200
|
| |
$0.64050
|
|
Price of the underlying share - stay private
|
| |
$3.75
|
| |
$3.71
|
| |
$1.85
|
| |
$3.70
|
| |
$3.70
|
|
Volatility
|
| |
37.76% - 38.55%
|
| |
37.73%
|
| |
40.05%
|
| |
42.35%
|
| |
44.90%
|
|
Risk-free rate
|
| |
2.89% - 2.91%
|
| |
2.92%
|
| |
2.92%
|
| |
2.90%
|
| |
2.87%
|
|
Price of the underlying share after conversion
|
| |
$5.64
|
| |
$5.64
|
| |
$2.82
|
| |
$5.64
|
| |
$5.64
|
|
Expected term of the warrant (in years)
|
| |
0.2 - 9.8
|
| |
0.2 - 8.0
|
| |
0.2 - 5.1
|
| |
0.2 - 4.3
|
| |
0.2 - 3.1
|
|
Fair value
|
| |
$3.39
|
| |
$3.94
|
| |
$2.34
|
| |
$4.30
|
| |
$4.47
|
|
Number of warrants
|
| |
1,074,084
|
| |
648,350
|
| |
1,924,790
|
| |
146,341
|
| |
124,903
|
|
Liability (in thousands)
|
| |
$3,638
|
| |
$2,555
|
| |
$4,510
|
| |
$630
|
| |
$558
|
The assumptions used in estimating the fair values of the Company’s warrants as of
January 31, 2022 are as follows:
|
|
| |
January 31, 2022
|
||||||||||||
|
Assumptions
|
| |
Series E
Warrants
|
| |
Series C-1
Warrants
|
| |
Common
Warrants
|
| |
Series B
Warrants
|
| |
Series A
Warrants
|
|
Exercise price of the warrant
|
| |
$1.86205
|
| |
$1.23390
|
| |
$0.20000
|
| |
$0.82200
|
| |
$0.64050
|
|
Price of the underlying share - stay private
|
| |
$2.94
|
| |
$2.76
|
| |
$1.85
|
| |
$3.70
|
| |
$3.70
|
|
Volatility
|
| |
36.71%
|
| |
36.95%
|
| |
38.11%
|
| |
39.30%
|
| |
44.69%
|
|
Risk-free rate
|
| |
1.78%
|
| |
1.77%
|
| |
1.64%
|
| |
1.57%
|
| |
1.42%
|
|
Price of the underlying share after conversion
|
| |
$5.64
|
| |
$5.64
|
| |
$2.82
|
| |
$5.64
|
| |
$5.64
|
|
Expected term of the warrant (in years)
|
| |
0.4 - 9.9
|
| |
0.4 - 8.2
|
| |
0.4 - 5.3
|
| |
0.4 - 4.6
|
| |
0.4 - 3.3
|
|
Fair value
|
| |
$3.20
|
| |
$3.71
|
| |
$2.21
|
| |
$4.05
|
| |
$4.21
|
|
Number of warrants
|
| |
912,972
|
| |
648,350
|
| |
1,924,790
|
| |
146,341
|
| |
124,903
|
|
Liability (in thousands)
|
| |
$2,922
|
| |
$2,408
|
| |
$4,260
|
| |
$593
|
| |
$526
|
FS-114
|
7.
|
Stock-Based Compensation
|
On February 1, 2013, the Company adopted the 2013 Stock Plan (the “2013 Plan”). The
2013 Plan, as amended, provides for the issuance of up to 27,802,178 shares of common stock to employees, officers, directors, consultants, and advisors in the form of nonqualified and incentive stock options, unvested stock awards, and other
stock-based awards. As of April 30, 2022, there were 397,939 shares of common stock available for issuance under the 2013 Plan.
Stock options are granted at exercise prices not less than the fair value of the stock
at the date of grant. The Company determines fair value periodically through independent, third-party valuations based on historical financial information. Options generally vest over four years, with 25% vesting on the first anniversary date
of the grant of the option and ratably over the remaining 36 months. Options expire 10 years from the date of grant. The Company intends to issue new shares to satisfy share options upon exercise.
The Company estimates the fair value of stock options on the date of grant using the
Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which affect the fair value of each stock option.
Expected Volatility—As the
Company is privately held and there has been no public market for its common stock to date, the expected volatility is based on the average historical stock price volatility of comparable publicly-traded companies in its industry peer group,
financial, and market capitalization data.
Expected Term— The expected term
of the Company’s options represents the period that the stock-based awards are expected to be outstanding.
The Company has estimated the expected term of its employee awards using the SAB Topic
14 Simplified Method allowed by the FASB and SEC, for calculating expected term as it has limited historical exercise data to provide a reasonable basis upon which to otherwise estimate expected term. Certain of the Company’s options began
vesting prior to the grant date, in which case the Company uses the remaining vesting term at the grant date in the expected term calculation.
Risk-Free Interest Rate— The
Company estimates its risk-free interest rate by using the yield on actively traded non-inflation-indexed U.S. treasury securities with contract maturities equal to the expected term.
Dividend Yield— The Company has
neither declared nor paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero.
Fair Value of Underlying Common Stock— Because the Company’s common stock is not yet publicly traded, the Company must estimate the fair value of common stock. The Board of Directors considers numerous objective and subjective factors to determine the fair value of the
Company’s common stock at each meeting in which awards are approved. The factors considered include, but are not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices,
rights, preferences, and privileges of the Company’s Convertible Redeemable Preferred Stock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results;
(v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions involving the
Company’s shares.
The Company used the following weighted-average assumptions to estimate the fair
value of stock options:
|
|
| |
As of April 30,
|
|||
|
Assumptions
|
| |
2022
|
| |
2021
|
|
Weighted-average risk-free rate
|
| |
1.42%
|
| |
1.58%
|
|
Weighted-average expected term of the option (in years)
|
| |
6.11
|
| |
6.10
|
|
Weighted-average expected volatility
|
| |
38.84%
|
| |
37.46%
|
|
Weighted-average dividend yield
|
| |
0.00%
|
| |
0.00%
|
FS-115
A summary of option activity for the three months ended April 30, 2022, is as
follows (Aggregate Intrinsic Value in thousands):
|
|
| |
Shares
|
| |
Weighted-
Average
Exercise Price
|
| |
Weighted-
Average
Remaining
Contractual
Term (in years)
|
| |
Aggregate
Intrinsic Value
|
|
Outstanding as of February 1, 2022
|
| |
21,715,815
|
| |
$0.4398
|
| |
6.54
|
| |
$41,699
|
|
Granted
|
| |
994,750
|
| |
$2.3600
|
| |
|
| |
|
|
Exercised
|
| |
(314,826)
|
| |
$0.2574
|
| |
|
| |
|
|
Cancelled
|
| |
(199,253)
|
| |
$1.4631
|
| |
|
| |
|
|
Outstanding as of April 30, 2022
|
| |
22,196,486
|
| |
$0.5192
|
| |
6.68
|
| |
$40,858
|
|
Vested as of April 30, 2022
|
| |
14,011,708
|
| |
$0.2491
|
| |
5.52
|
| |
$29,577
|
|
Vested and expected to vest as of April 30, 2022
|
| |
19,331,756
|
| |
$0.4507
|
| |
6.38
|
| |
$36,910
|
The weighted-average grant-date fair value of options granted during the three months
ended April 30, 2022 and 2021 was $0.9851 and $0.4051, respectively. The total intrinsic value of options exercised during the three months ended April 30, 2022 and 2021 was $0.7 million and $0.1 million, respectively.
Unrecognized compensation cost related to option-based compensation arrangements
granted under the Plan totaled $4.1 million as of April 30, 2022. The unrecognized compensation cost as of April 30, 2022 is expected to be recognized over a weighted-average remaining period of 3.15 years. The total fair value of the common
stock options that vested during the three months ended April 30, 2022 was $0.3 million.
Stock-Based Compensation Expense—The
Company recognized noncash stock-based compensation expense in the accompanying Condensed Consolidated Statements of Comprehensive Loss for the three months ended April 30, 2022 and 2021, which is as follows (in thousands):
|
|
| |
Three Months Ended April 30,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Cost of revenue
|
| |
$10
|
| |
$5
|
|
Research and development
|
| |
55
|
| |
22
|
|
Sales and marketing
|
| |
85
|
| |
41
|
|
General and administrative
|
| |
224
|
| |
65
|
|
Total stock-based compensation expense
|
| |
$374
|
| |
$133
|
|
8.
|
RELATED PARTY TRANSACTIONS
|
The Company leases office space in Baltimore, Maryland. The lessor is owned and
operated by the Company’s chief executive officer. ZeroFox incurred rent expense of $0.1 million during each of the three months ended April 30, 2022 and 2021. As of April 30, 2022 and January 31, 2022, the Company had leasehold improvements of
$0.2 million and $0.2 million, respectively, net of accumulated depreciation of $0.2 million and $0.2 million, respectively. As of April 30, 2022 and January 31, 2022, the Company did not have any prepaid rent. The lessor holds a $0.1 million
security deposit that is refundable at the end of the lease term.
As part of the consideration for the Cyveillance Acquisition (see Note 4), the Company
issued Series E redeemable convertible preferred stock to Lookingglass. As a result, Lookingglass is a related party of the Company. Effective September 30, 2020, as part of the Cyveillance Acquisition, the Company entered into a sublease
agreement with Lookingglass for office space in Reston, Virginia. Under the sublease agreement, the Company incurred rent expense of $0.1 million and $0.1 million for the three months ended April 30, 2022 and 2021, respectively. During the
three months ended April 30, 2022 and the year ended January 31, 2022, the Company did not capitalize any leasehold improvements. As of April 30, 2022 and January 31, 2022, the Company did not have any balance of prepaid or accrued rent for the
subleased premises. In addition to the sublease, in connection with the Cyveillance Acquisition, ZeroFox and Lookingglass entered
FS-116
into a transition support agreement. The agreement stipulates that ZeroFox will
reimburse Lookingglass for services performed as part of the transition. For the three months ended April 30, 2022, ZeroFox did not incur any expenses under the agreement. For the three months ended April 30, 2021, ZeroFox incurred $0.2 million
of expenses under the agreement. As of April 30, 2022 and January 31, 2022, ZeroFox had an accrued liability payable to Lookingglass totaling $0.02 million and $0.2 million, respectively, which were incurred as a result of the transition
support agreement.
The Company accrued $0.06 million of payment-in-kind (PIK) interest for notes payable
with related parties during the three months ended April 30, 2022.
|
9.
|
COMMITMENTS AND CONTINGENCIES
|
General Litigation—In the
ordinary course of business, the Company is involved in various disputes. In the opinion of management, the amount of liability, if any, resulting from the final resolution of these matters will not have a material impact on the Company’s
consolidated financial position, results of operations, or cash flows. The Company was not involved in any pending litigation as of April 30, 2022.
Warranties and Indemnification—The
Company’s enterprise cloud platform is typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable and materially in accordance with the Company’s online help documentation under normal
use and circumstances.
The Company’s arrangements generally include certain provisions for indemnifying
customers against liabilities if its services infringe a third-party’s intellectual property rights. To date, the Company has not incurred any material costs because of such obligations and has not accrued any liabilities related to such
obligations in the accompanying condensed consolidated financial statements.
The Company has also agreed to indemnify its directors and executive officers for
costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s
service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request.
The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the
actions of its employees under certain circumstances and in certain jurisdictions.
Risks and Uncertainties— The
impact of the coronavirus (COVID-19) pandemic, or similar global health concerns, could negatively impact the Company’s operations, suppliers or other vendors, and its customer base. As of the report date, management is not aware of any
impacts from quarantines, labor shortages or other disruptions related to COVID-19 that would have a material adverse effect on the Company’s operations. The COVID-19 pandemic did not have a material impact on our financial results.
|
10.
|
SUBSEQUENT EVENTS
|
ZeroFox Merger with L&F Acquisition Corp. and ID Experts
Holdings, Inc.— On December 17, 2021, the Company entered into a business combination agreement with L&F Acquisition Corp (“L&F”), which is a Special Purpose Acquisition Company, and ID Experts
Holdings, Inc (“IDX”). IDX is a leading consumer privacy platform built for agility in the digital age. IDX provides privacy, identity protection, and data breach response services to its customers.
Subsequent to the effectiveness of the mergers provided for in the business
combination agreement, ZeroFox and IDX will be wholly-owned subsidiaries of L&F. However, the accounting acquirer will be determined based on the redemptions of the existing L&F public shareholders; assuming minimum redemptions, ZeroFox
will be deemed the acquirer in the transaction for accounting purposes; and assuming maximum redemptions, ZeroFox will be considered a variable interest entity and L&F will be deemed the acquirer in the transaction for accounting purposes.
In a maximum redemption scenario, the transaction is expected to be accounted for as a business combination in accordance with ASC 805, Business Combinations, in which case the net assets of ZeroFox will be stated at fair value and goodwill and
other intangible assets attributable to ZeroFox will be recorded as a result of the business combination. In a minimum redemption scenario, the transaction is expected to be accounted for as a reverse recapitalization, in which case the net
FS-117
assets of L&F will be stated at historical cost and no goodwill or other
intangible assets attributable to L&F or ZeroFox will be recorded as a result of the transactions. In the minimum redemption scenario, the expectation for the treatment of the merger transaction as a reverse recapitalization is based upon
the expectations that (A) the pre-merger shareholders of ZeroFox are expected to hold greater than 50% of the voting interests of the combined company, (B) ZeroFox’s existing management team will serve as the initial management team of the
combined company, (C) ZeroFox will appoint a majority of the initial board of directors of the combined company, and (D) ZeroFox’s operations will comprise the ongoing operations of the combined company. In connection with the business
combination, L&F's name will be changed to ZeroFox Holdings, Inc.
It is expected that ZeroFox will account for the acquisition of IDX as a business
combination in accordance with ASC 805, Business Combinations. The IDX acquisition allows ZeroFox to further scale its digital risk protection services and expand its customer base. Upon the
consummation of the transaction, the following consideration is expected to be transferred to effect the acquisition of IDX: (I) $50.0 million in cash, subject to certain positive and negative adjustments, (II) shares of common stock of ZeroFox
Holdings, Inc. with an estimated aggregate fair value of $288.8 million, (III) payoff of certain debts of IDX, and (IV) reimbursement of certain transaction costs incurred by IDX related to the merger agreement.
The business combination pursuant to the December 17, 2021 agreement would result in
ZeroFox becoming a publicly listed company, as the surviving business post-merger. If consummated, the business combination will result in all holders of ZeroFox’s issued and outstanding redeemable convertible preferred stock and common stock
(inclusive of restricted stock awards) receiving shares of common stock of ZeroFox Holdings, Inc., in exchange for their ZeroFox equity holdings. In addition, if consummated, the merger will result in all holders of IDX’s issued and outstanding
redeemable convertible preferred stock and common stock exchanging their equity holdings for the consideration described in (I) through (IV) above.
Upon consummation of the business combination, it is expected that at least
$170.0 million of cash will be raised through the issuance of certain convertible notes and a contemporaneous sale of common stock in connection with the closing of a PIPE investment. In addition, any portion of the cash and marketable
securities that are held in L&F’s trust account at the time of the business combination that is not used to redeem shares of L&F’s Class A common stock held by L&F’s public shareholders upon the closing of the business combination,
is expected to become available to the combined company for general use. Cash available for general use will be reduced by cash payments made for (A) transaction costs, (B) deferred underwriting fees related to L&F’s IPO, (C) portions of
the Company’s and IDX’s outstanding debt, and (D) certain other costs directly or indirectly attributable to the transaction.
There is no assurance that the transaction will occur, as consummation of the
transaction is subject to (A) the affirmative vote of at least a two-thirds of the votes cast by L&F’s pre-merger shareholders at an L&F special meeting for which a quorum is present and (B) a minimum of $170.0 million of aggregate
required funds becoming available to the combined company based upon the summation of (i) the cash proceeds from L&F’s contemporaneous PIPE investment pursuant to which common stock will be sold, (ii) the proceeds from the issuance of
certain convertible notes, and (iii) cash and marketable securities held in trust, after permitted redemptions of Class A common shares held by L&F’s public shareholders. Neither approval of the transaction by L&F’s public shareholders
nor the amount of cash and marketable securities that would remain in L&F’s trust account after permitted redemptions of Class A common shares by L&F’s public stockholders is within the control of the Company, L&F, or IDX.
On May 3, 2022, the holders of the 13,824,311 Class A Ordinary Shares of L&F
properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.154 per share, for an aggregate redemption amount of approximately $140.4 million. After giving effect to these redemptions, as of May 4,
2022, there are 3,425,689 Class A Ordinary Shares issued and outstanding and approximately $34.8 million remaining in the Trust Account.
Subsequent events have been considered for disclosure and recognition in the condensed
consolidated financial statements through June 14, 2022, the date the condensed consolidated financial statements were available to be issued. No events occurred through that date that would require disclosure in the accompanying condensed
consolidated financial statements, other than those discussed above.
FS-118
To the Stockholders and the Board of Directors of ZeroFox, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
ZeroFOX, Inc. and subsidiaries (the “Company”) as of January 31, 2022 and 2021, the related consolidated statements of comprehensive loss, changes in redeemable convertible preferred stock and stockholders' deficit, and cash flows, for each of
the three years in the period ended January 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of January 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2022, in conformity with accounting principles generally accepted in the United States
of America.
Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring net losses and negative cash flows from operating activities 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 financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the Company's 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
and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the 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
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 financial statements. We believe that our audits
provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
McLean, Virginia
April 7, 2022
We have served as the Company’s auditor since 2014.
FS-119
Consolidated Balance Sheets
|
|
| |
As of January 31,
|
|||
|
(in thousands, except for share data)
|
| |
2022
|
| |
2021
|
|
Assets
|
| |
|
| |
|
|
Current assets:
|
| |
|
| |
|
|
Cash and cash equivalents
|
| |
$10,274
|
| |
$13,764
|
|
Accounts receivable, net of allowance for doubtful
accounts of $68 and $51, respectively
|
| |
17,046
|
| |
13,082
|
|
Deferred contract acqusition costs
|
| |
4,174
|
| |
3,632
|
|
Prepaid expenses and other assets
|
| |
1,276
|
| |
801
|
|
Total current assets
|
| |
32,770
|
| |
31,279
|
|
Property and equipment—net of accumulated depreciation
of $2,022 and $1,132, respectively
|
| |
694
|
| |
446
|
|
Capitalized software—net of accumulated amortization of
$3,657 and $3,097, respectively
|
| |
914
|
| |
799
|
|
Deferred contract acqusition costs, net of current portion
|
| |
7,481
|
| |
6,505
|
|
Acquired intangible assets - net of accumulated
amortization of $3,940 and $918, respectively
|
| |
14,210
|
| |
14,982
|
|
Goodwill
|
| |
35,002
|
| |
28,614
|
|
Other assets
|
| |
319
|
| |
307
|
|
Total assets
|
| |
$91,390
|
| |
$82,932
|
|
|
| |
|
| |
|
|
Liabilities, redeemable convertible preferred stock, and
stockholders' deficit
|
| |
|
| |
|
|
Current liabilities:
|
| |
|
| |
|
|
Accounts payable
|
| |
$4,276
|
| |
$890
|
|
Contingent consideration related to business combination
|
| |
—
|
| |
7,871
|
|
Accrued compensation, accrued expenses, and other current liabilities
|
| |
7,020
|
| |
5,060
|
|
Current portion of long-term debt
|
| |
5,970
|
| |
—
|
|
Deferred revenue
|
| |
29,532
|
| |
25,398
|
|
Total current liabilities
|
| |
46,798
|
| |
39,219
|
|
|
| |
|
| |
|
|
Deferred revenue—net of current portion
|
| |
9,299
|
| |
3,103
|
|
Long term debt—net of deferred financing costs of $1,627 and $1,425,
respectively
|
| |
45,503
|
| |
28,575
|
|
Warrants
|
| |
10,709
|
| |
2,806
|
|
Other liabilities
|
| |
—
|
| |
368
|
|
Total liabilities
|
| |
112,309
|
| |
74,071
|
|
Commitments and contingencies (Note 14)
|
| |
|
| |
|
|
Redeemable convertible preferred stock
|
| |
132,229
|
| |
124,390
|
|
|
| |
|
| |
|
|
Stockholders' deficit
|
| |
|
| |
|
|
Common stock, $0.00001 par value; 319,462,878 and
316,299,879, authorized shares; 42,892,927 and 41,904,944 shares issued and outstanding, respectively
|
| |
—
|
| |
—
|
|
Additional paid-in capital
|
| |
3,873
|
| |
2,975
|
|
Accumulated deficit
|
| |
(156,820)
|
| |
(118,381)
|
|
Accumulated other comprehensive loss
|
| |
(201)
|
| |
(123)
|
|
Total stockholders’ deficit
|
| |
(153,148)
|
| |
(115,529)
|
|
Total liabilities, redeemable convertible preferred stock, and stockholders'
deficit
|
| |
$91,390
|
| |
$82,932
|
See notes to consolidated financial statements
FS-120
Consolidated Statements of Comprehensive
Loss
|
|
| |
For the years ended January 31,
|
||||||
|
(in thousands, except for share and per share data)
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Revenue
|
| |
$47,433
|
| |
$28,538
|
| |
$16,390
|
|
Cost of revenue
|
| |
16,357
|
| |
9,646
|
| |
5,765
|
|
Gross profit
|
| |
31,076
|
| |
18,892
|
| |
10,625
|
|
|
| |
|
| |
|
| |
|
|
Operating expenses
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
12,810
|
| |
5,942
|
| |
5,582
|
|
Sales and marketing
|
| |
29,873
|
| |
21,466
|
| |
18,852
|
|
General and administrative
|
| |
16,408
|
| |
9,681
|
| |
5,629
|
|
Total operating expenses
|
| |
59,091
|
| |
37,089
|
| |
30,063
|
|
Loss from operations
|
| |
(28,015)
|
| |
(18,197)
|
| |
(19,438)
|
|
|
| |
|
| |
|
| |
|
|
Other expense
|
| |
|
| |
|
| |
|
|
Interest expense, net
|
| |
(3,585)
|
| |
(2,233)
|
| |
(1,854)
|
|
Loss on extinguishment of debt
|
| |
—
|
| |
(1,418)
|
| |
(1,274)
|
|
Change in fair value of warrant liability
|
| |
(7,375)
|
| |
(806)
|
| |
(75)
|
|
Total other expense
|
| |
(10,960)
|
| |
(4,457)
|
| |
(3,203)
|
|
Loss before income taxes
|
| |
(38,975)
|
| |
(22,654)
|
| |
(22,641)
|
|
(Benefit from) provision for income taxes
|
| |
(536)
|
| |
86
|
| |
98
|
|
Net loss after tax
|
| |
$(38,439)
|
| |
$(22,740)
|
| |
$(22,739)
|
|
Net loss per share attributable to common stockholders,
basic and diluted
|
| |
$(0.91)
|
| |
$(0.55)
|
| |
$(0.55)
|
|
Weighted-average shares used in computation of net loss
per share attributable to common stockholders, basic and diluted:
|
| |
42,073,351
|
| |
41,635,679
|
| |
41,346,979
|
|
|
| |
|
| |
|
| |
|
|
Other comprehensive (loss) income
|
| |
|
| |
|
| |
|
|
Foreign currency translation
|
| |
(78)
|
| |
(57)
|
| |
(69)
|
|
Total other comprehensive (loss) income
|
| |
(78)
|
| |
(57)
|
| |
(69)
|
|
Total comprehensive loss
|
| |
$(38,517)
|
| |
$(22,797)
|
| |
$(22,808)
|
See notes to consolidated financial statements
FS-121
Consolidated Statements of Redeemable
Convertible Preferred Stock and Stockholders' Deficit
For the years ended January 31, 2022,
2021, and 2020
(in thousands, except for share data)
|
|
| |
Redeemable Convertible Preferred Stock
|
| |
|
| |
|
| |
|
| |
|
| |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
| |
Series E
Redeemable
Convertible
Preferred
Stock
|
| |
Series D-2
Redeemable
Convertible
Preferred
Stock
|
| |
Series D-1
Redeemable
Convertible
Preferred
Stock
|
| |
Series D
Redeemable
Convertible
Preferred
Stock
|
| |
Series C-1
Redeemable
Convertible
Preferred
Stock
|
| |
Series C
Redeemable
Convertible
Preferred
Stock
|
| |
Series B
Redeemable
Convertible
Preferred
Stock
|
| |
Series A
Redeemable
Convertible
Preferred
Stock
|
| |
Series Seed
Redeemable
Convertible
Preferred
Stock
|
| |
Total
Redeemable
Convertible
Preferred
Stock
|
| |
Common
Stock
|
| |
Additional
Paid-in
Capital
|
| |
Accumulated
Deficit
|
| |
Other
Comprehensive
Income
|
| |
Stockholders'
Deficit
|
| |||||||||||||||||||||||||||||||||||
|
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
|
| |
|
| |
|
| |
|
| ||
|
Balance—January 31, 2019
|
| |
—
|
| |
$—
|
| |
—
|
| |
$—
|
| |
—
|
| |
$—
|
| |
—
|
| |
$—
|
| |
11,376,115
|
| |
$13,979
|
| |
21,124,699
|
| |
$19,899
|
| |
26,914,949
|
| |
$22,047
|
| |
15,997,285
|
| |
$10,159
|
| |
9,198,372
|
| |
$2,208
|
| |
84,611,420
|
| |
$68,292
|
| |
41,001,103
|
| |
$ —
|
| |
$2,070
|
| |
$(72,902)
|
| |
$3
|
| |
$(70,829)
|
| ||
|
Issuance of Series D-2 redeemable convertible preferred stock
on extinguishment of convertible promissory notes
|
| |
—
|
| |
—
|
| |
993,868
|
| |
1,451
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
993,868
|
| |
1,451
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| ||
|
Issuance of Series D-1 redeemable convertible preferred stock
on extinguishment of convertible promissory notes
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
5,878,303
|
| |
8,171
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
5,878,303
|
| |
8,171
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| ||
|
Issuance of Series D redeemable convertible preferred stock,
net of issuance costs of $156
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
13,871,547
|
| |
21,067
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
13,871,547
|
| |
21,067
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| ||
|
Stock—based compensation expense
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
268
|
| |
—
|
| |
—
|
| |
268
|
| ||
|
Exercise of options
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
430,830
|
| |
—
|
| |
76
|
| |
—
|
| |
—
|
| |
76
|
| ||
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||
|
Net loss
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(22,739)
|
| |
—
|
| |
(22,739)
|
| ||
|
Foreign currency translation adjustment
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(69)
|
| |
(69)
|
| ||
|
Balance—January 31, 2020
|
| |
—
|
| |
—
|
| |
993,868
|
| |
1,451
|
| |
5,878,303
|
| |
8,171
|
| |
13,871,547
|
| |
21,067
|
| |
11,376,115
|
| |
13,979
|
| |
21,124,699
|
| |
19,899
|
| |
26,914,949
|
| |
22,047
|
| |
15,997,285
|
| |
10,159
|
| |
9,198,372
|
| |
2,208
|
| |
105,355,138
|
| |
98,981
|
| |
41,431,933
|
| |
—
|
| |
2,414
|
| |
(95,641)
|
| |
(66)
|
| |
(93,293)
|
| ||
|
Issuance of Series E convertible preferred stock, net of
issuance costs of $112
|
| |
12,006,090
|
| |
25,409
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
12,006,090
|
| |
25,409
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| ||
|
Stock—based compensation expense
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
450
|
| |
—
|
| |
—
|
| |
450
|
| ||
|
Exercise of options
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
473,011
|
| |
—
|
| |
111
|
| |
—
|
| |
—
|
| |
111
|
| ||
|
Net loss
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(22,740)
|
| |
—
|
| |
(22,740)
|
| ||
|
Foreign currency translation adjustment
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(57)
|
| |
(57)
|
| ||
|
Balance—January 31, 2021
|
| |
12,006,090
|
| |
25,409
|
| |
993,868
|
| |
1,451
|
| |
5,878,303
|
| |
8,171
|
| |
13,871,547
|
| |
21,067
|
| |
11,376,115
|
| |
13,979
|
| |
21,124,699
|
| |
19,899
|
| |
26,914,949
|
| |
22,047
|
| |
15,997,285
|
| |
10,159
|
| |
9,198,372
|
| |
2,208
|
| |
117,361,228
|
| |
124,390
|
| |
41,904,944
|
| |
—
|
| |
2,975
|
| |
(118,381)
|
| |
(123)
|
| |
(115,529)
|
| ||
|
Issuance of Series E convertible preferred stock
|
| |
3,221,347
|
| |
7,839
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
3,221,347
|
| |
7,839
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| ||
|
Issuance of restricted stock
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
176,317
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
34
|
| ||
|
Stock-based compensation expense
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
696
|
| |
—
|
| |
—
|
| |
662
|
| ||
|
Exercise of options
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
811,666
|
| |
—
|
| |
202
|
| |
—
|
| |
—
|
| |
202
|
| ||
|
Net loss
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(38,439)
|
| |
—
|
| |
(38,439)
|
| ||
|
Foreign currency translation adjustment
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
(78)
|
| |
(78)
|
| ||
|
Balance—January 31, 2021
|
| |
15,227,437
|
| |
$33,248
|
| |
993,868
|
| |
$1,451
|
| |
5,878,303
|
| |
$8,171
|
| |
13,871,547
|
| |
$21,067
|
| |
11,376,115
|
| |
$13,979
|
| |
21,124,699
|
| |
$19,899
|
| |
26,914,949
|
| |
$22,047
|
| |
15,997,285
|
| |
$10,159
|
| |
9,198,372
|
| |
$2,208
|
| |
120,582,575
|
| |
$132,229
|
| |
42,892,927
|
| |
$ —
|
| |
$3,873
|
| |
$(156,820)
|
| |
$ (201)
|
| |
$(153,148)
|
| ||
See notes to consolidated financial statements
FS-122
Consolidated Statements of Cash Flows
|
|
| |
For the years ended January 31,
|
||||||
|
(in thousands)
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Cash flows from operating activities:
|
| |
|
| |
|
| |
|
|
Net loss
|
| |
$(38,439)
|
| |
$(22,740)
|
| |
$(22,739)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
| |
|
| |
|
| |
|
|
Depreciation and amortization
|
| |
546
|
| |
333
|
| |
235
|
|
Amortization of software development costs
|
| |
560
|
| |
532
|
| |
451
|
|
Amortization of acquired intangible assets
|
| |
3,022
|
| |
918
|
| |
—
|
|
Amortization of deferred debt issuance costs
|
| |
361
|
| |
153
|
| |
164
|
|
Stock-based compensation and consulting expense
|
| |
696
|
| |
450
|
| |
268
|
|
Loss on sale of asset
|
| |
3
|
| |
—
|
| |
—
|
|
Provision for bad debts
|
| |
16
|
| |
51
|
| |
31
|
|
Change in fair value of warrants
|
| |
7,375
|
| |
806
|
| |
75
|
|
Change in fair value of contingent consideration
|
| |
(146)
|
| |
1,440
|
| |
—
|
|
Loss on extinguishment of debt
|
| |
—
|
| |
800
|
| |
1,274
|
|
Deferred taxes
|
| |
(636)
|
| |
—
|
| |
(92)
|
|
Noncash interest expense
|
| |
69
|
| |
156
|
| |
195
|
|
Changes in operating assets and liabilities:
|
| |
|
| |
|
| |
|
|
Accounts receivable
|
| |
(3,776)
|
| |
(7,115)
|
| |
(4,066)
|
|
Deferred contract acquisition costs
|
| |
(1,517)
|
| |
(2,258)
|
| |
(3,434)
|
|
Prepaid expenses and other assets
|
| |
(284)
|
| |
(145)
|
| |
(79)
|
|
Accounts payable, accrued compensation, accrued
expenses, and other current liabilities
|
| |
4,766
|
| |
2,266
|
| |
2,005
|
|
Deferred revenue
|
| |
9,680
|
| |
9,295
|
| |
7,079
|
|
Other liabilites
|
| |
(368)
|
| | | | ||
|
Net cash used in operating activities
|
| |
(18,072)
|
| |
(15,058)
|
| |
(18,633)
|
|
|
| |
|
| |
|
| |
|
|
Cash flows from investing activities:
|
| |
|
| |
|
| |
|
|
Business acquistion, net of cash acquired
|
| |
(3,792)
|
| |
(7,235)
|
| |
—
|
|
Purchases of property and equipment
|
| |
(572)
|
| |
(264)
|
| |
(224)
|
|
Capitalized software
|
| |
(674)
|
| |
(494)
|
| |
(580)
|
|
Net cash used in investing activities
|
| |
(5,038)
|
| |
(7,993)
|
| |
(804)
|
|
|
| |
|
| |
|
| |
|
|
Cash flows from financing activities:
|
| |
|
| |
|
| |
|
|
Exercise of stock options
|
| |
202
|
| |
111
|
| |
76
|
|
Proceeds from issuance of redeemable convertible
preferred stock-net of issuance costs paid in cash of $156 for the year ended January 31, 2020
|
| |
—
|
| |
—
|
| |
21,067
|
|
Issuance costs for redeemable convertible preferred stock
|
| |
—
|
| |
(112)
|
| |
—
|
|
Proceeds from issuance of convertible notes
|
| |
—
|
| |
—
|
| |
8,445
|
|
Proceeds from issuance of debt-net of issuance costs
paid in cash of $35 and $0, respectively
|
| |
19,965
|
| |
37,100
|
| |
14,638
|
|
Repayment of debt
|
| |
(469)
|
| |
(23,025)
|
| |
(11,208)
|
|
Net cash provided by financing activities
|
| |
19,698
|
| |
14,074
|
| |
33,018
|
|
Foreign exchange translation adjustment
|
| |
(78)
|
| |
(57)
|
| |
(65)
|
|
Net change in cash, cash equivalents, and restricted cash
|
| |
(3,490)
|
| |
(9,034)
|
| |
13,516
|
|
Cash, cash equivalents, and restricted cash–beginning of year
|
| |
13,864
|
| |
22,898
|
| |
9,382
|
|
Cash, cash equivalents, and restricted cash–end of year
|
| |
$10,374
|
| |
$13,864
|
| |
$22,898
|
See notes to consolidated financial statements
FS-123
|
|
| |
For the years ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Supplemental Cash Flow Information:
|
| |
|
| |
|
| |
|
|
Cash paid for interest
|
| |
$3,038
|
| |
$1,949
|
| |
$1,606
|
|
Cash paid for income taxes
|
| |
90
|
| |
160
|
| |
—
|
|
|
| |
|
| |
|
| |
|
|
Non-cash investing and financing activities:
|
| |
|
| |
|
| |
|
|
Extinguishment of convertible notes
|
| |
$—
|
| |
$—
|
| |
$8,563
|
|
Note payable issued in connection with business acquisition
|
| |
3,750
|
| |
—
|
| |
—
|
|
Issuance of warrants to purchase redeemable convertible preferred stock
|
| |
528
|
| |
1,066
|
| |
386
|
|
Issuance of redeemable convertible preferred stock in
connection with acquisition
|
| |
7,839
|
| |
16,950
|
| |
—
|
|
Accrual of contingent consideration in connection with acquisition
|
| |
—
|
| |
15,002
|
| |
—
|
|
Issuance of contingently issuable redeemable convertible preferred stock
|
| |
—
|
| |
8,571
|
| |
—
|
|
Accrual of end of term charge on loan outstanding
|
| |
—
|
| |
—
|
| |
77
|
See notes to consolidated financial statements
FS-124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 2022 and 2021 AND FOR THE THREE YEARS ENDED JANUARY
31, 2022
|
1.
|
ORGANIZATION AND DESCRIPTION OF BUSINESS
|
The accompanying consolidated financial statements include the assets, liabilities,
revenues, expenses, and cash flows of ZeroFox, Inc., ZeroFox’s Inc.’s subsidiaries, and the acquired sets of assets and activities obtained by ZeroFox, Inc. that are accounted for as business combinations (collectively, the “Company”) under
accounting principles generally accepted in the United States of America (US GAAP).
The Company is an enterprise cybersecurity software-as-a-service provider of digital
attack detection and protection services. The Company’s patented technology collects and processes content, rich media, electronic posts, messages, global intelligence and threat actor activity across the digital landscape, including social
media sites, public, deep and dark web forums, mobile app stores and other digital platforms and discrete content sources. Using artificial intelligence-based analysis and threat intelligence capabilities, the ZeroFox platform identifies and
remediates targeted phishing attacks, credential and account compromise, data exfiltration and brand hijacking threats. The Company offers its services on a subscription basis.
On September 30, 2020, ZeroFox, Inc. acquired substantially all of the assets and
assumed certain liabilities of Lookingglass Cyber Solutions, Inc.’s (“Lookingglass”) Cyveillance business unit (the “Cyveillance Acquisition”). The Cyveillance Acquisition was accounted for as a business combination under US GAAP. The
accompanying consolidated financial statements include the assets, liabilities, revenues, expenses, and cash flows related to the Cyveillance Acquisition from the date of acquisition through January 31, 2022. Refer to Note 5 for additional
information regarding the Cyveillance Acquisition.
On June 7, 2021, ZeroFox, Inc. entered into a Stock Purchase Agreement with InfoArmor,
Inc. (“InfoArmor”) to acquire all of the issued and outstanding common stock of VigilanteATI, Inc. (“Vigilante”). The Vigilante Acquisition was accounted for as a business combination under US GAAP. The accompanying condensed consolidated
financial statements include the assets, liabilities, revenues, expenses, and cash flows related to the Vigilante Acquisition from the date of acquisition through January 31, 2022. Refer to Note 5for additional information regarding the
Vigilante Acquisition.
Segment Information—Operating
segments are defined as components of an enterprise for which discrete financial information is made available for evaluation by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing
performance. The CODM is the Company’s chief executive officer. The CODM views the Company’s operations and manages its activities as a single operating segment, which is the business of providing cybersecurity intelligence, analytics, and
protection services to its customers. All of the Company’s assets are primarily located in the United States. For disclosures by geographic region, refer to Note 3 – Revenue and Note 6 – Property and Equipment.
Liquidity and Going Concern—For
the years ended January 31, 2022, 2021, and 2020, the Company incurred net losses of $38.4 million, $22.7 million, and $22.7 million, respectively, and incurred negative cash flows from operating activities of $18.1 million, $15.1 million,
and $18.6 million, respectively. The Company has incurred operating losses since inception and continues to face significant risks associated with successful execution of the Company’s business plan that include, but are not limited to,
customer acquisition, competition and market risk, and liquidity risk. The Company has historically funded its operations through the issuance of redeemable convertible preferred stock (see Note 10) and debt (see Note 8). The Company
evaluated its financial condition as of January 31, 2022 and determined it is probable that, without consideration of a remediation plan to refinance or renegotiate existing debt facilities or raise new sources of capital, the Company would
be unable to fund its operations for the next twelve months from the date the consolidated financial statements are available to be issued.
On December 17, 2021, the Company entered into a definitive agreement for a merger
that would result in the Company becoming a publicly listed company (Note 16). There can be no assurance that the merger will occur or that the Company will continue to raise additional funds to maintain sufficient liquidity, and accordingly
there is substantial doubt about the Company's ability to continue as a going concern.
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The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States (“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.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation—The
accompanying consolidated financial statements have been prepared in accordance with US GAAP as set forth by the Financial Accounting Standards Board (FASB). References to US GAAP issued by the FASB in these notes to the consolidated
financial statements are to the FASB Accounting Standards Codifications (“ASC”).
Emerging Growth Company Status—The
Company is an “emerging growth company,” (“EGC”) as defined in the Jumpstart Our Business Startups Act, (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public
companies that are not EGCs. The Company may take advantage of these exemptions until it is no longer an EGC under Section 107 of the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting
standards. As a result of this election, the Company’s financial statements may not be comparable to companies that comply with public company Financial Accounting Standards Board (“FASB”) standards’ effective dates.
The Company is in the process of merging with a publicly traded Special Purpose
Acquisition Company (a “SPAC”) (the “Merger Transaction)”, which will be accounted for in one of two ways depending on the redemption elections of the SPAC shareholders; (1) assuming minimum redemption, the merger will be accounted for as a
reverse recapitalization in accordance with U.S. GAAP and (2) assuming maximum redemption, the Company will be considered a variable interest entity and the merger will be accounted for as an acquisition by the SPAC of the Company in accordance
with U.S. GAAP. Refer to Note 16 for more information regarding the Merger Transaction. If the Merger Transaction were to be consummated, the surviving company will remain an emerging growth company until the earliest of (i) the last day of the
Company’s first fiscal year following the fifth anniversary of the completion of the SPAC’s initial public offering, (ii) the last day of the fiscal year in which the Company has total annual gross revenue of at least $1.07 billion, (iii) the
last day of the fiscal year in which the Company is deemed to be a large accelerated filer, which means the market value of the Company’s common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th or (iv) the
date on which the Company has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Principles of Consolidation—The
accompanying consolidated financial statements include the accounts of ZeroFox and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates—The preparation
of the accompanying consolidated financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the reported results of operations during the reporting periods. Significant estimates and judgments are included within, but not limited to: (1) revenue recognition, (2)
capitalization of internally developed software costs, (3) forecasts and assumptions used in determining the fair value of stock-based compensation, (4) valuation of assets acquired and liabilities assumed in business combinations, (5) useful
lives of contract acquisition costs, (6) accounting for derivatives, (7) warrant valuation, (8) valuation of the Company’s stock, and (9) valuation allowances associated with deferred tax assets. Management bases its estimates and assumptions
on historical experience, expectations, forecasts, and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future
periods may differ and be affected by changes in those estimates.
Cash and Cash Equivalents—Cash
and cash equivalents consist of business checking accounts and money market funds. The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash and
cash equivalents are carried at cost, which, due to their short-term nature, approximates fair value.
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Restricted Cash—Cash that is
unavailable for general operating purposes is classified as restricted cash and is included with other assets on the consolidated balance sheets (in thousands).
|
|
| |
January 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Cash and cash equivalents
|
| |
$10,274
|
| |
$13,764
|
|
Restricted cash
|
| |
100
|
| |
100
|
|
Total cash, cash equivalents, and restricted cash shown in
the consolidated statements of cash flows
|
| |
$10,374
|
| |
$13,864
|
Restricted cash represents amounts pledged as collateral for credit card accounts as
contractually required by the Company’s lenders.
Fair Value of Financial Instruments—ASC 820-10, Fair Value Measurements and Disclosures: Overall, defines fair value, establishes a fair value hierarchy for assets
and liabilities measured at fair value, and expands required disclosures about fair value measurements. The fair value of an asset and liability is defined as an exit price and represents the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants. The three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value, is as follows:
Level 1—Inputs are quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
Assets and liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurements. The Company’s assessment of the significance of an input to the fair value measurement requires judgment and may affect the valuation of the asset or liability being measured and its
placement within the fair value hierarchy. The Company effectuates transfers between levels of the fair value hierarchy, if any, as of the date of the actual circumstance that caused the transfer.
Certain assets and liabilities, including goodwill and intangible assets, are subject
to measurement at fair value on a non-recurring basis if there are indicators of impairment or if they are deemed to be impaired as a result of an impairment review.
As of January 31, 2022 and 2021, the Company had warrant liabilities measured based on
Level 3 inputs. A summary of the changes in the fair value of warrants for the years ended January 31, 2022 and 2021 is as follows (in thousands):
|
Warrant liability—January 31, 2020
|
| |
$934
|
|
Issuance of warrants
|
| |
1,066
|
|
Loss due to change in fair value of warrants
|
| |
806
|
|
Warrant liability—January 31, 2021
|
| |
$2,806
|
|
Issuance of warrants
|
| |
528
|
|
Loss due to change in fair value of warrants
|
| |
7,375
|
|
Warrant liability—January 31, 2022
|
| |
$10,709
|
The assumptions used to value the warrants are described in Note 9.
The carrying amounts of accounts receivable, accounts payable, and accrued expenses
approximate fair value because of the short maturity terms of these instruments.
Contingent consideration liabilities related to acquisitions (see Note 5) are measured
at fair value each reporting period using Level 3 unobservable inputs. The Company's estimates of fair value are based on assumptions believed to be reasonable, but which are uncertain and involve significant judgments by
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management. Any changes in the fair value of these contingent consideration
liabilities are included in general and administrative expenses in the consolidated statements of comprehensive loss. A summary of the changes in the fair value of the contingent consideration liability for the year ended January 31, 2022 and
2021 is as follows (in thousands):
|
Balance as of January 31, 2020
|
| |
$—
|
|
Acquisition on September 30, 2020
|
| |
15,002
|
|
Loss recognized in the consolidated statement of comprehensive loss
|
| |
1,440
|
|
Issuance of redeemable convertible preferred stock
|
| |
(8,571)
|
|
Balance as of January 31, 2021
|
| |
$7,871
|
|
Acquisition on June 7, 2021
|
| |
114
|
|
Gain recognized in the consolidated statement of comprehensive loss
|
| |
(146)
|
|
Issuance of redeemable convertible preferred stock
|
| |
(7,839)
|
|
Balance as of January 31, 2022
|
| |
$—
|
Concentration of Credit Risk—The
Company maintains cash balances in bank deposit accounts, which, at times, may exceed federally insured limits. Deposits held in non-interest-bearing accounts are fully insured. Deposits held in interest-bearing accounts are insured up to
$250,000. The Company has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk from cash. The Company does not perform ongoing credit evaluations; generally does not require collateral;
and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends, and other information.
Concentration of Revenue and Accounts Receivable—For the years ended January 31, 2022, 2021, and 2020, there were no individual customers that accounted for 10% or more of total consolidated revenue.
As of January 31, 2022, one customer represented 24% of total accounts receivable. As
of January 31, 2021, three customers represented 38% of total accounts receivable.
Accounts Receivable—Accounts
receivable represent net realizable amounts due from customers for subscriptions to the Company’s cloud-based software platform and for professional services provided by the Company. Such amounts are recorded net of allowances for bad debts.
The Company’s estimates of allowances for bad debts are based on contractual terms and historical collection experience. As of January 31, 2022 and 2021, the Company’s accounts receivable consisted of the following (in thousands):
|
|
| |
January 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Accounts receivable, billed
|
| |
$17,084
|
| |
$13,107
|
|
Accounts receivable, unbilled
|
| |
30
|
| |
26
|
|
Less: Allowance for doubtful accounts
|
| |
(68)
|
| |
(51)
|
|
Accounts receivable, current, net
|
| |
$17,046
|
| |
$13,082
|
The allowance for doubtful accounts reflects the Company’s estimate of probable losses
inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence.
Activity in the allowance for doubtful accounts for the years ended January 31, 2022
and 2021 was as follows (in thousands):
|
Allowance for doubtful accounts receivable
|
| |
Balance at
beginning of
period
|
| |
Charged to cost
and expenses
|
| |
Write-offs and
recoveries
|
| |
Balance at end of
period
|
|
Year ended January 31, 2022
|
| |
$ 51
|
| |
$ 40
|
| |
$ (23)
|
| |
$ 68
|
|
Year ended January 31, 2021
|
| |
—
|
| |
60
|
| |
(9)
|
| |
51
|
Deferred Contract Acquisition Costs—Contract acquisition costs are primarily related to sales commissions and related payroll taxes earned by our sales force and such costs are considered incremental
FS-128
costs to obtain a contract. Sales commissions for initial contracts are deferred
and then amortized taking into consideration the pattern of transfer to which the asset relates and may include expected renewal periods where renewal commissions are not commensurate with the initial commissions period. The Company typically
recognizes the initial commissions over the longer of the customer relationship (generally estimated to be four to six years) or over the same period as the initial revenue arrangement to which these costs relate. Renewal commissions not
commensurate with the initial commissions paid are generally amortized over the renewal period. Commissions earned for professional services arrangements are expensed as incurred in accordance with the practical expedient as the contractual
period of the Company’s professional services arrangements are one year or less.
A summary of deferred contract acquisition costs is as follows (in thousands):
|
Deferred contract acquisitions costs—January 31, 2020
|
| |
$7,879
|
|
Capitalization of contract acquisition costs
|
| |
7,167
|
|
Amortization of deferred contract acquisition costs
|
| |
(4,909)
|
|
|
| |
10,137
|
|
|
| |
|
|
Deferred contract acquisition costs, current
|
| |
3,632
|
|
Deferred contract acquisition costs, net of current portion
|
| |
6,505
|
|
Deferred contract acquisitions costs—January 31, 2021
|
| |
$10,137
|
|
Capitalization of contract acquisition costs
|
| |
7,327
|
|
Amortization of deferred contract acquisition costs
|
| |
(5,809)
|
|
|
| |
11,655
|
|
|
| |
|
|
Deferred contract acquisition costs, current
|
| |
4,174
|
|
Deferred contract acquisition costs, net of current portion
|
| |
7,481
|
|
Deferred contract acquisitions costs—January 31, 2022
|
| |
$11,655
|
Property and Equipment—Property
and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized. Repairs and maintenance costs are charged to expense as incurred. When property and equipment are retired, or otherwise disposed of, the
cost and accumulated depreciation and amortization are removed from the accounts, and any resulting gain or loss is included in the results of operations for the respective period. Depreciation and amortization are computed using the
straight-line method.
The estimated useful lives for significant property and equipment categories are as
follows:
|
Asset Classification
|
| |
Estimated Useful Life
|
|
Computer hardware and purchased software
|
| |
2 years
|
|
Furniture and fixtures
|
| |
3-5 years
|
|
Leasehold improvements
|
| |
Lesser of lease term or useful life
|
Capitalized Software Costs—The
Company capitalizes internally developed software costs incurred in accordance with ASC 350-40, Intangibles—Goodwill and Other: Internal-Use Software. The Company capitalizes payroll, payroll-related costs, and any external direct costs incurred during the
application development stage. Costs related to preliminary project activities and postimplementation activities are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life, which is
generally three years.
The Company’s capitalized software development costs were $0.6 million and
$0.5 million for the years ended January 31, 2022 and 2021, respectively. Amortization expense, which is included in cost of revenue, was $0.6 million, $0.5 million, and $0.5 million, for the years ended January 31, 2022, 2021, and 2020,
respectively. Future amortization expense for software development costs capitalized as of January 31, 2022, is as follows (in thousands):
|
2023
|
| |
$ 492
|
|
2024
|
| |
292
|
|
2025
|
| |
130
|
|
Total
|
| |
$ 914
|
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Goodwill and Intangible Assets—Goodwill
represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed when a business is acquired. The valuation of intangible assets and goodwill involves the use of management's estimates
and assumptions and can have a significant impact on future operating results. The Company initially records its intangible assets at fair value. Intangible assets with finite lives are amortized over their estimated useful lives while
goodwill is not amortized but is evaluated for impairment at least annually, as of November 30, by comparing the fair value of a reporting unit to its carrying value including goodwill recorded by the reporting unit.
The Company has a single reporting unit. Accordingly, the impairment assessment for
goodwill is performed at the enterprise level. Goodwill is reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its
carrying value. The Company initially assesses qualitative factors to determine if it is necessary to perform the goodwill impairment review. Goodwill is reviewed for impairment if, based on an assessment of the qualitative factors, it is
determined that it is more likely than not that the fair value of the reporting unit is less than its carrying value, or the Company decides to bypass the qualitative assessment. The carrying value of the reporting unit is reviewed utilizing a
combination of the discounted cash flow model and a market value approach. The estimated fair value of a reporting unit is determined based on assumptions regarding estimated future cash flows, discount rates, long-term growth rates and market
values. Additionally, the Company considers income tax effects from any tax-deductible goodwill (if applicable) on the carrying amount of the reporting unit when measuring the goodwill impairment loss.
The Company monitors for events and circumstances that could negatively impact the key
assumptions in determining fair value, including long-term growth projections, profitability, discount rates, volatility in the Company's market capitalization, general industry, and market and macro-economic conditions. It is possible that
future changes in such circumstances, or in the variables associated with the judgments, assumptions and estimates used in assessing the fair value of the reporting unit, would require the Company to record a non-cash impairment charge.
The Company completed its annual assessment on November 30, 2021, and there was no
impairment of goodwill at the assessment date.
See Note 5 for the amounts allocated to the intangible assets identified and their
estimated useful lives as of the date of acquisition.
Impairment of Long-Lived Assets—Long-lived
assets, including intangible assets with finite lives, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of the assets is measured by a
comparison of the carrying amount of an asset or asset group to the future undiscounted cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the fair value of the asset or asset group. As of January 31, 2022, management does not believe any long-lived assets are impaired and has not identified any assets as being
held for disposal.
Business Combinations—The
Company accounts for acquisitions using the acquisition method of accounting. The fair value of purchase consideration is allocated to the tangible and intangible assets acquired, and liabilities assumed, based on their estimated fair values.
The excess of the fair value of purchase consideration over the values of the identifiable assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed,
management makes significant estimates and assumptions, especially with respect to intangible assets.
Significant estimates in valuing certain identifiable assets include, but are not
limited to, the selection of valuation methodologies, future expected cash flows, discount rates, and useful lives. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain
and unpredictable and, as a result, actual results may differ from estimates. Acquisition costs, such as legal and consulting fees, are expensed as incurred and are included in general and administrative expenses in the consolidated statements
of comprehensive loss. During the measurement period, which is up to one year from the acquisition date, the Company may record adjustments to the assets acquired and
FS-130
liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion
of the measurement period, any subsequent adjustments are recorded in the consolidated statements of comprehensive loss. See Note 5 for additional information regarding business combinations.
Transaction Fees—As discussed in
Note 16, the accounting treatment of the Merger Transaction is not within the Company’s control, transaction fees and expenses associated with the Merger Transaction are being accounted for under the assumption of a forward merger
transaction. Accordingly, the Company has recorded approximately $6.3 million of professional and other transaction fees related to the Merger Transaction in general and administrative expenses in the Consolidated Statement of Comprehensive
Loss for the year ended January 31, 2022.
Deferred Revenue—Deferred
revenue represents amounts billed for which revenue has not yet been recognized. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as
deferred revenue – net of current portion.
Debt Issuance Costs—Debt
issuance costs consist of fees paid in cash to lenders and service providers in connection with the origination of debt, as well as the grant-date fair value of warrants issued to lenders in connection with the origination of debt. These
costs are capitalized as debt issuance costs and presented as a direct deduction from the carrying value of the associated debt liability. Debt issuance costs are amortized using the effective interest method and are reflected in interest
expense, net, on the consolidated statements of comprehensive loss.
For the years ended January 31, 2022 and 2021, deferred debt issuance costs consisted
of the following (in thousands):
|
Deferred debt issuance costs—January 31, 2020
|
| |
$620
|
|
Direct costs paid
|
| |
696
|
|
Grant-date fair value of warrants issued
|
| |
1,066
|
|
Extinguishment of debt
|
| |
(804)
|
|
Amortization of debt issuance costs
|
| |
(153)
|
|
Deferred debt issuance costs—January 31, 2021
|
| |
$1,425
|
|
Direct costs paid
|
| |
35
|
|
Grant-date fair value of warrants issued
|
| |
528
|
|
Amortization of debt issuance costs
|
| |
(361)
|
|
Deferred debt issuance costs—January 31, 2022
|
| |
$1,627
|
Warrants—The Company has issued
warrants to purchase shares of common stock, as well as warrants to purchase shares of redeemable convertible preferred stock. As issued, the Company’s warrants to purchase shares of common stock and Series A and Series C-1 redeemable
convertible preferred stock meet the definition of a derivative as contemplated in ASC 815, Derivatives and Hedging. Such warrants meet
the derivative criteria because they (i) contain an underlying in the form of an exercise price that can vary (ii) the number of shares that can be purchased under such warrants represent notional amounts (iii) the warrants require no initial
net investment, and iv) the warrants can be net settled through a cashless exercise. The warrants to purchase shares of common stock and Series A and Series C-1 redeemable convertible preferred stock are subject to reassessment at each
balance sheet date, and any change in fair value is recognized as a component of other income (expense), net, in the consolidated statements of comprehensive loss. Refer to Note 9 for additional information on the Company’s warrants to
purchase shares of common stock and Series A and Series C-1 redeemable convertible preferred stock.
The exercise price for the warrants to purchase shares of Series B and Series E
redeemable convertible preferred stock cannot vary, which precludes the exercise price from being considered an underlying. Since these warrants do not contain an underlying, they do not qualify as derivatives. The warrants to purchase shares
of Series B and Series E redeemable convertible preferred stock are classified as liabilities under ASC 480, Distinguishing Liabilities from Equity on the Company’s consolidated balance sheets and are
FS-131
subject to reassessment at each balance sheet date, and any change in fair value is
recognized as a component of other income (expense), net, in the consolidated statements of comprehensive loss. Refer to Note 9 for additional information on the Company’s warrants to purchase shares of Series B and Series E redeemable
convertible preferred stock.
Redeemable Convertible Preferred Stock—The Company records shares of its redeemable convertible preferred stock at their respective fair values on the dates of issuance less issuance costs. The Company classifies redeemable convertible preferred stock outside of
permanent equity in mezzanine equity on its consolidated balance sheets as the requirements of triggering a deemed liquidation event are not within the Company’s control. In the event of a deemed liquidation event, the proceeds from the event
are distributed in accordance with liquidation preferences (see Note 10). The redeemable convertible preferred stock has not been adjusted to its redemption amount as deemed liquidation is not considered probable.
Foreign Currency Translation—The
functional currency of the Company’s subsidiaries is the local currency. For each subsidiary, assets and liabilities denominated in foreign currencies are translated into US dollars at the exchange rates in effect at the consolidated balance
sheet date, and revenue and expenses are translated at the average exchange rates prevailing during the month of the transaction. The effects of foreign currency translation adjustments not affecting net income are included in stockholders’
deficit under the cumulative translation adjustment account as a component of accumulated other comprehensive loss.
Revenue Recognition—The Company
derives its revenue from (i) providing its customers with subscription access to the Company’s enterprise cloud platform (“subscription revenue”) and (ii) revenue from professional services (“professional services revenue”).
In accordance with ASC 606, Revenue from Contracts
with Customers, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to receive in exchange for those services.
To achieve the core principle of this standard, the Company applies the following five steps:
|
a)
|
Identify Contracts with Customers. The Company considers the terms and conditions of
contracts and its customary business practices in identifying contracts with customers in accordance with ASC 606. The Company determines it has a contract with a customer when the contract is approved, the Company can identify each
party’s rights regarding the services to be transferred, the Company can identify the payment terms for the services, and the Company has determined that the customer has the ability and intent to pay and the contract has commercial
substance. The Company applies judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit
and financial information pertaining to the customer.
|
|
b)
|
Identify the Performance Obligations in the Contract. Performance obligations promised
in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources
that are readily available from third parties or from the Company, and that are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract.
|
|
c)
|
Determine the Transaction Price. The transaction price is determined based on the
consideration to which the Company expects to be entitled in exchange for transferring services to the customer. The Company’s typical pricing for its subscriptions and professional services does not result in contracts with significant
variable consideration. The Company’s arrangements do not contain significant financing components.
|
|
d)
|
Allocate the Transaction Price to Performance Obligations in the Contract. If the
contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to
each performance obligation based on the stand-alone selling price (SSP) of each performance obligation, using the relative selling price method of allocation.
|
FS-132
|
e)
|
Recognize Revenue When or As Performance Obligations are Satisfied. Revenue is
recognized at the time the related performance obligation is satisfied by transferring the promised service to a customer. For our performance obligations, the Company transfers control over time, as the customer simultaneously receives
and consumes the benefits provided by the Company’s service.
|
Subscription Revenue—Subscription
revenue consists of revenue from the Company’s cloud-based subscription offering.
The Company generates subscription revenue primarily from sales of subscriptions to
access the ZeroFox cloud platform, together with related data and support services to customers. These arrangements do not provide the customer with the right to take possession of the Company’s software operating on its cloud platform at any
time. These arrangements represent a combined stand-ready performance obligation to provide access to the software together with related support and intelligence services. Customers are granted continuous access to the Company’s cloud platform
over the contractual period. Revenue is recognized over time on a ratable basis over the contract term beginning on the date that the Company’s service is made available to the customer. The Company’s subscription contracts generally have terms
of one to three years, which are billed in advance and are noncancelable.
Customers have the option to purchase additional subscription and support services at
a stated price. These options generally do not provide a material right, as they are priced at the Company’s SSP.
Certain subscription contracts contain service-level commitments that entitle
customers to receive service credits and, in certain cases, refunds, if the Company’s services do not meet certain levels. The Company has not experienced any significant incidents affecting the defined levels of reliability and performance as
required by the subscription contracts, and accordingly, no estimated refunds have been considered in the allocation of the transaction price.
Professional Services Revenue—The
Company offers several types of professional services, including security advisory and training services. All of the Company’s professional services are considered distinct performance obligations from the subscription services within the
context of the Company’s contracts. The customers benefit from the services as delivered and performed and revenue is recognized over time, when or as control of the promised services is transferred to the customer, as this reflects the
pattern of transfer for these professional services. These contracts are available via hourly rate and fixed fee arrangements and normally have terms of one year or less.
Contracts with Multiple Performance Obligations—The majority of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately. The transaction price
is allocated to the separate performance obligations based on the SSP of each performance obligation using the relative selling price method of allocation.
For the years ended January 31, 2022, 2021, and 2020, subscription revenue, defined as
revenue from subscriptions for cloud- based services with related support and intelligence services, was 95%, 97% and 97% of total revenue, respectively.
Reseller Arrangements—The
Company enters into arrangements with third parties that allow those parties to resell the Company’s services to end users. The partners negotiate pricing with the end customer and the Company does not have visibility into the price paid by
the end customer. For these arrangements, revenue is recognized at the amount charged to the reseller and does not reflect any mark-up to the end user.
Cost of Revenue—Cost of revenue
consists primarily of wages and benefits for software operations, service delivery, and customer support personnel. Cost of revenue also includes all direct costs of maintenance and hosting, as well as the amortization of costs capitalized
for the development of the Company’s enterprise cloud platform and acquired technology, and allocations of overhead, depreciation, and amortization.
Research and Development—Research
and development costs are expensed in the period incurred and consist primarily of payroll and personnel costs, consulting costs, software and webservices, legal, raw materials and allocated overhead such as depreciation and amortization,
rent and utilities.
General and Administrative—General
and administrative costs are expensed in the period incurred and consist primarily of salaries and other related costs, including stock-based compensation, for personnel in
FS-133
the Company's executive and finance functions. General and administrative costs
also include professional fees for legal, accounting, auditing, tax and consulting services; travel expenses; and facility-related expenses, which include costs for rent and maintenance of facilities and other operating costs.
Sales and Marketing—Selling and
marketing expenses consist primarily of salaries, commissions, stock-based compensation, benefits and bonuses for personnel associated with sales and marketing activities, as well as costs related to advertising, product management,
promotional materials, public relations, amortization of acquired customer relationships, and other sales and marketing programs.
Advertising—Advertising costs,
which are expensed and included in sales and marketing expense in the period incurred were $0.5 million, $0.3 million, and $0.1 million during the years ended January 31, 2022, 2021, and 2020, respectively.
Income Taxes—In accordance with
ASC 740, Income Taxes, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the consolidated 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 assets and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the results of operations in the period that includes the enactment date. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the
consolidated financial statement recognition and measurement of tax positions taken, or expected to be taken, in a tax return, as well as guidance on derecognition, classification, interest, penalties, and consolidated financial statement
reporting disclosures. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater
than 50% likely of being realized upon ultimate settlement. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company remains subject to examination by US federal
and various state tax authorities for the fiscal years 2018 through 2021.
Under ASC 740, the Company determined that its income tax positions did meet the
more-likely-than-not recognition threshold and, therefore, requires no reserve.
Stock-Based Compensation—The
Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. ASC 718 requires that the cost of awards of equity instruments offered in exchange for employee services, including employee stock options and restricted
stock awards, be measured based on the grant-date fair value of the award. The Company adopted FASB ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting, on February 1, 2019. This ASU involves several aspects of the accounting for share-based payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and classification in the consolidated statements of cash flows. The adoption did not have a material impact on the consolidated financial statements of the Company. The Company
determines the fair value of options granted using the Black-Scholes-Merton option-pricing model (“Black-Scholes model”) and recognizes the cost over the period during which an employee is required to provide service in exchange for the
award, generally the vesting period, net of estimated forfeitures. The fair value of restricted stock awards is based on the estimated price of the Company’s common stock on the date of grant and is recognized as expense over the requisite
service period of the awards, net of estimated forfeitures.
Because the Company’s common stock is not yet publicly traded, the Company must
estimate the fair value of common stock. The Board of Directors considers numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards are approved. The factors considered
include, but are not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices, rights, preferences, and privileges of the Company’s Convertible Redeemable Preferred Stock
relative to those of its common stock; (iii) the lack of
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marketability of the Company’s common stock; (iv) actual operating and financial
results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions
involving the Company’s shares.
Net Loss Per Share Attributable to Common Stockholders—Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period.
Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share
attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common stock. For
the purposes of this calculation, outstanding stock options, unvested restricted stock, stock warrants, and redeemable convertible preferred stock are considered potential dilutive common stock and are excluded from the computation of net
loss per share as their effect is anti-dilutive.
The Company’s redeemable convertible preferred stock and restricted common stock
contractually entitle the holders of such shares to participate in dividends but do not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss,
such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss
per share attributable to common stockholders, since dilutive common shares are not assumed to be outstanding if their effect is anti-dilutive.
Comprehensive Loss—Comprehensive
loss includes net loss as well as other changes in stockholders’ deficit that result from transactions and economic events other than those with stockholders. For the years ended January 31, 2022, 2021 and 2020, there was a difference between
net loss and comprehensive loss in the accompanying consolidated financial statements pertaining to foreign currency translation adjustments.
Standards Issued and Adopted—In
January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 makes amendments to the guidance in US GAAP on the classification and measurement of investments in equity securities and fair value changes for financial liabilities measured at fair value. It
also amends certain disclosure requirements associated with the fair value of financial instruments. The Company adopted ASU No. 2016-01 on February 1, 2019, and subsequently issued clarifications, with no material impact on its consolidated
financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 makes amendments to the guidance to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether
transactions should be accounted for as acquisitions (or disposals) of businesses. The amendment provides a screen to determine when a set is not a business. The Company adopted ASU No. 2017-04 on February 1, 2020, with no material impact on
its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the measurement of goodwill by eliminating step two of the two-step impairment test. Step two measures a goodwill impairment loss by comparing the
implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This ASU requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge of the amount by
which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment
loss, if applicable. The Company adopted ASU No. 2017-04 on February 1, 2020, with no material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill
and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation
costs incurred in a hosting arrangement that is a service contract with the requirements for
FS-135
capitalizing implementation costs incurred to develop or obtain internal-use
software (and hosting arrangements that include an internal-use software license). The Company adopted ASU No. 2018-15 on February 1, 2021, with no material impact on its consolidated financial statements.
In October 2018, the FASB issued ASU No. 2018 17, Consolidation
(Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The amendments in this update affect reporting entities that are required to determine whether they should consolidate a legal entity under
the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation—Overall. The Company adopted ASU 2018-17 on February 1, 2021, with no material impact on its consolidated
financial statements.
Standards Issued, but Not Yet Effective—In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance is intended to improve financial reporting
about leasing transactions. This ASU affects all companies and other organizations that lease assets. Under Topic 842, the critical determination is whether a contract is or contains a lease because lessees are required to recognize lease
assets and lease liabilities for all leases—finance and operating—other than short-term leases. The standard is effective for the Company for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning
after December 15, 2022, and early adoption is permitted. The Company. The Company is in the process of evaluating the guidance and the impact it will have on its consolidated financial statements.
In June 2016 the FASB issued ASU 2016-13, Measurement
of Credit Losses on Financial Instruments, which amends the accounting for credit losses for most financial assets and certain other instruments. The standard requires that entities holding financial assets that are not accounted for
at fair value through net income be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net
carrying value at the amount expected to be collected on the financial asset. The standard is effective for the Company for fiscal years beginning after December 15, 2022, and interim periods within fiscal years beginning after December 15,
2023. The Company believes the adoption of ASU 2016-13 will not have a material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent
application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The standard is effective for the Company for fiscal years beginning after December 15, 2021 and interim periods within fiscal years
beginning after December 15, 2022, and early adoption is permitted. The Company believes the adoption of ASU No. 2019- 12 will not have a material impact on its consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Accounting
Standards Update No. 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, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06
removes the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, a convertible debt instrument will be accounted for as a single liability measured at its amortized
cost and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. Additionally, ASU 2020-06 requires the
application of the if-converted method for all convertible instruments in the diluted earnings per share calculation and the inclusion of the effect of share settlement for instruments that may be settled in cash or shares, except for certain
liability-classified share-based payment awards. The amendments in this ASU are effective for all public entities for fiscal years beginning after December 15, 2021. The Company is in the process of evaluating the guidance and the impact it
will have on its consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Accounting
Standards Update No. 2021-08—Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to require acquiring entities to apply Topic 606 to recognize
and measure contract assets and contract liabilities in a business combination. As a result of the amendments, it
FS-136
is expected that an acquirer will generally recognize and measure acquired contract
assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its preacquisition financial statements. The standard is effective for the Company for fiscal years beginning after December 15, 2022
and interim periods within fiscal years beginning after December 15, 2023, and early adoption is permitted. The Company is in the process of evaluating the guidance and the impact it will have on its consolidated financial statements.
|
3.
|
REVENUE
|
Disaggregation of Revenue—The table below provides revenues earned by line of service for the years ended January 31, 2022, 2021, and 2020 (in thousands).
|
Revenue Line
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Subscription revenue
|
| |
$45,117
|
| |
$27,550
|
| |
$15,686
|
|
Professional service
|
| |
2,316
|
| |
988
|
| |
704
|
|
Total
|
| |
$47,433
|
| |
$28,538
|
| |
$16,390
|
The table below provides revenues earned based on the geographic locations of our
customers for the years ended January 31, 2022, 2021, and 2020 (in thousands).
|
Country
|
| |
2022
|
| |
2021
|
| |
2020
|
|
United States
|
| |
$35,859
|
| |
$20,538
|
| |
$11,447
|
|
Other
|
| |
11,574
|
| |
8,000
|
| |
4,943
|
|
Total
|
| |
$47,433
|
| |
$28,538
|
| |
$16,390
|
For the years ended January 31, 2022, 2021, and 2020, no country other than the United
States represented 10% or more of total consolidated revenue.
Contract Assets and Liabilities—The components of contract assets and liabilities consist of the following (in thousands):
|
|
| |
As of January 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Assets:
|
| |
|
| |
|
|
Accounts receivable, net
|
| |
$17,046
|
| |
$13,082
|
|
Deferred contract acquisition costs, current and non-current
|
| |
$11,655
|
| |
$10,137
|
|
Liabilities:
|
| |
|
| |
|
|
Deferred revenue, current and non-current
|
| |
$38,831
|
| |
$28,501
|
The significant components of the changes in the contract liabilities balances are
as follows (in thousands):
|
|
| |
Years Ended January 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Revenue recognized that was included in the opening deferred revenue balance
|
| |
$27,733
|
| |
$11,699
|
|
Remaining deferred revenue acquired in business acquisition
|
| |
256
|
| |
2,344
|
Remaining Performance Obligations—As of January 31, 2022, the Company has approximately $60.4 million of revenue that is expected to be recognized from remaining performance obligations that are unsatisfied (or partially
unsatisfied) under non-cancelable contracts. Of this $60.4 million, the Company expects to recognize revenue of approximately $39.2 million in fiscal year 2023, approximately $13.5 million in fiscal year 2024, approximately $6.5 million in
fiscal year 2025, and approximately $1.2 million thereafter. These amounts do not include revenue from professional services, which was excluded in accordance with the ‘right to invoice’ practical expedient specified in ASC 606-10-55-18.
FS-137
|
4.
|
FAIR VALUE MEARSURMENTS
|
The following table sets forth by level, within the fair value hierarchy, the
assets/(liabilities) carried at fair value (in thousands):
|
|
| |
Fair value measurements
at January 31, 2022 using:
|
|||||||||
|
|
| |
Level 1
|
| |
Level 2
|
| |
Level 3
|
| |
Total
|
|
Assets:
|
| |
|
| |
|
| |
|
| |
|
|
Cash equivalents − money market funds
|
| |
$ —
|
| |
$ —
|
| |
$—
|
| |
$ —
|
|
Total financial assets
|
| |
$ —
|
| |
$ —
|
| |
$—
|
| |
$—
|
|
Liabilities:
|
| |
|
| |
|
| |
|
| |
|
|
Warrant liabilities
|
| |
$ —
|
| |
$ —
|
| |
$(10,709)
|
| |
$(10,709)
|
|
Total financial liabilities
|
| |
$ —
|
| |
$ —
|
| |
$(10,709)
|
| |
$(10,709)
|
The following table sets forth by level, within the fair value hierarchy, the assets
(liabilities) carried at fair value (in thousands):
|
|
| |
Fair value measurements at
January 31, 2021 using:
|
|||||||||
|
|
| |
Level 1
|
| |
Level 2
|
| |
Level 3
|
| |
Total
|
|
Assets:
|
| |
|
| |
|
| |
|
| |
|
|
Cash equivalents − money market funds
|
| |
$2,110
|
| |
$ —
|
| |
$—
|
| |
$2,110
|
|
Total financial assets
|
| |
$2,110
|
| |
$ —
|
| |
$—
|
| |
$2,110
|
|
Liabilities:
|
| |
|
| |
|
| |
|
| |
|
|
Warrant liabilities
|
| |
$—
|
| |
$ —
|
| |
$(2,806)
|
| |
$(2,806)
|
|
Contingent consideration
|
| |
$—
|
| |
$ —
|
| |
$(7,871)
|
| |
$(7,871)
|
|
Total financial liabilities
|
| |
$—
|
| |
$ —
|
| |
$(10,677)
|
| |
$(10,677)
|
The cash equivalents are comprised of funds held in an exchange traded money market
fund and the fair value of the cash equivalents is determined based upon quoted market price for that fund. There were no transfers among Level 1, Level 2, or Level 3 categories in the periods presented.
The assumptions used to value the warrants are described in Note 9. The assumptions
used to value the contingent consideration are described in Note 5.
The carrying amounts of accounts receivable, accounts payable, and accrued expenses
approximate fair value because of the short maturity terms of these instruments.
|
5.
|
ACQUISITIONS
|
Acquisition of VigilanteATI, Inc. (the “Vigilante Acquisition”)—On June 7, 2021, the Company entered into a Stock Purchase Agreement with InfoArmor, Inc. (the “Seller”) to acquire all of the issued and outstanding common stock of VigilanteATI, Inc. (“Vigilante”). Vigilante
protects organizations against cyber threats by obtaining and organizing data on potential risks that can be utilized by Vigilante’s clients to enhance their cyber security. The Vigilante Acquisition allows the Company to further scale its
digital risk protection services and expand its threat intelligence capabilities. The Vigilante Acquisition was accounted for as a business combination in accordance with ASC 805, Business
Combinations. The Company has estimated a preliminary fair value of the aggregate purchase consideration to be $7.4 million, which is comprised of $3.8 million paid in cash, a $3.5 million promissory
note payable issued to the Seller (principal amount of note of $3.8 million), and $0.1 million of contingent consideration.
FS-138
The assets acquired and liabilities assumed in connection with the Vigilante
Acquisition were recorded at their fair values on the date of acquisition as follows (in thousands):
|
|
| |
Fair Value
|
|
Goodwill
|
| |
$5,714
|
|
Intangible assets
|
| |
2,250
|
|
Deferred revenue
|
| |
(650)
|
|
Net property and equipment
|
| |
225
|
|
Net working capital, net of cash and deferred revenue
|
| |
(172)
|
|
Total preliminary purchase consideration
|
| |
$7,367
|
The excess of the purchase price over the fair values of the net identifiable tangible
and intangible assets acquired has been assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the Company’s
competitive position. Goodwill attributable to the Vigilante acquisition is not deductible for tax purposes.
The fair value of deferred revenue was determined using the adjusted fulfillment cost
method. Deferred revenue is recognized as performance obligations are satisfied.
The following table sets forth the amounts allocated to the intangible assets
identified, the estimated useful lives of those intangible assets as of the date of acquisition, and the methodologies used to determine the fair values of those intangible assets (in thousands):
|
|
| |
Fair Value
|
| |
Useful Life
(in years)
|
| |
Fair Value Methodology
|
|
Customer relationships
|
| |
$1,750
|
| |
6
|
| |
Replacement cost method
|
|
Developed technology
|
| |
460
|
| |
5
|
| |
Multi-period excess earnings method of the income approach
|
|
Trade name
|
| |
40
|
| |
2
|
| |
Relief from royalty method
|
|
Total intangible assets acquired
|
| |
$2,250
|
| |
|
| |
|
The intangible assets acquired are expected to be amortized over their useful lives
on a straight-line basis.
As part of the Vigilante Acquisition, the Company incurred acquisition-related costs
which were included in the condensed consolidated statement of comprehensive loss; the impact of those costs are immaterial.
The results of Vigilante were included in the consolidated financial statements of the
Company beginning June 7, 2021. The impact of those results are immaterial. In addition, the impact on the unaudited supplemental pro forma information is not material and therefore not presented.
Cyveillance Acquisition—On
September 30, 2020, the Company executed an asset purchase agreement with Lookingglass Cyber Solutions, Inc. (“Lookingglass”) and Cyveillance, Inc. (collectively, the “Sellers”) to acquire substantially all of the assets and to assume certain
liabilities attributable to Lookingglass’ Cyveillance business unit. The Cyveillance business unit is an intelligence-led cybersecurity solutions provider. The Cyveillance Acquisition allows the Company to further scale its digital risk
protection services and expand its threat intelligence capabilities. The Cyveillance Acquisition has been accounted for as a business combination in accordance with ASC 805, Business
Combinations.
The Company has estimated a fair value of the aggregate consideration transferred to
effect the Cyveillance Acquisition of $39.2 million, of which $7.2 million was paid in cash, $17.0 million was comprised of 8,110,058 shares of Series E redeemable convertible preferred stock, and $15.0 million was comprised of 10,171,735
shares of Series E redeemable convertible preferred stock held in escrow as contingent consideration.
FS-139
The assets acquired and liabilities assumed in connection with the Cyveillance
Acquisition were recorded at their fair values on the date of acquisition as follows (in thousands):
|
|
| |
Fair Value
|
|
Goodwill
|
| |
$28,614
|
|
Intangible assets
|
| |
15,900
|
|
Deferred revenue
|
| |
(5,459)
|
|
Net property and equipment
|
| |
132
|
|
Total purchase consideration
|
| |
$39,187
|
The excess of the purchase price over the fair values of the net identifiable tangible
and intangible assets acquired has been assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the Company’s
competitive position. Goodwill attributable to the Cyveillance Acquisition is not deductible for tax purposes.
The fair value of deferred revenue was determined using the adjusted fulfillment cost
method. Deferred revenue is recognized as performance obligations are satisfied.
The following table sets forth the amounts allocated to the intangible assets
identified, the estimated useful lives of those intangible assets as of the date of acquisition, and the methodologies used to determine the fair values of those intangible assets ($ in thousands):
|
|
| |
Fair value
|
| |
Useful Life
(in years)
|
| |
Fair Value Methodology
|
|
Customer relationships
|
| |
$13,700
|
| |
6
|
| |
Replacement cost method
|
|
Developed technology
|
| |
2,100
|
| |
5
|
| |
Multi-period excess earnings method of the income approach
|
|
Trade name
|
| |
100
|
| |
2
|
| |
Relief from royalty method
|
|
Total intangible assets acquired
|
| |
$15,900
|
| |
|
| |
|
The intangible assets acquired are amortized over their useful lives on a
straight-line basis.
As part of the Cyveillance Acquisition, the Company incurred acquisition-related costs
of $0.4 million. Of these costs, $0.3 million were recorded in general and administrative expenses in the consolidated statement of comprehensive loss. The remaining acquisition-related costs of $0.1 million consisted of issuance costs for the
Series E redeemable convertible preferred stock, which were recorded as a reduction to redeemable convertible preferred stock in the consolidated balance sheet.
As of January 31, 2022, no liability was recorded for contingent consideration. As of
January 31, 2021, the estimated fair value of the contingent consideration liability totaled $7.9 million. During the years ended January 31, 2022 and 2021, the Company released 3,221,347 and 3,896,032 shares of Series E preferred shares with a
fair value of $7.8 million and $7.8 million, respectively. The Company recorded general and administrative expense of $0.1 million, due to the remeasurement of the contingent consideration liability. There was no general and administrative
expense recorded in the year ended January 31, 2021 for the remeasurement of the contingent consideration liability.
The unaudited supplemental pro forma financial results below for the years ended
January 31, 2021 and 2020, combine the consolidated results of the Company and the Cyveillance business unit, giving effect to the Cyveillance Acquisition as if it had been completed on February 1, 2019. This unaudited supplemental pro forma
financial information is presented for informational purposes only and is not indicative of future operations or results had the acquisition been completed as of February 1, 2019, or any other date (in thousands).
|
|
| |
Year Ended
January 31,
2021
|
| |
Year Ended
January 31,
2020
|
|
Pro forma revenue
|
| |
$37,739
|
| |
$31,836
|
|
Pro forma net loss
|
| |
$27,116
|
| |
$29,173
|
FS-140
The unaudited pro forma financial information in the table above summarizes the
combined results of our operations and the Cyveillance business unit, on a pro forma basis, as though we had acquired the Cyveillance business unit on February 1, 2019. The unaudited pro forma financial information for all periods presented
also includes the effects of business combination accounting resulting from the acquisition, including an adjustment to revenue for the deferred revenue fair value adjustment, amortization expense from acquired intangibles assets, and reversal
of the acquisition-related expenses in the period incurred and recognition of the acquisition-related expenses in the prior period.
The unaudited pro forma net loss for the year ended January 31, 2021 includes the
actual expense of $1.4 million due to the remeasurement of the contingent consideration liability associated with the Cyveillance Acquisition.
|
6.
|
PROPERTY AND EQUIPMENT
|
Property and equipment as of January 31, 2022 and 2021 consisted of the following
(in thousands):
|
|
| |
January 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Computer hardware and purchased software
|
| |
$2,136
|
| |
$1,013
|
|
Furniture and fixtures
|
| |
337
|
| |
337
|
|
Leasehold improvements
|
| |
243
|
| |
228
|
|
Total property and equipment
|
| |
2,716
|
| |
1,578
|
|
Less accumulated depreciation and amortization
|
| |
(2,022)
|
| |
(1,132)
|
|
Property and equipment—net
|
| |
$694
|
| |
$446
|
Depreciation and amortization expense for the years ended January 31, 2022, 2021, and
2020 was $0.5 million, $0.3 million, and $0.2 million, respectively.
The table below provides the net values of property and equipment by geographic
location as of January 31, 2022 and 2021 (in thousands).
|
|
| |
January 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
United States
|
| |
$ 476
|
| |
$ 380
|
|
India
|
| |
119
|
| |
1
|
|
Chile
|
| |
99
|
| |
65
|
|
Property and equipment—net
|
| |
$ 694
|
| |
$ 446
|
|
7.
|
ACCRUED COMPENSATION, ACCRUED EXPENSES, AND OTHER CURRENT LIABILITES
|
Accrued compensation, accrued expenses, and other current liabilities as of
January 31, 2022 and 2021 consisted of the following (in thousands):
|
|
| |
January 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
Accrued compensation, accrued expenses, and other current liabilities:
|
| |
|
| |
|
|
Accrued employee compensation
|
| |
$500
|
| |
$311
|
|
Accrued commissions
|
| |
2,010
|
| |
2,230
|
|
Accrued bonues
|
| |
1,366
|
| |
906
|
|
Accrued payroll-related expenses
|
| |
630
|
| |
797
|
|
Other current liabilities
|
| |
2,514
|
| |
816
|
|
Total accrued compensation, accrued expenses, and other current liabilities
|
| |
$7,020
|
| |
$5,060
|
FS-141
|
8.
|
DEBT
|
The tables below summarize key terms of the Company’s debt that was outstanding as of
January 31, 2022 and 2021 (amounts in thousands, except for interest rates).
|
|
| |
As of
January 31, 2022
|
||||||||||||||||||
|
Lender
|
| |
Stated
Interest
Rate
|
| |
Effective
Interst
Rate
|
| |
Gross
Balance
|
| |
Unamortized
Debt
Discount
|
| |
Unamortized
Deferred
Debt
Issuance Costs
|
| |
Discount on
Note Payalbe
|
| |
Net Carrying
Value
|
|
Stifel Bank
|
| |
4.50%
|
| |
6.50%
|
| |
$15,000
|
| |
$96
|
| |
$574
|
| |
$—
|
| |
$14,330
|
|
Orix Growth Capital, LLC
|
| |
10.00%
|
| |
12.13%
|
| |
30,000
|
| |
349
|
| |
608
|
| |
—
|
| |
29,043
|
|
InfoArmor
|
| |
5.50%
|
| |
5.50%
|
| |
3,281
|
| |
—
|
| |
—
|
| |
213
|
| |
3,068
|
|
PIPE Investors
|
| |
5.00%
|
| |
5.00%
|
| |
5,032
|
| |
—
|
| |
—
|
| |
—
|
| |
5,032
|
|
|
| |
|
| |
|
| |
$53,313
|
| |
$445
|
| |
$1,182
|
| |
$213
|
| |
$51,473
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
Current portion of long-term debt
|
| |
$5,970
|
|||
|
|
| |
|
| |
|
| |
|
| |
|
| |
Long-tern debt
|
| |
45,503
|
|||
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$51,473
|
|
|
| |
As of
January 31, 2021
|
|||||||||||||||
|
Lender
|
| |
Stated
Interest
Rate
|
| |
Effective
Interst
Rate
|
| |
Gross
Balance
|
| |
Unamortized
Debt
Discount
|
| |
Unamortized
Deferred
Debt
Issuance Costs
|
| |
Net Carrying
Value
|
|
Stifel Bank
|
| |
4.50%
|
| |
5.05%
|
| |
$10,000
|
| |
$109
|
| |
$45
|
| |
$9,846
|
|
Orix Growth Capital, LLC
|
| |
10.00%
|
| |
12.13%
|
| |
20,000
|
| |
782
|
| |
489
|
| |
18,729
|
|
|
| |
|
| |
|
| |
$30,000
|
| |
$891
|
| |
$534
|
| |
$28,575
|
Hercules Note
On June 26, 2019, the Company entered into a loan and security agreement with Hercules
for $30.0 million, which is collateralized by substantially all of the assets of the Company. In conjunction with the loan and security agreement, warrants were issued to Hercules (see Note 9 for discussion of warrants). The loan and security
agreement provided for an immediate advance, upon loan closing, of $15.0 million, which the Company drew in full. The remaining $15.0 million was available in two tranches of $5.0 million and $10.0 million. On May 7, 2020, the Company executed
an amendment to the Hercules loan and security agreement. The amendment replaced Tranche II and Tranche III of the original loan and security agreement. The revised Tranche II provided for an immediate advance of $5.0 million, upon loan
closing, which the Company drew in full. The revised Tranche III of $5.0 million was available through December 31, 2020, subject to the Company meeting certain performance milestones. Tranche IV of $5.0 million was available through
December 31, 2020, subject only to the approval of Hercules investment committee. The cash interest rate and end of term fee are consistent with the existing loan and security agreement. All outstanding principal amounts owed under the Hercules
loan and security agreement were repaid in January 2021 from the proceeds of the Stifel (“Stifel”) and Orix Growth Capital (“Orix”) loans described below. The repayment was accounted for as a debt extinguishment with a loss on extinguishment of
$0.6 million.
The loan and security agreement with Hercules contained certain features which met the
criteria to be bifurcated and accounted for separately as embedded derivatives. The features included a repayment feature upon certain events including a Change in Control, an additional interest rate upon non-credit Events of Default, and
contingent payments due to potential Changes in Law resulting in increased cost to Hercules. The embedded derivative features were bundled and evaluated as a single, compound embedded derivative. The derivatives do not materially impact the
consolidated financial statements; therefore, they were not recorded as of January 31, 2020.
FS-142
Convertible Notes
During August and September of 2019, the Company entered into several convertible loan
agreements with current and new investors (collectively, the “convertible notes”), certain of whom were related parties. Upon a Qualified Financing (as defined in the convertible notes), the convertible notes are automatically redeemed for
shares of preferred stock. The convertible notes also include provisions specifying that settlement can occur through the issuance of existing classes of stock or through repayment in cash. Total principal borrowed under the convertible notes
was $8.4 million. The convertible notes accrue interest at rates ranging from 6% to 10% per annum and mature one year from the date of issuance.
The convertible notes contained certain features which met the criteria to be
bifurcated and accounted for separately as embedded derivatives. The features included an automatic share-settled redemption upon a Qualified Financing, a share-settled redemption or repayment feature upon a Change of Control (as defined in the
convertible notes), and an optional share-settled redemption feature upon a Non-Qualified Financing (as defined in the convertible notes). For each convertible note containing more than one embedded derivative, the embedded derivative features
were bundled and evaluated as a single, compound embedded derivative. The derivatives do not materially impact the consolidated financial statements, therefore they were not recorded.
In conjunction with the sale of Series D redeemable convertible preferred stock in
December 2019, the convertible notes, with an aggregate outstanding principal and accrued interest totaling $8.6 million, were automatically redeemed for shares of Series D-1 and Series D-2 redeemable convertible preferred stock (see Note 10).
The redemption was accounted for as a debt extinguishment and the Company recognized a loss on debt extinguishment of $1.1 million. The derivatives embedded in the convertible notes were settled in conjunction with the December 2019 debt
extinguishment.
Paycheck Protection Program
On April 24, 2020, the Company received loan proceeds in the amount of approximately
$2.8 million under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provided for loans to qualifying businesses for amounts up to 2.5 times of the
average monthly payroll expenses of the qualifying business. The loans and accrued interest were forgivable after eight weeks as long as the borrower used the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities,
and maintained its payroll levels. The amount of loan forgiveness would be reduced if the borrower terminated employees or reduced salaries during the eight-week period. The Company intended to use the proceeds for purposes consistent with the
PPP. However, subsequent guidance issued from the Treasury department indicated that the Company might not qualify for loan forgiveness. Consequently, the Company repaid the loan on May 1, 2020.
Stifel Note
On January 7, 2021, the Company entered into a loan and security agreement with Stifel
Bank (“Stifel”) for
$10.0 million, which is collateralized by substantially all of the assets of the
Company. In conjunction with the loan and security agreement, warrants were issued to Stifel (see Note 9 for discussion of warrants). The loan and security agreement provided for an immediate advance, upon loan closing, of $10.0 million, which
the Company drew in full. Advances under the agreement pay cash interest monthly at the greater of the prime rate as reported in the Wall Street Journal plus 1.00%, or 4.50% per annum. If any loan payment is not made within 10 days of the
payment due date, the Company will incur a late fee equal to the lesser of (i) 5.00% of the unpaid amount or (ii) the maximum amount permitted to be charged under applicable law, not in any case to be less than twenty-five dollars. The loan
matures and all unpaid principal and interest is due in full on January 7, 2024.
The loan and security agreement with Stifel contains a provision whereby, in the Event
of Default, the obligation will bear additional interest at a rate equal to 4%. Management evaluated Events of Default and determined the non-credit related events of default represent an embedded derivative that must be bifurcated and
accounted for separately from the loan and security agreement. The default rate derivative is treated as a liability, initially measured at fair value with subsequent changes in fair value recorded in earnings. Management has assessed the
probability of occurrence for a non-credit default event and determined the
FS-143
likelihood of a referenced event to be remote. Therefore, the estimated fair value
of the default rate derivative was negligible as of January 31, 2022 and 2021, and no amount was recorded.
The terms of the loan and security agreement Stifel include financial covenants
whereby ZeroFox must be in compliance with the following: a) at any time, the ratio of Total Debt (as defined in the loan and security agreements) to Annual Recurring Revenue (“ARR”) (as defined in the loan and security agreements) shall not be
more than 1.0:1.0, and b) the Company shall maintain a minimum ARR, which increases over time, as defined in the loan and security agreements, measured as of the last day of each quarter.
On December 8, 2021, the Company amended its loan and security agreement with Stifel.
The amendment reset the minimum ARR covenant for future periods and provided for an additional borrowing of $5.0 million, for which the Company borrowed $5.0 million in December 2021 and issued 161,113 warrants to purchase Series E redeemable
convertible preferred stock at an exercise price of $1.86205.As of January 31, 2022, the outstanding principal of the loan includes $15.0 million of principal borrowed. The Company was in compliance with its financial covenants as of
January 31, 2022.
Orix Note
On January 7, 2021, the Company entered into a loan and security agreement with Orix
for $30.0 million, which is subordinated to the Stifel loan and is collateralized by substantially all of the assets of the Company. In conjunction with the loan and security agreement, warrants were issued to Orix (see Note 9 for discussion of
warrants). The loan and security agreement provided for an immediate advance, upon loan closing, of $20.0 million, which the Company drew in full. The remaining $10.0 million shall be made in no more than three disbursements in increments of at
least $2.5 million any time after March 31, 2021 and before March 31, 2022, as selected by ZeroFox. Advances under the agreement pay cash interest monthly at 10.00% per annum. The loan matures and all unpaid principal and interest is due in
full on January 7, 2026. The loan also carries an end of term clause equal to 3% of the total amount borrowed if repaid on or before January 7, 2023, or 2% if repaid thereafter and prior to the maturity date. As of January 31, 2022, the
outstanding principal of the loan includes $30.0 million of principal borrowed. Subsequent to year end, the Company amended their loan and security agreement with Orix to the total principal borrowed to $37.5 million (see Note 16).
The loan and security agreement with Orix contains a provision whereby, in the Event
of Default, the obligation will bear additional interest at a rate equal to 5%. Management evaluated Events of Default and determined the non-credit related events of default represent an embedded derivative that must be bifurcated and
accounted for separately from the loan and security agreement. The default rate derivative is treated as a liability, initially measured at fair value with subsequent changes in fair value recorded in earnings. Management has assessed the
probability of occurrence for a non-credit default event and determined the likelihood of a referenced event to be remote. Therefore, the estimated fair value of the default rate derivative was negligible as of January 31, 2022 and no amount
was recorded.
On December 8, 2021, the Company amended its loan and security agreement with Orix.
The amendment reset the minimum ARR covenant for future periods.
The terms of the loan and security agreements with Stifel and Orix include financial
covenants whereby ZeroFox must be in compliance with the following: a) at any time, the ratio of Total Debt (as defined in the loan and security agreements) to Annual Recurring Revenue (“ARR”) (as defined in the loan and security agreements)
shall not be more than 1.00:1.00, and b) the Company shall maintain a minimum ARR, which increases over time, as defined in the loan and security agreements, measured as of the last day of each quarter. The Company was in compliance with its
financial covenants as of January 31, 2022.
On December 8, 2021, the Company amended its loan and security agreement with Orix.
The amendment reset the minimum ARR covenant for future periods. The Company was in compliance with its financial covenants as of January 31, 2022.
InfoArmor Note
On June 7, 2021, the Company issued a $3.8 million promissory note payable to
InfoArmor, Inc. in connection with its acquistion of Vigilante. The promisory note accrues interest at 5.5% per annum (computed on the basis of a 365 day year). Principal and interest payments of $0.2 million are paid
FS-144
quarterly over the four year term of the loan maturing on June 7, 2025 . As of
January 31, 2022, $0.9 million was recorded in current portion of long-term debt in the consolidated financial statements.
Bridge Notes
In December of 2021, the Company issued $5.0 million in bridge notes ($4.75 million of
which were issued to related parties) to certain investors “PIPE Investors” in the potential PIPE (see Note 16). The bridge notes accrue interest at 5% per annum (computed on the basis of a 365 day year), which is paid-in-kind as an addition to
the principal balance of the bridge notes. The bridge notes are due at the earlier of the twelve month anniversary of their issuance or the closing of the respective PIPE. Upon the closing of a PIPE, the bridge note holder may direct the
Company to satisfy its payment obligations under the bridge note by paying the holder/investor’s obligation under the PIPE. As of January 31, 2022, all $5.0 million was included in current portion of long-term debt in the consolidated financial
statements.
|
9.
|
WARRANTS
|
In conjunction with the SLWF II loan issued on June 1, 2017, SLWF II received a
warrant to purchase 1,924,790 shares of common stock. The warrant expires on June 1, 2027. The warrant is exercisable at an exercise price of the lesser of (i) $0.20 or (ii) the lowest value of a share of the Company’s common stock as
determined by any future Section 409(A) valuation. The warrant contains a provision stating that if a Qualified Financing (as defined in the warrant agreement) occurs, the holder may elect to convert the warrant into a warrant to purchase the
Future Round Securities issued in the Qualified Financing. As of the date the financial statements were available to be issued, this provision had not been executed.
In conjunction with the Hercules loan issued on June 26, 2019, Hercules is entitled to
receive an aggregate number of Preferred Stock warrants equal to 4.00% of the applicable term advance divided by either (i) the “Next Round” preferred stock price, if completed by July 31, 2020 or (ii) the C-1 preferred stock price of $1.23.
The Company did not meet the Next Round milestone; therefore, Hercules received a warrant to purchase 487,805 shares of C-1 preferred stock. The warrant expires on June 26, 2029. On May 7, 2021, in conjunction with the amendment to the Hercules
loan and security agreement and the immediate advance of $5.0 million, Hercules received a warrant to purchase 160,546 shares of C-1 preferred stock with the same terms as the warrants issued on June 26, 2020.
In conjunction with the Stifel loan issued on January 7, 2021, Stifel received a
warrant to purchase 107,408 shares of Series E preferred stock for an exercise price of $1.86 per share. The Series E preferred warrant expires on January 7, 2031. . In connection with the Stifel amendment on December 8, 2021, Stifel received a
warrant to purchase 161,113 shares of Series E preferred stock for an exercise price of $1.86 per share. The Series E preferred warrant expires on December 8, 2031. The fair value of the Series E preferred warrants was $0.9 million as of
January 31, 2022.
In conjunction with the Orix loan issued on January 7, 2021, Orix received a warrant
to purchase 644,451 shares of Series E preferred stock for an exercise price of $1.86 per share. The Series E preferred warrant expires on January 7, 2031. The fair value of the Series E preferred warrant was $2.0 million as of January 31,
2022.
The exercise prices for the Series E preferred warrants are subject to anti-dilution
adjustments in certain circumstances, including upon certain issuances of capital stock.
Warrants to purchase 124,903 shares of Series A preferred stock and warrants to
purchase 146,341 shares of Series B preferred stock were outstanding at January 31, 2022 and 2021. The Series A preferred warrant expires on May 22, 2025, and the Series B preferred warrant expires on September 1, 2026.
The fair values of the Company’s warrants issued before July 8, 2021 are determined
using the Black-Scholes model. After July 8, 2021, as a result of the potential merger with a SPAC (see Note 16), the Company began utilizing a Probability-Weighted Expected Return Method (“PWERM”) to determine the fair value of the Company’s
warrants issued. The Company utilized a PWERM relying on (1) a Black-Scholes-Merton model to value a continued operations scenario where the Company remained a private entity (the “Stay Private Scenario”) and (2) a transaction scenario that
reflected the merger with a SPAC (the “Transaction Scenario”).
FS-145
The assumptions used in estimating the fair values of the Company’s warrants at
issuance are as follows:
|
Assumptions
|
| |
Series E
Warrants
|
| |
Series E
Warrants
|
| |
Series C-1
Warrants
|
| |
Common
Warrants
|
| |
Series B
Warrants
|
| |
Series A
Warrants
|
|
Initial Valuation Date:
|
| |
December 8, 2021
|
| |
January 27, 2021
|
| |
June 26, 2019
|
| |
June 1, 2017
|
| |
September 1, 2016
|
| |
May 22, 2015
|
|
Exercise price of the warrant
|
| |
$1.86205
|
| |
$1.86205
|
| |
$1.23390
|
| |
$0.20000
|
| |
$0.82200
|
| |
$0.64050
|
|
Expected term of the warrant (in years)
|
| |
10.0
|
| |
10.0
|
| |
10.0
|
| |
10.0
|
| |
10.0
|
| |
10.0
|
|
Price of the underlying share - stay private
|
| |
$3.54
|
| |
$2.20
|
| |
$1.25
|
| |
$0.20
|
| |
$0.82
|
| |
$0.74
|
|
Volatility
|
| |
37.29%
|
| |
40.64%
|
| |
51.90%
|
| |
60.00%
|
| |
60.41%
|
| |
66.74%
|
|
Risk-free rate
|
| |
1.46%
|
| |
87.00%
|
| |
2.05%
|
| |
2.21%
|
| |
1.57%
|
| |
2.21%
|
The assumptions used in estimating the fair values of the Company’s warrants as of
January 31, 2022 are as follows:
|
|
| |
January 31, 2022
|
||||||||||||
|
Assumptions
|
| |
Series E
Warrants
|
| |
Series C-1
Warrants
|
| |
Common
Warrants
|
| |
Series B
Warrants
|
| |
Series A
Warrants
|
|
Exercise price of the warrant
|
| |
$1.86205
|
| |
$1.23390
|
| |
$0.20000
|
| |
$0.82200
|
| |
$0.64050
|
|
Price of the underlying share - stay private
|
| |
$2.94
|
| |
$2.76
|
| |
$1.85
|
| |
$3.70
|
| |
$3.70
|
|
Volatility
|
| |
36.71%
|
| |
36.95%
|
| |
38.11%
|
| |
39.30%
|
| |
44.69%
|
|
Risk-free rate
|
| |
1.78%
|
| |
1.77%
|
| |
1.64%
|
| |
1.57%
|
| |
1.42%
|
|
Price of the underlying share after conversion
|
| |
$5.64
|
| |
$5.64
|
| |
$2.82
|
| |
$5.64
|
| |
$5.64
|
|
Expected term of the warrant (in years)
|
| |
0.4 - 9.9
|
| |
0.4 - 8.2
|
| |
0.4 - 5.3
|
| |
0.4 - 4.6
|
| |
0.4 - 3.3
|
|
Fair value
|
| |
$3.20
|
| |
$3.71
|
| |
$2.21
|
| |
$4.05
|
| |
$4.21
|
|
Number of warrants
|
| |
912,972
|
| |
648,350
|
| |
1,924,790
|
| |
146,341
|
| |
124,903
|
|
Liability (in thousands)
|
| |
$2,922
|
| |
$2,408
|
| |
$4,260
|
| |
$593
|
| |
$526
|
The assumptions used in estimating the fair values of the Company’s warrants as of
January 31, 2021 are as follows:
|
|
| |
January 31, 2021
|
||||||||||||
|
Assumptions
|
| |
Series E
Warrants
|
| |
Series C-1
Warrants
|
| |
Common
Warrants
|
| |
Series B
Warrants
|
| |
Series A
Warrants
|
|
Exercise price of the warrant
|
| |
$1.86205
|
| |
$1.23390
|
| |
$0.20000
|
| |
$0.82200
|
| |
$0.64050
|
|
Expected term of the warrant (in years)
|
| |
9.9
|
| |
9.3
|
| |
6.3
|
| |
5.6
|
| |
4.3
|
|
Price of the underlying share
|
| |
$2.20
|
| |
$1.89
|
| |
$0.64
|
| |
$1.75
|
| |
$1.71
|
|
Volatility
|
| |
40.34%
|
| |
38.21%
|
| |
38.27%
|
| |
38.78%
|
| |
38.26%
|
|
Risk-free rate
|
| |
0.79%
|
| |
0.79%
|
| |
0.68%
|
| |
0.55%
|
| |
0.36%
|
|
Number of warrants
|
| |
751,859
|
| |
648,350
|
| |
1,924,790
|
| |
146,341
|
| |
124,903
|
|
Liability (in thousands)
|
| |
$904
|
| |
$714
|
| |
$893
|
| |
$155
|
| |
$140
|
FS-146
10.
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
The Company’s capital structure includes the following classes of securities:
Common Stock—The Company’s common stock contains the following rights:
Liquidation Rights—In the event
of any liquidation or dissolution of the Company (“Liquidation Event”), the holders of common stock are entitled to the remaining assets of the Company legally available for distribution after the payment of the full liquidation preference
for all series of outstanding redeemable convertible preferred stock (“Preferred Stock”).
Dividends and Voting Rights—The
holders of common stock are entitled to receive dividends if declared by the Company, but not until all dividends on all series of redeemable convertible preferred stock have been either paid or declared and segregated. Holders of common
stock have the right to one vote per share.
Redeemable convertible preferred stock—The Company’s redeemable convertible preferred stock consists of ($ in thousands):
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|||||||||
|
|
| |
Shares Issued and
Outstanding
|
| |
Amount
|
| |
Shares Issued and
Outstanding
|
| |
Amount
|
| |
Shares Issued and
Outstanding
|
| |
Amount
|
|
Convertible preferred stock —Series E, $0.00001 par
value—authorized 19,033,653 shares; (liquidation
preference $28,354,249)
|
| |
15,227,437
|
| |
$33,248
|
| |
12,006,090
|
| |
$25,409
|
| |
—
|
| |
$—
|
|
Convertible preferred stock —Series D, $0.00001 par
value—authorized 14,833,942 shares; (liquidation
preference $21,222,496)
|
| |
13,871,547
|
| |
$21,067
|
| |
13,871,547
|
| |
$21,067
|
| |
13,871,547
|
| |
$21,067
|
|
Convertible preferred stock —Series D-2, $0.00001 par
value—authorized 993,868 shares (liquidation
preference $1,216,439)
|
| |
993,868
|
| |
$1,451
|
| |
993,868
|
| |
$1,451
|
| |
993,868
|
| |
$1,451
|
|
Convertible preferred stock —Series D-1, $0.00001 par
value—authorized shares 5,878,303 (liquidation preference $8,094,053)
|
| |
5,878,303
|
| |
$8,171
|
| |
5,878,303
|
| |
$8,171
|
| |
5,878,303
|
| |
$8,171
|
|
Convertible preferred stock —Series C-1, $0.00001 par
value—authorized 16,208,756 shares (liquidation
preference $14,037,000)
|
| |
11,376,115
|
| |
$13,979
|
| |
11,376,115
|
| |
$13,979
|
| |
11,376,115
|
| |
$13,979
|
|
Convertible preferred stock —Series C, $0.00001 par
value—authorized 21,124,700 shares (liquidation
preference $19,999,999)
|
| |
21,124,699
|
| |
$19,899
|
| |
21,124,699
|
| |
$19,899
|
| |
21,124,699
|
| |
$19,899
|
|
Convertible preferred stock —Series B, $0.00001 par
value—authorized 26,914,949 shares (liquidation
preference $22,124,088)
|
| |
26,914,949
|
| |
$22,047
|
| |
26,914,949
|
| |
$22,047
|
| |
26,914,949
|
| |
$22,047
|
|
Convertible preferred stock Series A, $0.00001 par
value—authorized 16,122,188 shares (liquidation
preference $10,246,261)
|
| |
15,997,285
|
| |
$10,159
|
| |
15,997,285
|
| |
$10,159
|
| |
15,997,285
|
| |
$10,159
|
|
Convertible preferred stock —Series seed, $0.00001 par
value—authorized 9,198,372 shares (liquidation
preference $2,285,795)
|
| |
9,198,372
|
| |
$2,208
|
| |
9,198,372
|
| |
$2,208
|
| |
9,198,372
|
| |
$2,208
|
|
|
| |
120,582,575
|
| |
$132,229
|
| |
117,361,228
|
| |
$124,390
|
| |
105,355,138
|
| |
$98,981
|
Redeemable convertible preferred stock—Series E—In September 2020, in connection with the Cyveillance Acquisition (see Note 5), the Company issued 8,110,058 shares of
Series E redeemable convertible preferred stock (“Series E”) with a fair value of $2.09 per share. As a result of these shares being issued the Company incurred issuance costs of $0.1 million. The difference between the carrying value of
Series E and the liquidation preference of Series E, as defined below, is equal to the issuance costs. Such difference is not being accreted as Series E is not mandatorily redeemable, and the Company does not believe that a
FS-147
deemed liquidation event is probable of occurring. Subsequent to September 2020, an
additional 7,117,379 shares of Series E redeemable convertible preferred stock were issued with an aggregate fair value totaling approximately $16.4 million (see Note 2).
Redeemable convertible preferred stock—Series D, Series D-1, and Series D-2—In December 2019, the Company issued 13,871,547 shares of Series D redeemable convertible
preferred stock (“Series D”) at $1.529930 per share for aggregate proceeds of $21.2 million, less issuance costs of $0.2 million. The difference between the carrying value of Series D and the liquidation preference of Series D, as defined
below, is equal to the issuance costs. Such difference is not being accreted as Series D is not mandatorily redeemable, and the Company does not believe that a deemed liquidation event is probable of occurring.
The sale of Series D on December 20, 2019 triggered the automatic redemption of the
convertible notes (see Note 8). The outstanding principal and accrued interest on the notes payable of $8.6 million was redeemed for 5,878,303 shares of Series D-1 with a fair value per share of $1.39 and 993,868 shares of Series D-2 with a
fair value per share of $1.46. Therefore, as a result of the redemption, the Company recorded redeemable convertible Series D-1 preferred stock of $8.2 million and redeemable convertible Series D-2 preferred stock of $1.45 million. The
difference between the value of the Series D-1 and Series D-2 redeemable convertible preferred stock recorded of $9.6 million and the outstanding principal and accrued interest on the notes payable of $8.6 million was equal to $1.1 million,
which was recorded as a loss on debt extinguishment (see Note 8).
Redeemable convertible preferred stock—Series C-1—In May 2018, the Company issued 11,376,115 shares of Series C-1 redeemable convertible preferred stock (“Series C-1”)
at $1.233901 per share for aggregate proceeds of $14.0 million, less issuance costs of $0.06 million. The difference between the carrying value of Series C-1 and the liquidation preference of Series C-1, as defined below, is equal to the
issuance costs. Such difference is not being accreted as Series C-1 is not mandatorily redeemable, and the Company does not believe that a deemed liquidation event is probable of occurring.
Redeemable convertible preferred stock—Series C—In April 2017, the Company issued 21,124,699 shares of Series C redeemable convertible preferred stock (“Series C”) at $0.946759 per share for aggregate proceeds of $20.0 million, less
issuance costs of $0.1 million. The difference between the carrying value of Series C and the liquidation preference of Series C, as defined below, is equal to the issuance costs. Such difference is not being accreted as Series C is not
mandatorily redeemable, and the Company does not believe that a deemed liquidation event is probable of occurring.
Redeemable convertible preferred stock—Series B—In November 2015, the Company issued 25,176,396 shares of Series B redeemable convertible preferred stock (“Series B”) at
$0.822 per share for aggregate proceeds of $20.7 million, less issuance costs of $0.08 million. The difference between the carrying value of Series B and the liquidation preference of Series B, as defined below, is equal to the issuance
costs. Such difference is not being accreted as Series B is not mandatorily redeemable, and the Company does not believe that a deemed liquidation event is probable of occurring.
The sale of Series B on November 20, 2015, triggered the redemption of outstanding
convertible notes payable held by several strategic investors of the Company. The outstanding principal and accrued interest on the notes payable totaled $1.3 million, which was converted into 1,738,553 shares of Series B, with a value of
$1.4 million. The difference of $0.09 million represents, on average, a 6.2% discount on the selling price of Series B as required under the provisions of the convertible notes payable. The value of the discount was recognized on the date of
the conversion.
Redeemable convertible preferred stock—Series A—In April 2014, the Company issued 15,997,285 shares of Series A redeemable convertible preferred stock (“Series A”) at
$0.6405 per share for aggregate proceeds of $10.2 million, less issuance costs of $0.09 million. The difference between the carrying value of Series A and the liquidation preference of Series A, as defined below, is equal to the issuance
cost. Such difference not being accreted as Series A is not mandatorily redeemable and the Company does not believe that a deemed liquidation event is probable of occurring.
Series E, Series D-2, Series D-1, Series D, Series C-1, Series C,
Series B, and Series A (collectively the “Series Preferred”) contain the following rights:
FS-148
Conversion and Redemption Provisions—Series Preferred is mandatorily convertible upon either a Qualified IPO, which is defined in the Company’s certificate of incorporation as the closing of the sale of shares of Common Stock to the public at a price of at least five
(5) times the Series D Original Issue Price (defined in the Company’s certificate of incorporation as $1.529930 per share, subject to adjustment based on the occurrence of certain events) in a firm-commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $30,000,000 of proceeds, net of the underwriting discount and commissions, to the Company or the vote of the holders of a
majority of the Series Preferred and Series Seed and the vote of a holders a majority of the Series D, Series D-1 and Series D-2. The requisite holders approved the mandatory conversion of the Series Preferred by written consent on
December 18, 2021. Such mandatory conversion is contingent on the consummation of the potential merger of the Company with a Special Purpose Acquisition Company, as described in Note 16. The holders of the Company’s Series Preferred are
entitled to convert their shares into common stock on demand. The number of shares of common stock issued upon conversion is determined based on the number of converted Series Preferred and the conversion ratio. The conversion ratio is
calculated by dividing the original issue price by the conversion price then in effect. The conversion price can be adjusted based on the occurrence of certain events, as defined in the certificate of incorporation. The table below depicts
the original issue date, original issue price, conversion price, and conversion ratio, including all changes to conversion prices and conversion ratios from each Series Preferred original issue date through January 31, 2022.
|
Preferred Stock Series
|
| |
Original Issue Date
|
| |
Effective Date of Conversion Price
|
| |
Original Issue Price
|
| |
Conversion Price
|
| |
Conversion Ratio
|
|
Series A
|
| |
April 14, 2014
|
| |
November 20, 2015
|
| |
$0.640
|
| |
$0.320
|
| |
2.0
|
|
Series B
|
| |
November 20, 2015
|
| |
November 20, 2015
|
| |
$0.822
|
| |
$0.411
|
| |
2.0
|
|
Series C
|
| |
April 26, 2017
|
| |
April 26, 2017
|
| |
$0.947
|
| |
$0.473
|
| |
2.0
|
|
Series C-1
|
| |
May 31, 2018
|
| |
May 31, 2018
|
| |
$1.234
|
| |
$0.617
|
| |
2.0
|
|
Series D
|
| |
December 20, 2019
|
| |
December 20, 2019
|
| |
$1.530
|
| |
$0.765
|
| |
2.0
|
|
Series D-1
|
| |
December 20, 2019
|
| |
December 20, 2019
|
| |
$1.224
|
| |
$0.612
|
| |
2.0
|
|
Series D-2
|
| |
December 20, 2019
|
| |
December 20, 2019
|
| |
$1.377
|
| |
$0.688
|
| |
2.0
|
|
Series E
|
| |
September 30, 2020
|
| |
September 30, 2020
|
| |
$1.862
|
| |
$0.931
|
| |
2.0
|
The Series Preferred is not mandatorily redeemable. The Series Preferred is
contingently redeemable upon the occurrence of a deemed liquidation event and a majority vote of the holders of Series Preferred and Series Seed to redeem all outstanding shares of the Company’s redeemable convertible preferred stock. The
contingent redemption upon the occurrence of a deemed liquidation is not within the Company’s control and therefore the Series Preferred is classified outside of permanent equity in mezzanine equity on the Company’s consolidated balance sheets
(see Note 2).
Liquidation Rights—In the event
of any liquidation, the holders of shares of Series Preferred shall be entitled to be paid, on a pari passu basis, an amount per share equal to the original issue price, plus all declared but unpaid dividends prior to the payment of the
liquidation preference for the holders of Series Seed or any distribution to holders of common stock.
Dividends—The holders of Series
Preferred are entitled to receive noncumulative dividends in the amount of 8% of the original issuance price if, and only if, declared by the Board. The holders of Series Preferred, prior to, and in preference to, any dividends paid on Series
Seed and common stock. Holders of Series Preferred are entitled to receive dividends on an as-if-converted basis at the same rate as common stockholders, if and when dividends are declared, and are entitled to a number of votes per share
equal to the number of shares of common stock into which such shares are convertible. As of January 31, 2022, no dividends have been declared or paid.
Voting Rights—Voting rights are
consistent with the rights of holders of common stock, except for special rights to approve certain Company actions or appoint a member of the Board, except as otherwise required by law.
Redeemable convertible preferred stock—Series
Seed—On June 21, 2013, the Company issued 7,645,871 shares of Series Seed at $0.2485 per share for aggregate proceeds of $1.9 million, less offering costs of $0.05 million. One of the
investors who purchased Series Seed on June 21, 2013, also received a
FS-149
warrant, at no additional cost, to acquire an additional 115,000 shares of Series
Seed at $0.01 per share. The cash proceeds received on the initial sale of Series Seed were first allocated to the fair value of the warrant issued and recorded as a warrant liability in the amount of $0.03 million, with the remainder of the
cash proceeds, totaling $1.9 million, allocated to the carrying value of Series Seed.
The sale of Series Seed on June 21, 2013, triggered the redemption of outstanding
convertible notes payable held by early investors in the Company. The outstanding principal and accrued interest on the notes payable totaled $0.3 million, which was converted into 1,437,501 shares of Series Seed, with a value of $0.4 million.
The difference of $0.07 million represents a 20% discount on the selling price of Series Seed as required under the provisions of the notes payable. The value of the discount was recognized on the date of conversion.
On June 26, 2013, the warrant issued on June 21, 2013 was exercised. At exercise, the
Company issued 115,000 shares of Series Seed and recognized the value of Series Seed equal to the cash proceeds from the exercise of $1,150, plus the fair value of the warrant as recognized on issuance of $0.03 million, for a total of
$0.03 million.
The difference between the carrying value of Series Seed and the liquidation
preference of Series Seed, as defined below, is equal to the issuance costs, plus the fair value of the warrant on the date of grant. Such difference is not being accreted as Series Seed is not mandatorily redeemable, and the Company does not
believe that a deemed liquidation event is probable of occurring.
Series Seed contains the following rights:
Conversion and Redemption Provisions—Series Seed is mandatorily convertible upon either a Qualified IPO, which is defined in the Company’s certificate of incorporation as the closing of the sale of shares of Common Stock to the public at a price of at least five (5)
times the Series D Original Issue Price (defined in the Company’s certificate of incorporation as $1.529930 per share, subject to adjustment based on the occurrence of certain events) in a firm-commitment underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $30,000,000 of proceeds, net of the underwriting discount and commissions, to the Company or the vote of the holders of a majority of
the Series Preferred and Series Seed and the vote of a holders a majority of the Series D, Series D-1 and Series D-2. The requisite holders approved the mandatory conversion of the Series Seed by written consent on December 18, 2021. Such
mandatory conversion is contingent on the consummation of the potential merger of the Company with a Special Purpose Acquisition Company, as described in Note 16. The holders of the Series Seed are entitled to convert their shares into common
stock on demand. The number of shares of common stock issued upon conversion is determined based on the number of converted Series Seed and the conversion ratio, which varies based upon the occurrence of certain events. The conversion ratios
for Series Seed are described in the table below.
The Series Seed is not mandatorily redeemable. The Series Seed is contingently
redeemable upon the occurrence of a deemed liquidation event and a majority vote of the holders of Series Preferred and Series Seed to redeem all outstanding shares of the Company’s redeemable convertible preferred stock. The contingent
redemption upon the occurrence of a deemed liquidation is not within the Company’s control and therefore the Series Seed is classified outside of permanent equity in mezzanine equity on the Company’s consolidated balance sheets (see Note 2).
Liquidation Rights—In the event
of any liquidation event, the holders of shares of Series Seed are entitled to an amount per share equal to the original issue price, plus all declared but unpaid noncumulative dividends, after the payment of the full liquidation preference
to Series A, Series B, Series C, Series C-1, Series D, Series D-1 and Series D-2, but prior to any distributions to holders of common stock.
Dividends and Voting Rights—The
holders of Series Seed are entitled to receive noncumulative dividends in the amount of 8% of the original Series Seed issue price if, and only if, declared by the Board. Holders of Series Seed are entitled to receive dividends on an
as-if-converted basis at the same rate as common
FS-150
stockholders, if dividends are declared, and are entitled to the number of votes
per share equal to the number of shares of common stock into which such shares are convertible. As of January 31, 2022, no dividends have been declared or paid. Voting rights are consistent with the rights of holders of common stock, except for
special rights to approve certain Company actions or appoint a member of the Board, except as otherwise required by law.
The Company’s common stock reserved for future issuance is as follows:
|
|
| |
January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Series Seed redeemable convertible preferred stock
|
| |
18,396,744
|
| |
18,396,744
|
| |
18,396,744
|
|
Series A redeemable convertible preferred stock
|
| |
31,994,570
|
| |
31,994,570
|
| |
31,994,570
|
|
Series B redeemable convertible preferred stock
|
| |
53,829,898
|
| |
53,829,898
|
| |
53,829,898
|
|
Series C redeemable convertible preferred stock
|
| |
42,249,398
|
| |
42,249,398
|
| |
42,249,398
|
|
Series C-1 redeemable convertible preferred stock
|
| |
22,752,230
|
| |
22,752,230
|
| |
22,752,230
|
|
Series D redeemable convertible preferred stock
|
| |
27,743,094
|
| |
27,743,094
|
| |
—
|
|
Series D-1 redeemable convertible preferred stock
|
| |
11,756,606
|
| |
11,756,606
|
| |
—
|
|
Series D-2 redeemable convertible preferred stock
|
| |
1,987,736
|
| |
1,987,736
|
| |
—
|
|
Series E redeemable convertible preferred stock
|
| |
30,454,874
|
| |
24,012,180
|
| |
—
|
|
Common stock warrants
|
| |
1,924,790
|
| |
1,924,790
|
| |
1,924,790
|
|
Series A redeemable convertible preferred stock warrants
|
| |
249,806
|
| |
249,806
|
| |
249,806
|
|
Series B redeemable convertible preferred stock warrants
|
| |
292,682
|
| |
292,682
|
| |
292,682
|
|
Series C-1 redeemable convertible preferred stock warrants
|
| |
1,296,700
|
| |
1,296,700
|
| |
—
|
|
Series E redeemable convertible preferred stock warrants
|
| |
1,825,944
|
| |
1,503,718
|
| |
—
|
|
Stock options issued and outstanding
|
| |
21,715,815
|
| |
18,201,160
|
| |
11,007,338
|
|
Shares available for future grant under 2013 Plan
|
| |
1,193,436
|
| |
2,533,075
|
| |
1,664,321
|
|
Total common stock reserved
|
| |
269,664,323
|
| |
260,724,387
|
| |
184,361,777
|
|
11.
|
STOCK-BASED COMPENSATION
|
Stock Options—On February 1,
2013, the Company adopted the 2013 Stock Plan (the “2013 Plan”). The 2013 Plan, as amended, provides for the issuance of up to 27,802,178 shares of common stock to employees, officers, directors, consultants, and advisors in the form of
nonqualified and incentive stock options, unvested stock awards, and other stock-based awards. At January 31, 2022, there were 1,193,436 shares of common stock available for issuance under the 2013 Plan.
Stock options are granted at exercise prices not less than the fair value of the stock
at the date of grant. The Company determines fair value periodically through independent third-party valuations based on historical financial information. Options generally vest over four years, with 25% vesting on the first anniversary date of
the grant of the option and the balance ratably over the remaining 36 months on a quarterly basis. Options expire 10 years from the date of grant. The Company intends to issue new shares to satisfy share options upon exercise.
The Company estimates the fair value of stock options on the date of grant using the
Black-Scholes option- pricing model. The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which affect the fair value of each stock option.
Expected Volatility—As the
Company is privately held and there has been no public market for its common stock to date, the expected volatility is based on the average historical stock price volatility of comparable publicly-traded companies in its industry peer group,
financial, and market capitalization data.
Expected Term—The expected term
of the Company’s options represents the period that the stock-based awards are expected to be outstanding.
The Company has estimated the expected term of its employee awards using the SAB Topic
14 Simplified Method allowed by the FASB and SEC, for calculating expected term as it has limited historical exercise
FS-151
data to provide a reasonable basis upon which to otherwise estimate expected term.
Certain of the Company’s options began vesting prior to the grant date, in which case the Company uses the remaining vesting term at the grant date in the expected term calculation.
Risk-Free Interest Rate—The
Company estimates its risk-free interest rate by using the yield on actively traded non-inflation-indexed U.S. treasury securities with contract maturities equal to the expected term.
Dividend Yield—The Company has
not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero.
Fair Value of Underlying Common Stock—Because the Company’s common stock is not yet publicly traded, the Company must estimate the fair value of common stock. The Board of Directors considers numerous objective and subjective factors to determine the fair value of the
Company’s common stock at each meeting in which awards are approved. The factors considered include, but are not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices,
rights, preferences, and privileges of the Company’s Convertible Redeemable Preferred Stock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results;
(v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions involving the
Company’s shares.
The Company used the following weighted-average assumptions to estimate the fair
value of stock options:
|
|
| |
As of January 31,
|
||||||
|
Assumptions
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Weighted-average risk-free rate
|
| |
1.42%
|
| |
1.83%
|
| |
2.42%
|
|
Weighted-average expected term of the option (in years)
|
| |
6.06
|
| |
6.04
|
| |
6.08
|
|
Weighted-average expected volatility
|
| |
38.09%
|
| |
37.84%
|
| |
40.03%
|
|
Weighted-average dividend yield
|
| |
0.00%
|
| |
0.00%
|
| |
0.00%
|
A summary of option activity for the year ended January 31 2022 is as follows
(Aggregate Intrinsic Value in thousands):
|
|
| |
Shares
|
| |
Weighted-
Average
Exercise Price
|
| |
Weighted-
Average
Remaining
Contractual
Term (in years)
|
| |
Aggregate
Intrinsic Value
|
|
Outstanding as of February 1, 2021
|
| |
18,201,160
|
| |
$0.2503
|
| |
7.06
|
| |
$7,092
|
|
Granted
|
| |
5,379,925
|
| |
$1.0620
|
| |
|
| |
|
|
Exercised
|
| |
(811,666)
|
| |
$0.2484
|
| |
|
| |
|
|
Cancelled
|
| |
(1,053,604)
|
| |
$0.4916
|
| |
|
| |
|
|
Outstanding as of January, 31, 2022
|
| |
21,715,815
|
| |
$0.4398
|
| |
6.79
|
| |
$41,699
|
|
Vested as of Januray 31, 2022
|
| |
13,306,253
|
| |
$0.2323
|
| |
5.56
|
| |
$28,311
|
|
Vested and expected to vest as of January 31, 2022
|
| |
18,772,456
|
| |
$0.3883
|
| |
6.48
|
| |
$37,013
|
The weighted-average grant-date fair value of options granted during the years ended
January 31, 2022, 2021, and 2020 was $0.6709, $0.1639, and $0.1329, respectively. The total intrinsic value of options exercised during the years ended January 31, 2022, 2021, and 2020 was $1.7 million, $0.2 million, and $0.1 million,
respectively.
Unrecognized compensation cost related to option-based compensation arrangements
granted under the Plan totaled $3.6 million as of January 31, 2022. The unrecognized compensation cost as of January 31, 2022 is expected to be recognized over a weighted-average remaining period of 3.2 years. The total fair value of the common
stock options that vested during the year ended January 31, 2022 was $0.5 million.
Restricted Stock—Pursuant to the
Plan, during the year ended January 31, 2022, the Company issued 176,317 shares of common stock to a member of the Board, of which 105,264 of the restricted shares vest at 8.33% per quarter over three years and 71,053 of the restricted shares
vest over four years, with 25%
FS-152
vesting on the first anniversary date of the grant and the balance ratably over the
remaining 36 months on a quarterly basis. The grant-date fair value of the shares was $0.3 million. Stock-based compensation expense related to restricted stock was not material in the year ended January 31, 2022. As of January 31, 2022, 17,544
restricted shares were vested.
Stock-Based Compensation Expense—The
Company recognized noncash stock-based compensation expense in the accompanying consolidated statements of comprehensive loss for the years ended January 31, 2022, 2021, and 2020, which is as follows (in thousands):
|
|
| |
Year Ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
|
| |
(dollars in thousands)
|
||||||
|
Cost of revenue
|
| |
$50
|
| |
$3
|
| |
$9
|
|
Research and development
|
| |
97
|
| |
72
|
| |
85
|
|
Sales and marketing
|
| |
222
|
| |
130
|
| |
87
|
|
General and administrative
|
| |
327
|
| |
245
|
| |
87
|
|
Total stock-based compensation expense
|
| |
$696
|
| |
$450
|
| |
$268
|
|
12.
|
INCOME TAXES
|
The provision for consolidated income taxes for the years ended January 31, 2022,
2021, and 2020, is as follows (in thousands):
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Current tax expense:
|
| |
|
| |
|
| |
|
|
Federal
|
| |
$—
|
| |
$—
|
| |
$—
|
|
Foreign
|
| |
100
|
| |
86
|
| |
190
|
|
State and local
|
| |
—
|
| |
—
|
| |
—
|
|
|
| |
100
|
| |
86
|
| |
190
|
|
Deferred tax (benefit) expense
|
| |
|
| |
|
| |
|
|
Federal
|
| |
(5,387)
|
| |
(4,253)
|
| |
(4,363)
|
|
State and local
|
| |
(299)
|
| |
(272)
|
| |
(222)
|
|
Foreign
|
| |
—
|
| |
—
|
| |
(92)
|
|
|
| |
(5,686)
|
| |
(4,525)
|
| |
(4,677)
|
|
Less change in valuation allowance
|
| |
5,050
|
| |
4,525
|
| |
4,585
|
|
Net income tax (benefit) expense
|
| |
$(536)
|
| |
$86
|
| |
$98
|
The reported income tax provision differs from the amount computed by applying the
statutory US federal income tax rate to the loss before income taxes due to nondeductible expenses, and the impact of state taxes, as well as the change in the valuation allowance. A reconciliation of the statutory US income tax rate to the
effective income tax rate for the years ended January 31, 2022, 2021, and 2020, is as follows:
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
US statutory rate
|
| |
21.00%
|
| |
21.00%
|
| |
21.00%
|
|
State taxes
|
| |
0.77
|
| |
1.19
|
| |
0.98
|
|
Permanent differences
|
| |
(6.61)
|
| |
(0.39)
|
| |
(1.70)
|
|
Change in valuation allowance
|
| |
(12.96)
|
| |
(19.87)
|
| |
(20.25)
|
|
Other
|
| |
(0.83)
|
| |
(2.36)
|
| |
(0.46)
|
|
Net income tax expense
|
| |
1.37%
|
| |
-0.43%
|
| |
-0.43%
|
FS-153
Deferred income taxes reflect temporary differences in the recognition of revenue
and expenses for income tax reporting and consolidated financial statement purposes. Deferred income taxes as of January 31, 2022 and 2021 consisted of the following (in thousands):
|
|
| |
2022
|
| |
2021
|
|
Deferred tax assets:
|
| |
|
| |
|
|
Depreciation and amortization
|
| |
$546
|
| |
$574
|
|
Deferred revenue
|
| |
2,273
|
| |
7,022
|
|
Stock-based compensation
|
| |
66
|
| |
64
|
|
Fair market value adjustments for warrants
|
| |
—
|
| |
260
|
|
Accruals
|
| |
856
|
| |
805
|
|
Charitable contributions
|
| |
3
|
| |
3
|
|
Allowance for doubtful accounts
|
| |
17
|
| |
12
|
|
Deferred payroll taxes
|
| |
—
|
| |
181
|
|
Net operationg losses-federal and state
|
| |
31,697
|
| |
20,589
|
|
Total deferred tax assets before valuation allowance
|
| |
35,458
|
| |
29,510
|
|
Valuation allowance
|
| |
(32,063)
|
| |
(27,013)
|
|
Total deferred tax assets
|
| |
3,395
|
| |
2,497
|
|
Deferred tax liabilities:
|
| |
|
| |
|
|
Prepaid commissions
|
| |
(2,854)
|
| |
(2,497)
|
|
Contingent consideration
|
| |
(541)
|
| |
—
|
|
Total deferred tax liabilities
|
| |
(3,395)
|
| |
(2,497)
|
|
Net deferred tax
|
| |
$—
|
| |
$—
|
The Company has established a full-valuation allowance to offset its deferred tax
assets because the Company does not have a history of taxable income. The Company increased the valuation allowance in the current year by $5.1 million. The Company will continue to evaluate the realizability of its deferred tax assets.
The following table provides a rollforward of the Company’s valuation allowance for
its deferred tax assets (in thousands):
|
|
| |
Balance at
beginning of
period
|
| |
Increases to
allowance
|
| |
Decreases to
allowance
|
| |
Balance at
end of period
|
|
Year ended January 31, 2022
|
| |
$27,013
|
| |
$5,050
|
| |
$—
|
| |
$32,063
|
|
Year ended January 31, 2021
|
| |
22,524
|
| |
5,050
|
| |
—
|
| |
27,013
|
The Company had net operating loss carryforwards available to offset federal future
taxable income of approximately $101.9 million and $85.1 million as of January 31, 2022 and 2021, respectively. The extent to which NOL carryforwards can be used to offset future taxable income may be limited, depending on the extent of any
ownership changes, as defined by applicable regulations. These limitations may result in the expiration of NOL carryforwards before utilization.
As of January 31, 2022, the Company’s federal income tax returns for fiscal year 2019
through fiscal year 2021 remained open under the statute of limitations and were subject to examination by tax authorities. In addition, as of January 31, 2022, the Company had various state income tax returns that remained open under the
respective statutes of limitations and that were subject to examination by tax authorities. As of January 31, 2022, the longest period for which any of the Company’s state income tax returns remained open and subject to examination by tax
authorities was for fiscal year 2018 through fiscal year 2021.
|
13.
|
RELATED PARTY TRANSACTIONS
|
The Company leases office space in Baltimore, Maryland (see Note 14). The lessor is
owned and operated by the Company’s chief executive officer. ZeroFox incurred rent expense of $0.4 million, $0.4 million, and $0.4 million during the years ended January 31, 2022, 2021, and 2020, respectively. The Company capitalized
$0.01 million and $0.01 million of leasehold improvements during the years ended January 31,
FS-154
2022 and 2021, respectively. As of January 31, 2022 and 2021, ZeroFox had leasehold
improvements of $0.2 million and $0.2 million, respectively, net of accumulated depreciation of $0.2 million and $0.2 million, respectively. As of January 31, 2022 and 2021, the Company did not have any prepaid rent. The lessor holds a
$0.1 million security deposit that is refundable at the end of the lease term.
As part of the consideration for the Cyveillance Acquisition (see Note 5), ZeroFox
issued Series E redeemable convertible preferred stock to Lookingglass. As a result, as of January 31, 2022, Lookingglass is a related party of the Company. Effective September 30, 2020, as part of the Cyveillance Acquisition, ZeroFox entered
into a sublease agreement with Lookingglass for office space in Reston, Virginia (see Note 14). Under the sublease agreement, ZeroFox incurred rent expense of $0.3 million and $0.1 million for the years ended January 31, 2022 and 2021,
respectively. During the years ended January 31, 2022 and 2021, ZeroFox did not capitalize any leasehold improvements. As of January 31, 2022 and 2021, the Company had $0.1 million in accrued rent for the subleased premises. In addition to the
sublease, in connection with the Cyveillance Acquisition, ZeroFox and Lookingglass entered into a transition support agreement. The agreement stipulates that ZeroFox will reimburse Lookingglass for services performed as part of the transition.
For the year ended January 31, 2022 and 2021, ZeroFox incurred expenses totaling $0.5 and $0.3 million, respectively, under the agreement. As of January 31, 2022, ZeroFox had an accrued liability payable to Lookingglass totaling $0.2 million.
related to transition services.
In December of 2021, the Company issued bridge notes ($4.75 million of which were
issued to related parties) to certain investors in the potential PIPE (see Note 8 and 16).
|
14.
|
COMMITMENTS AND CONTINGENCIES
|
Operating Leases—The Company
entered into non-cancelable operating lease agreements for office space in the United States of America, Chile, the United Kingdom and India. The leases expire during the years ending January 31, 2022 and beyond.
The table below provides the Company’s future minimum operating lease payments as of
January 31, 2022 (in thousands).
|
Year Ending January 31,
|
| |
Future minimum
payments to
related parties
|
| |
Future minimum
payments to
unrelated parties
|
| |
Total future
minimum
payments
|
|
2023
|
| |
$588
|
| |
$447
|
| |
$1,035
|
|
2024
|
| |
36
|
| |
445
|
| |
481
|
|
2025
|
| |
—
|
| |
432
|
| |
432
|
|
Total future minimum payments
|
| |
$624
|
| |
$1,324
|
| |
$1,948
|
Rent expense for the years ended January 31, 2022, 2021, and 2020 totaled
$0.9 million, $0.9 million, and $0.6 million, respectively.
Sales and Other Taxes—The
Company’s cloud solutions are subject to sales and other taxes in certain jurisdictions where the Company does business. The Company bills sales and other taxes to customers and remits these to the respective government authorities. Taxing
jurisdictions have differing rules and regulations, which are subject to varying interpretations that may change over time. There may be assessments for sales tax jurisdictions in which the Company has not accrued a sales tax liability. The
Company has been unable to assess the probability, or estimate the amount, of this exposure. There were no pending reviews as of January 31, 2022. Management does not anticipate that its exposure for unaccrued sales tax, if any, would have a
material effect on the Company’s consolidated financial position, results of operations, or cash flows.
Employee Benefit Plan—The
Company’s 401(k) plan (the “401(k) Plan”) was established in 2014 to provide retirement and incidental benefits for its employees. As allowed under Section 401(k) of the Internal Revenue Code, the 401(k) Plan provides tax-deferred salary
deductions for eligible employees. Contributions to the 401(k) Plan are limited to a maximum amount as set periodically by the Internal Revenue Service. To date, the Company has not made any contributions to the 401(k) Plan.
FS-155
General Litigation—In the
ordinary course of business, the Company is involved in various disputes. In the opinion of management, the amount of liability, if any, resulting from the final resolution of these matters will not have a material impact on the Company’s
consolidated financial position, results of operations, or cash flows. The Company was not involved in any pending litigation as of January 31, 2022.
Warranties and Indemnification—The
Company’s enterprise cloud platform is typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable and materially in accordance with the Company’s online help documentation under normal
use and circumstances.
The Company’s arrangements generally include certain provisions for indemnifying
customers against liabilities if its services infringe a third-party’s intellectual property rights. To date, the Company has not incurred any material costs because of such obligations and has not accrued any liabilities related to such
obligations in the accompanying consolidated financial statements.
The Company has also agreed to indemnify its directors and executive officers for
costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s
service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request.
The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the
actions of its employees under certain circumstances and in certain jurisdictions.
Risks and Uncertainties—The
impact of the coronavirus (COVID-19) pandemic, or similar global health concerns, could negatively impact the Company’s operations, suppliers or other vendors, and its customer base. As of the report date, management is not aware of any
impacts from quarantines, labor shortages or other disruptions related to COVID-19 that would have a material adverse effect on the Company’s operations. The COVID-19 pandemic did not have a material impact on our historical financial
statements.
|
15.
|
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
The Company follows the two-class method when computing net loss per share of common
stock because it has issued securities, other than common stock, that contractually entitle the holders to participate in dividends and earnings. These participating securities include the Company’s restricted common stock, which has non-
forfeitable rights to participate in any dividends declared on the Company’s common stock. The two-class method requires all earnings for the period to be allocated between common stock and participating securities based upon their respective
rights to receive distributed and undistributed earnings.
Under the two-class method, for periods with net income, basic net income per share of
common stock is calculated by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net income attributable to common stockholders is calculated by
subtracting from net income the portion of current year earnings that the participating securities would have been entitled to receive pursuant to their dividend rights had all of the year’s earnings been distributed. No such adjustment to
earnings is made during periods with a net loss, as the holders of the participating securities have no obligation to fund losses.
Diluted net income per share of common stock is computed under the two-class method by
using the weighted average number of shares of common stock outstanding plus, for periods with net income attributable to common stockholders, the potential dilutive effects of unvested restricted stock, stock options, warrants, and preferred
stock.
Due to net losses for the years ended January 31, 2022, 2021, and 2020, basic and
diluted net loss per share were the same, as the effect of potentially dilutive securities would have been anti-dilutive to the calculation of net loss per share.
FS-156
The following table includes the calculation of basic and diluted net loss per
share (Net loss amounts in thousands):
|
|
| |
For the years ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Numerator:
|
| |
|
| |
|
| |
|
|
Net loss
|
| |
$(38,439)
|
| |
$(22,740)
|
| |
$(22,739)
|
|
Net loss per share attributable to common stockholders
|
| |
$(38,439)
|
| |
$(22,740)
|
| |
$(22,739)
|
|
Denominator:
|
| |
|
| |
|
| |
|
|
Weighted-average common stock outstanding
|
| |
42,073,124
|
| |
41,635,679
|
| |
41,346,979
|
|
Net loss per share attributable to common stockholders −
basic and diluted
|
| |
$(0.91)
|
| |
$(0.55)
|
| |
$(0.55)
|
The following potentially dilutive securities were not included in the calculation of
weighted average common shares outstanding, as their effects would have been anti-dilutive for the years ended January 31, 2022, 2021, and 2020.
|
|
| |
January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Preferred stock (on an as-converted basis)
|
| |
|
| |
|
| |
|
|
Series Seed redeemable convertible preferred stock
|
| |
18,396,744
|
| |
18,396,744
|
| |
18,396,744
|
|
Series A redeemable convertible preferred stock
|
| |
31,994,570
|
| |
31,994,570
|
| |
31,994,570
|
|
Series B redeemable convertible preferred stock
|
| |
53,829,898
|
| |
53,829,898
|
| |
53,829,898
|
|
Series C redeemable convertible preferred stock
|
| |
42,249,398
|
| |
42,249,398
|
| |
42,249,398
|
|
Series C-1 redeemable convertible preferred stock
|
| |
22,752,230
|
| |
22,752,230
|
| |
22,752,230
|
|
Series D redeemable convertible preferred stock
|
| |
27,743,094
|
| |
27,743,094
|
| |
3,268,364
|
|
Series D-1 redeemable convertible preferred stock
|
| |
11,756,606
|
| |
11,756,606
|
| |
1,385,025
|
|
Series D-2 redeemable convertible preferred stock
|
| |
1,987,736
|
| |
1,987,736
|
| |
234,172
|
|
Series E redeemable convertible preferred stock
|
| |
29,473,913
|
| |
6,393,236
|
| |
—
|
|
Total common stock reserved
|
| |
240,184,189
|
| |
217,103,512
|
| |
174,110,401
|
|
Common Stock
|
| |
|
| |
|
| |
|
|
Restricted common stock
|
| |
158,773
|
| |
—
|
| |
—
|
|
Warrants
|
| |
|
| |
|
| |
|
|
Common stock warrants
|
| |
1,924,790
|
| |
1,924,790
|
| |
1,924,790
|
|
Series A redeemable convertible preferred stock warrants
|
| |
249,806
|
| |
249,806
|
| |
249,806
|
|
Series B redeemable convertible preferred stock warrants
|
| |
292,682
|
| |
292,682
|
| |
292,682
|
|
Series C-1 redeemable convertible preferred stock warrants
|
| |
1,296,700
|
| |
1,212,480
|
| |
588,039
|
|
Series E redeemable convertible preferred stock warrants
|
| |
1,552,273
|
| |
102,713
|
| |
—
|
|
|
| |
5,316,251
|
| |
3,782,471
|
| |
3,055,317
|
|
Options to purchase common stock
|
| |
|
| |
|
| |
|
|
Issued and outstanding
|
| |
20,695,388
|
| |
18,283,708
|
| |
13,623,989
|
|
16.
|
SUBSEQUENT EVENTS
|
ZeroFox Merger with L&F Acquisition Corp. and ID Experts
Holdings, Inc.—On December 17, 2021, the Company entered into a merger agreement with L&F Acquisition Corp (“L&F”), which is a Special Purpose Acquisition Company, and ID Experts Holdings, Inc (“IDX”).
IDX provides a consumer privacy platform built for agility in the digital age. IDX provides privacy, identity protection, and data breach response services to its customers.
Subsequent to the effectiveness of the merger transaction, ZeroFox and IDX will be
wholly-owned subsidiaries of L&F. However, the accounting acquirer is determined based on the redemptions of the existing L&F shareholders, as follows:
|
(1)
|
assuming minimum redemption, ZeroFox will be deemed the acquirer in the merger transaction for accounting purposes. Accordingly,
the merger transaction would be accounted for as a reverse recapitalization, in which case the net assets of L&F will be stated at historical cost and no goodwill or other intangible assets attributable to L&F or ZeroFox will be
recorded as a result of the merger. The
|
FS-157
acquisition of IDX will be accounted for using the acquisition method of
accounting. The consideration transferred to effect the acquisition will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration transferred over the fair
values of assets acquired and liabilities assumed will be recorded as goodwill.
|
(2)
|
assuming maximum redemption, ZeroFox will be considered a variable interest entity and L&F will be deemed the acquirer in
the merger transaction for accounting purposes. Accordingly, the merger transaction would be accounted for as a forward merger, in which case the acquisition of ZeroFox and IDX will be accounted for using the acquisition method of
accounting. The consideration transferred to effect the acquisition will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration transferred over the
fair values of assets acquired and liabilities assumed will be recorded as goodwill.
|
It is expected that ZeroFox will account for the acquisition of IDX as a business
combination in accordance with ASC 805, Business Combinations. The IDX acquisition allows ZeroFox to further scale its digital risk protection services and expand its customer base. Upon the
consummation of the merger transaction, the following consideration is expected to be transferred to effect the acquisition of IDX (I) $50.0 million in cash, subject to certain positive and negative adjustments (II) shares of L&F Class A
common stock with an estimated aggregate fair value of 288.8 million (III) payoff of certain debts of IDX (IV) reimbursement of certain transaction costs incurred by IDX related to the merger agreement.
The merger pursuant to the December 17, 2021 agreement would result in ZeroFox
becoming a publicly listed company, as the surviving business post-merger. If consummated, the merger will result in all holders of ZeroFox’s issued and outstanding redeemable convertible preferred stock and common stock (inclusive of
restricted stock awards) receiving shares of L&F Class A common stock, in exchange for their ZeroFox equity holdings. In addition, if consummated, the merger will result in all holders of IDX’s issued and outstanding redeemable convertible
preferred stock and common stock exchanging their equity holdings for the consideration described in (I) through (IV) above.
Upon consummation of the merger, it is expected that at least $170.0 million of cash
will be raised through the issuance of certain convertible notes and a contemporaneous sale of common stock in connection with the closing of a PIPE investment. In addition, any portion of the cash and marketable securities that are held in
L&F’s trust account at the time of the merger that is not used to redeem shares of L&F’s Class A common stock held by L&F’s public shareholders upon the closing of the merger, is expected to become available to the combined company
for general use. Cash available for general use will be reduced by cash payments made for (A) merger transaction costs (B) deferred underwriting fees related to L&F’s IPO, (C) portions of the Company’s and IDX’s outstanding debt, and (D)
certain other costs directly or indirectly attributable to the merger transaction.
There is no assurance that the merger will occur, as consummation of the transaction
is subject to (A) the affirmative vote of at least a majority of the votes cast by L&F’s pre-merger public stockholders at an L&F special meeting for which a quorum is present and (B) a minimum of $170.0 million of aggregate required
funds becoming available to the combined company based upon the summation of (i) the cash proceeds from L&F’s contemporaneous PIPE Investment pursuant to which L&F Class A common stock will be sold, (ii) the proceeds from the issuance
of certain convertible notes, and (iii) cash and marketable securities held in trust, after permitted redemptions of Class A common shares held by L&F’s public shareholders. Neither approval of the merger transaction by L&F’s public
stockholders nor the amount of cash and marketable securities that would remain in L&F’s trust account after permitted redemptions of Class A common shares by L&F’s public stockholders is within the control of the Company, L&F, or
IDX. If the merger does occur, the name of the merged entity will be ZeroFox Holdings, Inc.
Additional borrowing—On
February 10, 2022, the Company amended its loan and security agreement with Orix. The amendment provided for an additional borrowing of $7.5 million, for which the Company borrowed $7.5 million in February 2022 and issued 161,112 warrants to
purchase Series E redeemable convertible preferred stock at an exercise price of $1.86205.
FS-158
Subsequent events have been considered for
disclosure and recognition in the consolidated financial statements through April 7, 2022, the date the consolidated financial statements were available to be issued. No events occurred through that date that would require disclosure in the
accompanying consolidated financial statements, other than those discussed above.
FS-159
TABLE OF CONTENTS
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EXHIBITS
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Exhibit A-A
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Form of Acquiror Charter
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Exhibit A-B
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Form of Acquiror Bylaws
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Exhibit A-C
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Form of Amended and Restated Sponsor Support Letter Agreement
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Exhibit A-D
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Form of Amended and Restated Registration Rights Agreement
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Exhibit A-E
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Form of Amended and Restated ZF Certificate of Incorporation
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Exhibit A-F
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Form of Amended and Restated IDX Forward Merger Sub Certificate of Formation
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Exhibit A-G
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Form of Amended and Restated IDX Forward Merger Sub Limited Liability Company
Agreement
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Exhibit A-H
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Form of Incentive Equity Plan
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Exhibit A-I
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Form of ESPP
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Exhibit A-J
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Form of ZF FIRPTA Certificate
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Exhibit A-K
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Form of IDX FIRPTA Certificate
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A-iii
BUSINESS COMBINATION AGREEMENT
THIS BUSINESS COMBINATION AGREEMENT (this “Agreement”) is made
and entered into as of December 17, 2021, by and among L&F Acquisition Corp., a Cayman Islands exempted company (which shall migrate to and domesticate as a Delaware corporation prior to the Closing) (“Acquiror”), L&F Acquisition
Holdings, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of Acquiror (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“ZF
Merger Sub”), IDX Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“IDX Merger Sub”), IDX Forward Merger Sub, LLC, a Delaware limited liability company and direct, wholly-owned
subsidiary of L&F Holdings (“IDX Forward Merger Sub”), ZeroFox, Inc., a Delaware corporation (“ZF”), and ID Experts Holdings, Inc., a Delaware corporation (“IDX”, and each of ZF and IDX, a “Company Party”, and
together, the “Company Parties”). Acquiror, L&F Holdings, ZF, ZF Merger Sub, IDX, IDX Merger Sub, and IDX Forward Merger Sub are collectively referred to herein as the “Parties” and individually as a “Party.”
RECITALS
WHEREAS, Acquiror is a blank check company incorporated to acquire
one or more operating businesses through a Business Combination;
WHEREAS, prior to the consummation of the Transactions, Acquiror
shall, subject to obtaining the Supermajority Acquiror Shareholder Approval, transfer by way of continuation from the Cayman Islands and domestication in the State of Delaware (the “Domestication”) as a Delaware corporation in accordance
with Section 388 of the Delaware General Corporation Law, as amended (the “DGCL”), and Part XII of the Cayman Islands Companies Act (As Revised), as amended and restated from time to time (the “Companies Act”);
WHEREAS, concurrently with the Domestication, (i) Acquiror shall
cause to be filed, subject to obtaining Supermajority Acquiror Shareholder Approval, a certificate of incorporation with the Secretary of State of Delaware in the form attached hereto as Exhibit A (such certificate of incorporation, the
“Acquiror Charter”) and (ii) following the consummation of the Domestication and prior to the Closing, subject to obtaining Majority Acquiror Shareholder Approval, Acquiror shall cause to be adopted bylaws consistent with the laws of the
State of Delaware in the form attached hereto as Exhibit B (such bylaws, the “Acquiror Bylaws”);
WHEREAS, in connection with the Domestication, (i) each then issued
and outstanding Class A ordinary share, par value $0.0001 per share, of Acquiror (“Pre-Domestication Acquiror Ordinary Shares”), shall convert automatically, on a one-for-one basis, into a share of common stock, par value $0.0001 per
share, of Acquiror (as part of its domestication as a corporation incorporated in the State of Delaware) (the “Acquiror Common Stock”); (ii) each then issued and outstanding Class B ordinary share, par value $0.0001 per share, of
Acquiror (“Pre-Domestication Acquiror Class B Shares”), shall convert automatically, on a one-for-one basis, into a share of Acquiror Common Stock (as part of its domestication as a corporation incorporated in the State of Delaware) (the
“Sponsor Holders Class B Conversion”); and (iii) each then issued and outstanding whole warrant of Acquiror exercisable for one share of Pre-Domestication Acquiror Ordinary Shares (“Pre-Domestication Acquiror Warrant”)
shall convert automatically into a whole warrant exercisable for one share of Acquiror Common Stock (“Acquiror Warrant”), pursuant to the Warrant Agreement;
WHEREAS, subject to the terms and conditions of this Agreement and in
accordance with the DGCL, the DLLCA and other applicable Laws, (i) ZF Merger Sub shall be merged with and into ZF (the “ZF Merger”), with ZF being the surviving entity in the ZF Merger and continuing (immediately following the ZF Merger)
as a direct, wholly-owned Subsidiary of L&F Holdings, (ii) IDX Merger Sub shall be merged with and into IDX (the “IDX Merger”), with IDX being the surviving entity in the IDX Merger (“Transitional IDX Entity”) and continuing
(immediately following the IDX Merger) as a direct, wholly-owned Subsidiary of L&F Holdings, and (iii) Transitional IDX Entity shall be merged with and into IDX Forward Merger Sub (the “IDX Forward Merger”, and together with
the ZF Merger and IDX Merger, the “Mergers”), with IDX Forward Merger Sub being the surviving entity in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned Subsidiary of L&F
Holdings (the “Surviving IDX Entity”);
WHEREAS, for U.S. federal income Tax purposes (and for purposes of
any applicable state or local income Tax that follows the U.S. federal income Tax treatment), each of the Parties intends that (i) the ZF Merger be treated as a transaction that qualifies as a “reorganization” within the meaning of Section
368(a) of the Code, (ii) the IDX Merger and the IDX Forward Merger, taken together, be treated as an integrated transaction that
A-1
qualifies as a “reorganization” within the meaning of Section 368(a) of the Code and
pursuant to Rev. Rul. 2001-46, (iii) the Domestication be treated as a “reorganization” within the meaning of Section 368(a)(1)(F) of the Code, and (iv) this Agreement constitutes a “plan of reorganization” within the meaning of Section 368 of
the Code and Treasury Regulations promulgated thereunder (clauses (i)-(iv), the “Intended Income Tax Treatment”);
WHEREAS, the board of directors of ZF has (i) determined that the
Mergers and the other Transactions are in the best interests of ZF and the stockholders of ZF, and declared it advisable, to enter into this Agreement, (ii) declared advisable and approved this Agreement and the Transactions, on the terms and
subject to the conditions of this Agreement, and (iii) adopted resolutions recommending to the stockholders of ZF the approval and adoption of this Agreement and the Transactions contemplated hereby, including the ZF Merger;
WHEREAS, the board of directors of IDX has unanimously (i) determined
that the Mergers and the other Transactions are in the best interests of IDX and the stockholders of IDX, and declared it advisable, to enter into this Agreement, (ii) declared advisable and approved this Agreement and the Transactions, on the
terms and subject to the conditions of this Agreement, and (iii) adopted resolutions recommending to the stockholders of IDX the approval and adoption of this Agreement and the Transactions contemplated hereby, including the IDX Merger;
WHEREAS, the board of directors of Acquiror (the “Acquiror Board”),
on behalf of Acquiror, in its capacity as the sole member of L&F Holdings, has approved this Agreement and the Transactions, including the Mergers;
WHEREAS, the board of directors of ZF Merger Sub has unanimously
(i) determined that the Mergers and the other Transactions are in the best interests of ZF Merger Sub and the sole stockholder of ZF Merger Sub, and declared it advisable, to enter into this Agreement, (ii) declared advisable and approved this
Agreement and the Transactions, on the terms and subject to the conditions of this Agreement, and (iii) adopted resolutions recommending to the sole stockholder of ZF Merger Sub the approval and adoption of this Agreement and the Transactions
contemplated hereby, including the ZF Merger;
WHEREAS, the board of directors of IDX Merger Sub has unanimously
(i) determined that the Mergers and the other Transactions are in the best interests of IDX Merger Sub and the sole stockholder of IDX Merger Sub, and declared it advisable, to enter into this Agreement, (ii) declared advisable and approved
this Agreement and the Transactions, on the terms and subject to the conditions of this Agreement, and (iii) adopted resolutions recommending to the sole stockholder of IDX Merger Sub the approval and adoption of this Agreement and the
Transactions contemplated hereby, including the IDX Merger;
WHEREAS, L&F Holdings, (i) in its capacity as the sole member of
IDX Forward Merger Sub, has approved this Agreement and the Transactions, including the IDX Forward Merger, (ii) in its capacity as the sole stockholder of ZF Merger Sub, has delivered a consent approving this Agreement and the Transactions,
including the ZF Merger, that will become effective immediately after the execution of this Agreement, and (iii) in its capacity as the sole stockholder of IDX Merger Sub, has delivered a consent approving this Agreement and the Transactions,
including the IDX Merger, that will become effective immediately after the execution of this Agreement;
WHEREAS, the Acquiror Board has unanimously (i) determined that the
Domestication, the Mergers, the issuance of shares of Acquiror Common Stock in connection with the ZF Merger and the IDX Merger, and the other Transactions are in the best interests of Acquiror, and declared it advisable, to enter into this
Agreement, (ii) approved this Agreement, the Domestication and the Transactions, on the terms and subject to the conditions of this Agreement, and (iii) adopted resolutions recommending to the shareholders of Acquiror the approval of the
Acquiror Shareholder Matters (the “Acquiror Board Recommendation”);
WHEREAS, on or prior to the date hereof, each of ZF and IDX has
delivered to Acquiror, and Acquiror has approved, a spreadsheet (the “Spreadsheet”), which sets forth (i) the capitalization of ZF and IDX as of the date hereof, (ii) the Ownership Allocation and the Stockholder Ownership Allocation
based on the capitalization of each of ZF and IDX as of the date hereof, and (iii) the number of shares of Acquiror Common Stock constituting part of the ZF Closing Stock Consideration receivable by each ZF Pre-Closing Holder and the number of
shares
A-2
of Acquiror Common Stock constituting part of the IDX Closing Stock Consideration and
the IDX Closing Cash Consideration and/or IDX Liquidation Preference receivable by each IDX Pre-Closing Holder pursuant to the terms of this Agreement (in each case, subject to update, to the extent necessary, pursuant to Section 3.12);
WHEREAS, concurrently with the execution of this Agreement, Acquiror
is entering into subscription agreements (collectively, the “PIPE Subscription Agreements”) with certain investors (collectively, the “PIPE Investors”) pursuant to which, among other things, the PIPE Investors have agreed
to subscribe for, and Acquiror has agreed to issue to the PIPE Investors, an aggregate of at least 2,000,000 shares of Acquiror Common Stock in exchange for an aggregate purchase price of at least $20,000,000 (the “PIPE Investment Amount”)
on the Closing Date immediately prior to the Effective Time, on the terms and subject to the conditions set forth in the PIPE Subscription Agreements (the “PIPE Investment”);
WHEREAS, concurrently with the execution of this Agreement, Acquiror
is entering into subscription agreements (collectively, the “Convertible Notes Subscription Agreements” and together with the PIPE Subscription Agreements, the “Subscription Agreements”) with certain investors (collectively, the “Convertible
Notes Investors” and together with the PIPE Investors, the “Investors”) pursuant to which, among other things, the Convertible Notes Investors have agreed to subscribe for, and Acquiror has agreed to issue to the Convertible
Notes Investors on the Closing Date immediately prior to the Effective Time, an aggregate principal amount of at least $150,000,000 (the “Convertible Notes Investment Amount” and together with the PIPE Investment Amount, the “Investment
Amount”) of 7.00%/8.75% Convertible Senior Cash/PIK Toggle Notes due 2025 (the “Convertible Notes”) with a conversion price of $11.50 per share of Acquiror Common Stock, on the terms and subject to the conditions set forth in the
Convertible Notes Subscription Agreements and the indenture (the “Convertible Notes Indenture”) governing such Convertible Notes (the “Convertible Notes Investment” and together with the PIPE Investment, the “Investments”);
WHEREAS, concurrently with the execution of this Agreement, the
Sponsor Holders, other board and management team members of Acquiror, Acquiror, ZF and IDX, have amended and restated that certain Letter Agreement, dated November 18, 2020 (as amended and restated, the “Sponsor Support Letter Agreement”),
in substantially the form attached hereto as Exhibit C, pursuant to which, among other things, (i) in connection with the Closing, the Sponsor Holders shall, on a Pro Rata Basis, subject the Sponsor Holders Earnout Shares to potential
forfeiture in the event that certain milestones are not achieved by Acquiror following the Closing, in each case, upon the terms and subject to the conditions set forth in Section 3.10 and therein, (ii) the Sponsor Holders have agreed
to waive the anti-dilution rights set forth in Article 17 of the Articles of Association or any other anti-dilution or similar adjustment rights to which Sponsor Holders otherwise are entitled with respect to the Pre-Domestication Acquiror
Class B Shares and Acquiror Common Stock held by such Sponsor Holders that may be triggered from the PIPE Investment, the Convertible Notes Investment, the Domestication, the Mergers or any of the other Transactions, (iii) the Sponsor Holders
and other board and management team members of Acquiror have agreed to the provisions set forth in Section 8.03(b) and Section 8.05(a), (iv) the Sponsor Holders have agreed to vote all shares of Pre-Domestication Acquiror
Ordinary Shares and Pre-Domestication Acquiror Class B Shares held by them in favor of the adoption and approval of this Agreement and the approval of the other Acquiror Shareholder Matters, and (v) the Sponsor Holders have agreed to certain
transfer restrictions in respect of the Acquiror Common Stock and other equity securities of Acquiror held by such Sponsor Holders;
WHEREAS, pursuant to the Acquiror Organizational Documents, Acquiror
shall provide an opportunity to its shareholders to have their Pre-Domestication Acquiror Ordinary Shares redeemed for the consideration, and on the terms and subject to the conditions and limitations, set forth in this Agreement, the Acquiror
Organizational Documents, the Trust Agreement, and the Proxy Statement/Prospectus in conjunction with, inter alia, obtaining approval from the shareholders of Acquiror for the Business Combination
Proposal;
WHEREAS, at the Closing, Acquiror and the other parties thereto shall
enter into the Amended and Restated Registration Rights Agreement (with such changes as may be agreed in writing by the Acquiror, ZF and IDX, the “A&R Registration Rights Agreement”) substantially in the form of Exhibit D
attached hereto; and
WHEREAS, in connection with the Domestication, Acquiror shall be
renamed “ZeroFox Holdings, Inc.” and shall trade publicly on NASDAQ, as applicable, under a new ticker symbol, which will be “ZFOX” or, if “ZFOX” is not available, another ticker symbol selected by the Parties.
A-3
NOW, THEREFORE, the Parties hereby agree as follows:
CERTAIN DEFINITIONS
Section 1.01 Definitions.
For purposes of this Agreement, the following capitalized terms have the following meanings:
“280G Approval” has the meaning specified in Section 6.11.
“A&R Registration Rights Agreement” has the meaning
specified in the Recitals hereto.
“Acquiror” has the meaning specified in the Preamble hereto.
“Acquiror Board” has the meaning specified in the Recitals
hereto.
“Acquiror Board Recommendation” has the meaning specified in
the Recitals hereto.
“Acquiror Bylaws” has the meaning specified in the Recitals
hereto.
“Acquiror Charter” has the meaning specified in the Recitals
hereto.
“Acquiror Closing Statement” has the meaning specified in Section
3.06(a).
“Acquiror Closing Stock Price” means an amount equal to the
volume weighted average price per share rounded to four decimal places (with amounts 0.00005 and above rounded up) of Acquiror Common Stock on the NYSE or NASDAQ, as applicable, for the five consecutive trading days ending with the complete
trading day ending three Business Days prior to the Closing Date.
“Acquiror Common Stock” has the meaning specified in the
Recitals hereto.
“Acquiror Extension Shareholder Meeting” has the meaning
specified in Section 8.02(c).
“Acquiror Material Adverse Effect” means, any change, event,
circumstance, occurrence, effect, development or state of facts that, individually or in the aggregate, with any other change, event, circumstance, occurrence, effect, development or state of facts, either (a) has a material adverse effect on
the business, assets, operations, results of operations or financial condition of Acquiror and its Subsidiaries, taken as a whole, or (b) prevents or materially delays or materially impacts the ability of any of the Acquiror Parties or Sponsor
to consummate all or any of the Transactions or would reasonably be expected to have any such effect; provided, however, that none of the following, alone or in combination, shall be taken into account in determining whether an
Acquiror Material Adverse Effect has occurred: (i) changes or proposed changes in applicable Law, regulations or interpretations thereof or decisions by any Governmental Authority after the date of this Agreement; (ii) changes or proposed
changes in GAAP (or any official interpretation thereof) after the date of this Agreement; (iii) any downturn in general economic conditions, including changes in the credit, debt, securities, financial, capital or reinsurance markets
(including changes in interest or exchange rates, prices of any security or market index or commodity or any disruption of such markets), in each case, in the United States or anywhere else in the world; (iv) any earthquake, hurricane, tornado,
pandemic or other natural or man-made disaster; (v) the taking of any action required by this Agreement; (vi) the announcement of this Agreement or consummation of the Transactions; or (vii) any action taken, or failures to take action, or such
other changes or events, in each case by, or at the request of, any Company Party or (viii) the consummation of any Acquiror Shareholder Redemption.
“Acquiror Option” has the meaning specified in Section
3.01(d).
“Acquiror Organizational Documents” means the Articles of
Association and Acquiror’s amended and restated memorandum of association, in each case as may be amended from time to time in accordance with the terms of this Agreement.
“Acquiror Parties” means, collectively, Acquiror, L&F
Holdings, ZF Merger Sub, IDX Merger Sub and IDX Forward Merger Sub.
“Acquiror Preference Shares” has the meaning specified in Section
5.11(a).
“Acquiror Shareholder” means a holder of Pre-Domestication
Acquiror Ordinary Shares or Pre-Domestication Acquiror Class B Shares.
A-4
“Acquiror Shareholder Approval” means the vote of the
shareholders of Acquiror set forth in the Proxy Statement/Prospectus to the extent required to approve the Acquiror Shareholder Matters.
“Acquiror Shareholder Matters” means (i) the adoption and
approval of this Agreement and the Transactions (the “Business Combination Proposal”), (ii) the adoption and approval of the Domestication (the “Domestication Proposal”), (iii) the adoption and approval of the issuance of shares
of Acquiror Common Stock in connection with the Transactions as may be required under NYSE or NASDAQ, as applicable, listing requirements (the “Listing Proposal”), (iv) the adoption and approval of the Acquiror Charter (the “Charter Proposal”),
(v) the adoption and approval of the Acquiror Bylaws (the “Bylaws Proposal”), (vi) the adoption and approval of each of the Incentive Equity Plan and ESPP (together, the “Equity Incentive Plan Proposal”), (vii) the election of the
members of the Acquiror Board as of the Closing in accordance with Section 7.05 (the “Director Election Proposal”), (viii) the adoption and approval of each other proposal that the SEC, NYSE or NASDAQ (or the respective staff
members thereof) indicates is necessary in its comments to the Proxy Statement/Prospectus or in correspondence related thereto, (ix) the adoption and approval of each other proposal reasonably agreed to by Acquiror, ZF and IDX as necessary or
appropriate in connection with the consummation of the Domestication, the Transactions or any of the other transactions contemplated by the Transaction Agreements, and (x) the adoption and approval of a proposal for one or more adjournments of
the Special Meeting, if necessary, to permit further solicitation of proxies because there are not sufficient votes to approve and adopt any of the foregoing.
“Acquiror Shareholder Redemption” has the meaning specified
in Section 8.02(a)(i).
“Acquiror Specified Representations” has the meaning
specified in Section 9.03(a)(i).
“Acquiror Transaction Expenses” means all fees, costs and
expenses of Acquiror (inclusive of any deferred underwriting fees) incurred prior to and through the Closing Date in connection with the negotiation, preparation and execution of this Agreement, the other Transaction Agreements, the performance
and compliance with all Transaction Agreements and conditions contained herein and therein to be performed or complied with at or before Closing, and the consummation of the Domestication, the Transactions and any other transactions
contemplated by the Transaction Agreements, to the extent unpaid as of the Closing, including the fees, costs, expenses and disbursements of counsel, accountants, advisors and consultants of Acquiror, as determined pursuant to Section
3.06(a), and any Sponsor Working Capital Loans; provided, that notwithstanding anything in this Agreement to the contrary, in no event shall Acquiror Transaction Expenses include any fees, costs or expenses related to (a) the PIPE
Investment or the Convertible Notes Investment other than any placement agent fees paid to Jefferies, (b) any financing activities in connection with the Transactions and (c) the D&O Tail.
“Acquiror Transaction Expenses Cap” has the meaning
specified in Section 3.06(a).
“Acquiror Warrant” has the meaning specified in the Recitals
hereto.
“Acquisition Transaction” has the meaning specified in Section
8.03.
“Action” means any claim, action, suit, charge, complaint,
audit, investigation, inquiry, assessment, arbitration or legal, judicial or administrative proceeding (whether at law or in equity) by or before any Governmental Authority.
“Additional SEC Reports” has the meaning specified in Section
5.08(a).
“Affiliate” means, with respect to any specified Person, any
Person that, directly or indirectly, controls, is controlled by, or is under common control with, such specified Person, through one or more intermediaries or otherwise. The term “control” means the ownership of a majority of the voting
securities of the applicable Person or the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the applicable Person, whether through ownership of voting securities, by contract or
otherwise, and the terms “controlled” and “controlling” have meanings correlative thereto. For the avoidance of doubt, with respect to either Company Party, Affiliate shall be deemed to include any Subsidiaries of such Company Party.
“Agreement” has the meaning specified in the Preamble
hereto.
“Alternate Business Combination Proposal” has the meaning
specified in Section 8.03(b).
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“Anti-Corruption Laws” means all U.S. and non-U.S. Laws
relating to the prevention of corruption, bribery, and money laundering, including the U.S. Foreign Corrupt Practices Act of 1977 and the UK Bribery Act of 2010.
“Articles of Association” means the Amended and Restated
Articles of Association of Acquiror, adopted on November 18, 2020.
“Available Closing Acquiror Cash” means, without duplication,
an amount equal to (i) all amounts in the Trust Account (after reduction for the aggregate amount of payments required to be made in connection with the Acquiror Shareholder Redemption), plus (ii) the
aggregate amount of net cash proceeds that has been funded to and remains with, or that will be funded concurrently with the Closing to, Acquiror pursuant to the Subscription Agreements as of immediately prior to the Closing. For all purposes,
the amounts determined pursuant to clause (ii) of the immediately foregoing sentence shall include (x) any portion of the IDX Cash Amount otherwise payable to certain PIPE Investors (in their capacity as IDX Pre-Closing Holders) at Closing
pursuant to this Agreement that funds the PIPE Investment of such PIPE Investors pursuant to the PIPE Subscription Agreements and (y) $5,000,000 in principal amount of the ZF PIK Promissory Notes, to the extent that such principal amount is
discharged and settled by funding the PIPE Investment of the holders of the ZF PIK Promissory Notes.
“Business Combination” has the meaning ascribed to such term
in the Articles of Association.
“Business Combination Proposal” has the meaning specified in
the defined term “Acquiror Shareholder Matters”.
“Business Day” means a day other than a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or required by Law to close or unable to open.
“Bylaws Proposal” has the meaning specified in the defined
term “Acquiror Shareholder Matters”.
“CARES Act” means Coronavirus Aid, Relief, and Economic
Security Act (Pub. L. 116-136) and any administrative or other guidance published with respect thereto by any Governmental Authority.
“CBA” means any collective bargaining agreement or other
Contract with any labor union, labor organization or works council.
“Certificate” has the meaning specified in Section 3.11(c).
“Change of Control” means (i) the sale, conveyance or
disposition in one or a series of transactions of all or substantially all of the assets of Acquiror and its significant Subsidiaries (taken together as a whole) to a third party, or any transaction that is subject to Rule 13e-3 of the Exchange
Act, as amended, (ii) the acquisition by any Person or “group” (as defined in the Exchange Act) directly or indirectly, of beneficial ownership of securities representing at least 50% of the voting power of the securities issued by Acquiror
having the power to vote (measured by voting power rather than number of shares) in the election of directors of Acquiror (“Voting Stock”), provided that an acquisition pursuant to a transaction which does not constitute
a Change of Control under clause (iii) shall not constitute a Change of Control under this clause (ii), or (iii) the consolidation, merger or other business combination of Acquiror with or into any other Person or Persons,
however effected, resulting in any Person or “group” (as defined in the Exchange Act) acquiring directly or indirectly beneficial ownership of at least 50% of the voting power of the securities of the combined entity outstanding immediately
after such combination; provided, however, that a Change of Control will not be deemed to have occurred in the case of clause (iii) above in the case of (a) a consolidation, merger or other business combination in which
holders of the Voting Stock immediately prior to such transaction continue after such transaction to hold, directly or indirectly, beneficial ownership of at least 50% of the voting power of the securities of the combined entity outstanding
immediately after such combination (including, without limitation, the entity which as a result of such transaction owns Acquiror or all or substantially all of Acquiror’s assets either directly or through one or more subsidiaries), or (b) a
migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of Acquiror.
“Charter Proposal” has the meaning specified in the defined
term “Acquiror Shareholder Matters”.
“Closing” has the meaning specified in Section 3.07.
“Closing Date” has the meaning specified in Section 3.07.
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“Closing Filing” has the meaning specified in Section
8.05(c).
“Closing Press Release” has the meaning specified in Section
8.05(c).
“COBRA” has the meaning specified in Section 4.14(f).
“Code” means the Internal Revenue Code of 1986, as amended.
“Comerica Credit Facility” means that certain Amended and
Restated Loan and Security Agreement, dated as of December 29, 2020, by and among IDX, ITGS and Comerica Bank, as may be amended, amended and restated, modified or supplemented from time to time.
“Common Share Price” shall mean the maximum volume-weighted
average price of one share of Acquiror Common Stock as reported on the NYSE or NASDAQ, as applicable (or the exchange on which the shares of Acquiror Common Stock are then listed) and displayed under the heading “Bloomberg VWAP” on the
Bloomberg page for the “<equity> AQR” page corresponding to the “ticker” for the Acquiror Common Stock (or its equivalent successor if Bloomberg ceases to publish such price, such page is not available or the “ticker” for the Acquiror
Common Stock has changed, as applicable) achieved for a period of at least 20 days within any 30 consecutive trading days commencing on or after the Closing Date and ending on the trading day immediately prior to the date of determination (as
adjusted as appropriate to reflect any stock splits, reverse stock splits, stock dividends (including any dividend or distribution of securities convertible into Acquiror Common Stock), extraordinary cash dividend, reorganization,
recapitalization, reclassification, combination, exchange of shares or other like change or transaction with respect to Acquiror Common Stock) and determined without regard to after-hours trading or any other trading outside of the regular
trading session trading hours.
“Companies Act” has the meaning specified in the Recitals
hereto.
“Company Group” means, as applicable, (i) ZF and its direct
and indirect Subsidiaries, and/or (ii) IDX and its direct and indirect Subsidiaries.
“Company Group Member” means each member of the Company Group.
“Company Group Specified Representations” has the meaning
specified in Section 9.02(a)(i).
“Company Material Adverse Effect” means, with respect to ZF, a
ZF Material Adverse Effect, and with respect to IDX, an IDX Material Adverse Effect.
“Company Parties” has the meaning specified in the Preamble
hereto.
“Company Party” has the meaning specified in the Preamble
hereto.
“Company Party Benefit Plan” means, with respect to ZF, a ZF
Benefit Plan, and with respect to IDX, an IDX Benefit Plan.
“Company Party Employees” means, with respect to a Company
Party, each employee of such Company Party or any of its Subsidiaries.
“Company Party Intellectual Property” means, with respect to a
Company Party, the Owned Intellectual Property and Licensed Intellectual Property of such Company Party.
“Company Party Service Provider” means, with respect to a
Company Party, each Company Party Employee, officer, director, or other service provider of such Company Party or any of its Subsidiaries.
“Confidentiality Agreements” has the meaning specified in Section
11.09.
“Consent” means any notice, authorization, qualification,
registration, filing, notification, waiver, Governmental Order, consent, clearance or approval to be obtained from, filed with or delivered to, a Governmental Authority or other Person.
“Continuing Employee” has the meaning specified in Section
7.11(a).
“Contracts” means any contracts, agreements, licenses,
subcontracts, leases, subleases and purchase orders and other commitments or arrangements, in each case that are legally binding upon a Person or its properties or assets.
“Convertible Notes” has the meaning specified in the Recitals
hereto.
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“Convertible Notes Indenture” has the meaning specified in
the Recitals hereto.
“Convertible Notes Investment” has the meaning specified in
the Recitals hereto.
“Convertible Notes Investment Amount” has the meaning
specified in the Recitals hereto.
“Convertible Notes Investors” has the meaning specified in
the Recitals hereto.
“Convertible Notes Subscription Agreements” has the meaning
specified in the Recitals hereto.
“Court of Chancery” has the meaning specified in Section
11.12.
“COVID-19” means SARS-CoV-2 or COVID-19, and any evolutions,
mutations or variants thereof or any other related or associated epidemics, pandemics or disease outbreaks.
“COVID-19 Measures” means any quarantine, “shelter in place,”
“stay at home,” social distancing, shut down, closure, sequester or any other Law, directive, guidelines or recommendations by any Governmental Authority (including the Centers for Disease Control and the World Health Organization) in each case
in connection with, related to or in response to COVID-19, including the CARES Act or any changes thereto.
“D&O Tail” has the meaning specified in Section
7.01(b).
“DGCL” has the meaning specified in the Recitals hereto.
“Director Election Proposal” has the meaning specified in the
defined term “Acquiror Shareholder Matters”.
“DLLCA” means the Delaware Limited Liability Company Act.
“Domestication” has the meaning specified in the Recitals
hereto.
“Domestication Proposal” has the meaning specified in the
defined term “Acquiror Shareholder Matters”.
“DPA” means Section 721 of the Defense Production Act, as
amended, including all implementing regulations thereof.
“Earnout Period” shall mean the time period beginning on the
Closing Date and ending on and including the date of the five-year anniversary of the Closing Date.
“Effective Time” has the meaning specified in Section
2.02(c).
“Enforceability Exceptions” has the meaning specified in Section
4.03.
“Environmental Laws” means any and all applicable Laws
relating to pollution, human health and safety or protection of the environment (including natural resources), or the use, storage, emission, distribution, transport, handling, disposal or release of, or exposure of any Person to, Hazardous
Materials.
“Equity Incentive Plan Proposal” has the meaning specified in
the defined term “Acquiror Shareholder Matters”.
“Equity Securities” means, with respect to any Person, without
duplication (i) any shares of capital or capital stock, partnership, membership, joint venture or similar interest, or other voting securities of, or other ownership interest in, such Person, (ii) any securities of such Person convertible into
or exchangeable for cash or shares of capital or capital stock or other voting securities of, or other ownership interests in, such Person, (iii) any warrants, calls, options or other rights to acquire from such Person, or other obligations of
such Person to issue, any shares of capital or capital stock or other voting securities of, or other ownership interests in, or securities convertible into or exchangeable for shares of capital or capital stock or other voting securities of, or
other ownership interests in, such Person, (iv) any restricted shares, stock appreciation rights, restricted units, performance units, contingent value rights, “phantom” stock or similar securities or rights issued by or with the approval of
such Person that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any shares of capital or capital stock or other voting securities of, other ownership interests in, or any business,
products or assets of, such Person, and (v) any securities issued or issuable with respect to the securities or interests referred to in clauses (i) through (iv) above in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
“ERISA” has the meaning specified in Section 4.14(a).
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“ERISA Affiliate” means, with respect to a Company Party or
any of its Subsidiaries, any Person or entity (whether or not incorporated) that, together with such Company Party or Subsidiary, is (or at relevant time has been or would be) under common control or treated as one employer under Section
4001(b)(1) of ERISA or Section 414(b), (c), (m), or (o) of the Code.
“ESPP” has the meaning specified in Section 7.06.
“Exchange Act” means the Securities Exchange Act of 1934, as
amended.
“Exchange Agent” has the meaning specified in Section
3.11(b).
“Extension Proposal” has the meaning specified in Section
8.02(c).
“Extension Proxy Statement” has the meaning specified in Section
8.02(c).
“Fraud” means, with respect to a Party, an actual and
intentional fraud with respect to the making of the representations and warranties pursuant to Article IV or Article V (as applicable); provided, that such actual and intentional fraud of such Person shall only be deemed
to exist if any of the individuals included on Schedule 1.03(a) (in the case of Acquiror), Schedule 1.03(b) (in the case of ZF) or Schedule 1.03(c) (in the case of IDX) had actual knowledge (as opposed to imputed or
constructive knowledge) that the representations and warranties made by such Person pursuant to, in the case of the Company Parties, Article IV, or, in the case of Acquiror, Article V, in each case, as qualified by the Schedules
to this Agreement, were actually breached when made, with the express intention that the other Parties to this Agreement rely thereon to their detriment.
“GAAP” means United States generally accepted accounting
principles, consistently applied.
“Government Bid” means, as applicable, a bid submitted by IDX
or any of its Subsidiaries, or ZF or any of its Subsidiaries, to a Governmental Authority, including a prime contractor or a higher tier subcontractor to a Governmental Authority for the design, manufacture or sale of products or the provision
of services by IDX or any of its Subsidiaries, or by ZF or any of its Subsidiaries, as applicable.
“Government Contract” means any Contract, including any prime
contract, subcontract, facility contract, teaming agreement or arrangement, joint venture, basic ordering agreement, pricing agreement, letter contract, grant, purchase order, delivery order, change order or other contractual arrangement of any
kind, between IDX or any of its Subsidiaries, or ZF or any of its Subsidiaries, as applicable, on the one hand, and (i) any Governmental Authority (acting on its own behalf or on behalf of another Governmental Authority or international
organization), (ii) any prime contractor of any Governmental Authority or (iii) any subcontractor with respect to any contract of a type described in clauses (i) or (ii) above, on the other hand.
“Government Official” means any officer or employee of a
Governmental Authority, including state-owned entities, or of a public organization or any person acting in an official capacity for or on behalf of any such Governmental Authority or on behalf of any such public organization.
“Governmental Authority” means any federal, state, provincial,
municipal, local or foreign government, governmental authority, regulatory or administrative agency, governmental commission, department, board, bureau, agency or instrumentality, court, arbitral body (public or private) or tribunal.
“Governmental Order” means any order, judgment, injunction,
decree, writ, ruling, stipulation, determination or award, in each case, entered by or with any Governmental Authority.
“GSA” has the meaning specified in Section 4.32.
“Hazardous Material” means material, substance or waste that
is listed, regulated, or otherwise defined as “hazardous,” “toxic,” or “radioactive,” or as a “pollutant” or “contaminant” (or words of similar intent or meaning) under Environmental Laws, including but not limited to petroleum, petroleum
by-products, asbestos or asbestos-containing material, polychlorinated biphenyls, per and polyfluoroalkyl substances, flammable or explosive substances, or pesticides.
“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, and the rules and regulations promulgated thereunder.
“IDX” has the meaning specified in the Preamble hereto.
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“IDX Accounting Principles” means the principles,
practices, methodologies and procedures used by IDX in the preparation of the IDX Most Recent Balance Sheet, to the extent consistent with GAAP and the IDX Audited Financial Statements (as applicable).
“IDX Assumed Warrant” has the meaning specified in Section
3.02(b).
“IDX Audited Financial Statements” has the meaning specified
in Section 4.08(e).
“IDX Benefit Plan” has the meaning specified in Section
4.15(a).
“IDX Board Recommendation” has the meaning specified in Section
6.07.
“IDX Cancelled Shares” has the meaning specified in Section
3.02(a).
“IDX Cancelled Warrant” means the Warrant to Purchase IDX
Common Stock, dated as of August 2, 2016, by and between IDX and MODA Health.
“IDX Capital Stock” means the IDX Common Stock and the IDX
Preferred Stock.
“IDX Cash Amount” means the sum of all cash and cash
equivalents (but excluding restricted cash) of IDX as of the IDX Effective Time as determined in accordance with the IDX Accounting Principles. For the avoidance of doubt, the IDX Cash Amount will be calculated net of issued but uncleared
checks and drafts and will include checks, other wire transfers and drafts deposited or available for deposit for the account of IDX or its Subsidiaries.
“IDX Certificate of Incorporation” means the Amended and
Restated Certificate of Incorporation of IDX, dated as of July 29, 2016, as amended from time to time.
“IDX Certificate of Merger” has the meaning specified in Section
2.02(b).
“IDX Closing Cash Consideration” means (a) $50,000,000, plus (b) the IDX Positive Adjustment Amount, if any, minus (c) the IDX Negative Adjustment Amount, if any, minus (d) the
IDX Liquidation Preference Amount.
“IDX Closing Cash Per Share Consideration” means the IDX
Closing Cash Consideration, divided by the IDX Fully Diluted Shares of Stock.
“IDX Closing Statement” has the meaning specified in Section
3.06(c).
“IDX Closing Stock Consideration” means a number of shares of
Acquiror Common Stock equal to (a) $288,750,000, divided by (b) $10 (as appropriately adjusted as provided in Section 1.04).
“IDX Closing Stock Per Share Consideration” means a number of
shares of Acquiror Common Stock equal to (i) the IDX Closing Stock Consideration divided by (ii) the IDX Fully Diluted Shares of Stock.
“IDX Closing Working Capital” means (a) the IDX Current
Assets, minus (b) the IDX Current Liabilities, in each case, as of the IDX Effective Time as determined in accordance with the IDX Accounting Principles.
“IDX Closing Working Capital Shortfall” means (a) the IDX
Closing Working Capital Target Amount, minus (b) the amount of the IDX Closing Working Capital (whether positive or negative), whether such resulting figure is positive or negative.
“IDX Closing Working Capital Target Amount” means the amount
of $1,500,000.
“IDX Common Stock” means the common stock of IDX, par value
$0.0001 per share, with all the rights, preferences and privileges set forth in the IDX Certificate of Incorporation.
“IDX Common Warrant” has the meaning specified in the
defined term “IDX Warrant”.
“IDX Confidentiality Agreement” has the meaning specified in
Section 11.09.
“IDX Convertible Promissory Notes” means the Convertible
Promissory Notes issued by IDX to PELOTON EQUITY I, L.P., PELOTON ID EXPERTS, LLC, BlueCross BlueShield Venture Partners II, L.P., Sandbox Advantage Fund, L.P., Escalate Capital Partners SBIC III, LP, ForgePoint Cybersecurity Fund I, LP and
ForgePoint Cyber Affiliates Fund I, LP on December 20, 2018.
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“IDX Current Assets” means the sum of accounts receivables,
other receivables, prepaid expenses and other current assets, as determined in accordance with the IDX Accounting Principles; provided, however, that IDX
Current Assets shall exclude the IDX Cash Amount.
“IDX Current Liabilities” means the sum of accounts payables
and other current liabilities, as determined in accordance with the IDX Accounting Principles; provided, however, that IDX Current Liabilities shall exclude any
deferred revenue or current portion of long-term debt of IDX, as determined in accordance with the IDX Accounting Principles.
“IDX Debt Amount” has the meaning specified in Section
3.05.
“IDX Debt Payoff Letters” has the meaning specified in Section
6.06(c).
“IDX Dissenting Shares” has the meaning specified in Section
3.02(e).
“IDX Earnout Documents” means (a) that certain Agreement and
Plan of Merger, dated August 2, 2016, by and among IDX, ITGS and the other parties thereto, and (b) that certain Liquidity Earnout Payment Agreement, dated August 2, 2016, by and among IDX and the other parties thereto.
“IDX Effective Time” has the meaning specified in Section
2.02(b).
“IDX Financial Statements” has the meaning specified in Section
4.08(e).
“IDX Foreign Plan” has the meaning specified in Section
4.15(k).
“IDX Forward Certificate of Merger” has the meaning
specified in Section 2.02(c).
“IDX Forward Merger” has the meaning specified in the
Recitals hereto.
“IDX Forward Merger Sub” has the meaning specified in the
Preamble hereto.
“IDX Fully Diluted Shares of Stock” means the sum of (i) the
total number of shares of IDX Series A-1 Preferred Stock, IDX Series A-2 Preferred Stock and IDX Common Stock issued and outstanding immediately prior to the IDX Effective Time, plus (ii) the total
number of shares of IDX Common Stock issuable upon the exercise of all vested IDX Options that are outstanding immediately prior to the IDX Effective Time (including after giving effect to any acceleration of any unvested IDX Options in
connection with the consummation of the Transactions), plus (iii) the total number of shares of IDX Capital Stock issuable upon the exercise or settlement of all IDX Warrants (whether or not then vested
or exercisable) that are outstanding immediately prior to the IDX Effective Time (and which are assumed and converted into IDX Assumed Warrants), in each case of clauses (ii) and (iii), determined on a net exercise basis. For purposes of
determining the number of shares of IDX Capital Stock on a net exercise basis under clauses (ii) and (iii), the per-share value of the IDX Capital Stock shall be equal to the (A) the sum of (1) $288,750,000, plus
(2) the IDX Closing Cash Consideration, plus (3) the aggregate exercise price of all vested IDX Options that are outstanding immediately prior to the IDX Effective Time (including after giving effect to
any acceleration of any unvested IDX Options in connection with the consummation of the Transactions) and all IDX Warrants (whether or not then vested or exercisable) that are outstanding immediately prior to the IDX Effective Time (and which
are assumed and converted into IDX Assumed Warrants), divided by (B) the IDX Fully Diluted Shares of Stock determined as if the words “net exercise basis” were replaced with the words “cash exercise
basis.”
“IDX Interim Financial Statements” has the meaning specified
in Section 4.08(e).
“IDX Knowledge Parties” has the meaning specified in Section
1.03.
“IDX Liquidation Preference” means with respect to each share
of IDX Series A-1 Preferred Stock, IDX Series A-2 Preferred Stock and IDX Series B Preferred Stock issued and outstanding immediately prior to the IDX Effective Time and each share of IDX Preferred Stock issuable upon the exercise or settlement
of all IDX Preferred Warrants as of immediately prior to the IDX Effective Time, an amount in cash equal to $0.361.
“IDX Liquidation Preference Amount” means an amount in cash
equal to the product of (i) the IDX Liquidation Preference, multiplied by (ii) the total number of shares of IDX Series A-1 Preferred Stock, IDX Series A-2 Preferred Stock and IDX Series B Preferred
Stock issued and outstanding immediately prior to the IDX Effective Time, plus the total number of shares of IDX Preferred Stock issuable upon the exercise or settlement of all IDX Preferred Warrants as
of immediately prior to the IDX Effective Time.
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“IDX Material Adverse Effect” means, any change, event,
circumstance, occurrence, effect, development or state of facts that, individually or in the aggregate, with any other change, event, circumstance, occurrence, effect, development or state of facts, either (a) has a material adverse effect on
the business, assets, operations, results of operations or financial condition of IDX and its Subsidiaries, taken as a whole, or (b) prevents or materially delays or materially impacts the ability of IDX or its Subsidiaries to consummate all or
any of the Transactions or would reasonably be expected to have any such effect; provided, however, that none of the following, alone or in combination, shall be taken into account in determining whether an IDX Material Adverse
Effect has occurred: (i) changes or proposed changes in applicable Law, regulations or interpretations thereof or decisions by any Governmental Authority after the date of this Agreement (including COVID-19 Measures); (ii) changes or proposed
changes in GAAP (or any official interpretation thereof) after the date of this Agreement; (iii) any downturn in general economic conditions, including changes in the credit, debt, securities, financial, capital or reinsurance markets
(including changes in interest or exchange rates, prices of any security or market index or commodity or any disruption of such markets), in each case, in the United States or anywhere else in the world; (iv) any earthquake, hurricane, tornado,
pandemic or other natural or man-made disaster; (v) the taking of any action required by this Agreement; (vi) any acts of terrorism (including cyberterrorism) or war, the outbreak or escalation of hostilities, geopolitical conditions, local,
national or international political conditions; (vii) any failure of IDX to meet any projections or forecasts (provided that this clause (vii) shall not prevent a determination that any event not otherwise excluded from this definition
of IDX Material Adverse Effect underlying such failure to meet projections or forecasts has resulted, or would reasonably be expected to result in, an IDX Material Adverse Effect); (viii) any changes, events, circumstances, occurrences, effects
or developments generally applicable to the industries or markets in which IDX and its Subsidiaries operate (including increases in the cost of products, supplies, materials or other goods purchased from third party suppliers); (ix) the
announcement of this Agreement or consummation of the Transactions, including any termination of, reduction in or similar adverse impact (but in each case only to the extent attributable to such announcement or consummation) on relationships,
contractual or otherwise, with any landlords, customers, suppliers, distributors, partners or employees of IDX and its Subsidiaries; or (x) any action taken, or failures to take action, or such other changes or events, in each case by, or at
the request of, any Acquiror Party; provided, further, that any change, event, circumstance, occurrence, effect, development or state of facts referred to in the foregoing clauses (i), (ii), (iv), (vi) and (viii) shall be taken
into account in determining whether an IDX Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such change, event, circumstance, occurrence, effect, development or state of facts has a
disproportionate impact on IDX and its Subsidiaries (taken as a whole), as compared to other industry participants.
“IDX Material Contracts” has the meaning specified in Section
4.13(a).
“IDX Merger” has the meaning specified in the Recitals hereto.
“IDX Merger Sub” has the meaning specified in the Preamble
hereto.
“IDX Most Recent Balance Sheet” has the meaning specified in Section
4.08(e).
“IDX Negative Adjustment Amount” means the sum of (a) the IDX
Debt Amount, plus (b) any IDX Closing Working Capital Shortfall, minus (c) the IDX Cash Amount, but only to the extent such sum is positive.
“IDX Option” means each option to purchase shares of IDX
Common Stock granted pursuant to the IDX 2016 Stock Option and Grant Plan, as effective July 29, 2016, or the IDX 2017 Equity Incentive Plan, as amended effective November 18, 2017, or otherwise.
“IDX Option Plans” means the IDX 2016 Stock Option and Grant
Plan and the IDX 2017 Equity Incentive Plan, each as amended from time to time.
“IDX Positive Adjustment Amount” means the sum of (a) the IDX
Cash Amount, minus (b) the IDX Debt Amount, minus (c) any IDX Closing Working Capital Shortfall, but only to the extent such sum is positive.
“IDX Pre-Closing Holder” means each Person who holds IDX
Capital Stock immediately prior to the IDX Effective Time.
“IDX Preferred Stock” means the IDX Series A-1 Preferred
Stock, IDX Series A-2 Preferred Stock, and IDX Series B Preferred Stock.
“IDX Preferred Warrant” has the meaning specified in the
defined term “IDX Warrant”.
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“IDX Series A-1 Preferred Stock” means the preferred stock
of IDX, par value $0.0001 per share, designated in the IDX Certificate of Incorporation as Series A-1 Preferred Stock, with all the rights, preferences and privileges set forth in the IDX Certificate of Incorporation.
“IDX Series A-2 Preferred Stock” means the preferred stock of
IDX, par value $0.0001 per share, designated in the IDX Certificate of Incorporation as Series A-2 Preferred Stock, with all the rights, preferences and privileges set forth in the IDX Certificate of Incorporation.
“IDX Series B Preferred Stock” means the preferred stock of
IDX, par value $0.0001 per share, designated in the IDX Certificate of Incorporation as Series B Preferred Stock, with all the rights, preferences and privileges set forth in the IDX Certificate of Incorporation.
“IDX Total Per Share Consideration” means a number of shares
of Acquiror Common Stock equal to (a) the IDX Closing Stock Per Share Consideration plus (b) a number of shares of Acquiror Common Stock equal to (i) the IDX Closing Cash Per Share Consideration, divided by (ii) the Acquiror Closing Stock Price.
“IDX Total Preferred Per Share Consideration” means a number
of shares of Acquiror Common Stock equal to (a) the IDX Closing Stock Per Share Consideration plus (b) a number of shares of Acquiror Common Stock equal to (i) the IDX Closing Cash Per Share
Consideration, plus the IDX Liquidation Preference, divided by (ii) the Acquiror Closing Stock Price.
“IDX Transaction Expenses” means all fees, costs and expenses
of IDX and its Subsidiaries collectively incurred prior to and through the Closing Date in connection with the negotiation, preparation and execution of this Agreement, the other Transaction Agreements, the performance and compliance with all
Transaction Agreements and conditions contained herein and therein to be performed or complied with at or before Closing, and the consummation of the Transactions and any other transactions contemplated by the Transaction Agreements, to the
extent unpaid as of the Closing, including (a) the fees, costs, expenses and disbursements of counsel, accountants, advisors and consultants of IDX and its Subsidiaries (including, for the avoidance of doubt, any fees, costs and expenses
related to the Investments), and (b) all severance, transaction-related bonuses, stay bonuses, retention awards, termination and change in control payments or other similar payments or benefits that become vested or payable upon or in
connection with the consummation of the Transactions to any current or former contractor, employee, consultant or other individual service provider of IDX by IDX or any of its Subsidiaries or Affiliates (including the employer portion of any
payroll, employment or similar Taxes associated with the foregoing), including, for the avoidance of doubt, any amounts payable in connection with the arrangements specified in Section 6.10.
“IDX Warrant” means each of (i) the Amended and Restated
Warrant to Purchase IDX Common Stock, dated as of August 2, 2016, by and between IDX and Escalate Capital Partners SBIC III, LP (the “IDX Common Warrant”), and (ii) the Warrant to Purchase IDX Preferred Stock, dated as of
December 18, 2018, by and between IDX and Escalate Capital Partners SBIC III, LP (the “IDX Preferred Warrant”).
“IDX Written Consent” has the meaning specified in Section
6.07.
“Incentive Equity Plan” has the meaning specified in Section
7.06.
“Indebtedness” means, with respect to any Person as of any
time, without duplication, (i) the outstanding principal amount of and accrued and unpaid interest on, and other payment obligations for, all indebtedness for borrowed money of such Person or indebtedness issued by such Person in substitution
or exchange for borrowed money, (ii) all indebtedness evidenced by any note, bond, debenture, mortgage or other debt instrument or debt security, in each case, as of such time of such Person, (iii) all obligations for the deferred purchase
price of property or other services (other than trade payables incurred in the ordinary course of business that are not past due), (iv) all obligations as lessee that are required to be capitalized in accordance with GAAP, (v) all obligations
of such Person for the reimbursement of any obligor on any line or letter of credit, banker’s acceptance, guarantee or similar credit transaction, in each case, to the extent drawn or claimed against, (vi) all interest rate and currency swaps,
caps, collars and similar agreements or hedging devices under which payments are obligated to be made by such Person, whether periodically or upon the happening of a contingency, (vii) any premiums, prepayment fees or other penalties, fees,
costs or expenses associated with payment of any Indebtedness of such Person, (viii) any unpaid severance, bonuses or other similar payments or benefits and any obligations arising from unfunded deferred compensation or pension obligations
(whether or not accrued), in each case, together with the employer portion of any payroll, social security, unemployment or similar Taxes associated with the
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foregoing, (ix) deferrals of payroll Taxes pursuant to the CARES Act, and (x) all
obligations of the type referred to in clauses (i) through (ix) of this definition of any other Person, the payment of which such Person is responsible or liable, directly or indirectly, as obligor, guarantor, surety or
otherwise, including any guarantee of such obligations. Notwithstanding anything to the contrary contained herein, “Indebtedness” of any Person shall not include any item that would otherwise constitute “Indebtedness” of such Person that is an
obligation between such Person and any wholly-owned Subsidiary of such Person or between any two or more wholly-owned Subsidiaries of such Person, and “Indebtedness” of IDX shall not include any IDX Transaction Expenses or any items that would
otherwise constitute “Indebtedness” of IDX with respect to any equipment leases existing as of the date hereof and set forth on Schedule 4.09(b).
“Intellectual Property” means all intellectual property
rights, in any jurisdiction in the world, including: (i) patents, patent applications and patent disclosures and improvements thereto together with all reissuances, continuations, continuations-in-part, divisions, revisions, extensions, and
reexaminations thereof, (ii) trademarks, service marks, brand names, certification marks, trade dress, trade names, corporate names, logos and slogans, designs and Internet domain names, and any other indicia of source or origin together with
all goodwill associated with each of the foregoing, (iii) copyrights and copyrightable works and works of authorship, (iv) intellectual property rights in Software (including object code and source code), (v) intellectual property rights in
data, database, and collections of data, (vi) intellectual property rights in usernames, keywords, tags, and other social media identifiers and accounts for all third-party social media sites, (vii) Trade Secrets and know-how and intellectual
property rights in data and databases, (viii) rights of publicity and commercial rights to a personal name, and (ix) any other registrations and applications for any item referenced in any of the foregoing clauses and all rights in and to any
item referenced in any of the foregoing clauses.
“Intended Income Tax Treatment” has the meaning specified in
the Recitals hereto.
“Interim Period” has the meaning specified in Section 6.01.
“Investment Amount” has the meaning specified in the Recitals
hereto.
“Investment Company Act” has the meaning specified in Section
5.06.
“Investments” has the meaning specified in the Recitals
hereto.
“Investors” has the meaning specified in the Recitals hereto.
“IPO” has the meaning specified in Section 6.03.
“IPO Prospectus” has the meaning specified in Section 5.06.
“IRS” has the meaning specified in Section 4.14(b).
“IT Systems” means, with respect to a Company Party, Software,
computer firmware or middleware, computer hardware, electronic data processing and telecommunications networks, network equipment, interfaces, platforms, peripherals, computer systems, co-location facilities, including any outsourced systems
and processes, in each case, that are owned, leased, licensed by, or otherwise relied on by such Company Party or any of its Subsidiaries.
“ITGS” means Identity Theft Guard Solutions, Inc., a Delaware
corporation and wholly-owned Subsidiary of IDX.
“JOBS Act” has the meaning specified in Section 8.07.
“Key Employee” means the following Company Party Employees, as
applicable: (i) for ZF, James C. Foster, Mike Price, Kevin Reardon, Tim Bender and John Prestridge and (ii) for IDX, Jonathan Boston, Brian Cleaver, Denyl Green, Ian Kelly, Jorge Zelaya, Brent VanLoo and Doug Pollack.
“L&F Holdings” has the meaning specified in the Preamble
hereto.
“Law” means any statute, act, code, law (including common
law), ordinance, rule, regulation or Governmental Order, in each case, of any Governmental Authority.
“Leased Real Property” means all leasehold or subleasehold
estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures or other interest in real property held by either Company Party or its Subsidiaries.
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“Leases” has the meaning specified in Section 4.22(a).
“Letter of Transmittal” has the meaning specified in Section
3.11(c).
“Licensed Intellectual Property” has the meaning specified
in Section 4.23(a).
“Lien” means any mortgage, deed of trust, pledge,
hypothecation, encumbrance, easement, license, option, right of first refusal, security interest or other lien of any kind.
“Listing Proposal” has the meaning specified in the defined
term “Acquiror Shareholder Matters”.
“Losses” means all losses, damages, judgments, awards, Taxes,
penalties, settlements and reasonable expenses (including reasonable attorneys’ fees); provided, that “Losses” shall not include any punitive damages other than to the extent payable to a third party in connection with a
third-party claim.
“Majority Acquiror Shareholder Approval” means, (a) with
respect to any Acquiror Shareholder Matter other than the Domestication Proposal, Charter Proposal and Director Election Proposal, the affirmative vote of holders of at least a majority of the shares of Pre-Domestication Acquiror Ordinary
Shares and Pre-Domestication Acquiror Class B Shares, voting together as a single class, cast at the Special Meeting at which a quorum is present, and (b) with respect to the Director Election Proposal, the affirmative vote of holders of at
least a majority of the shares of Pre-Domestication Acquiror Class B Shares cast at the Special Meeting at which a quorum is present.
“Malicious Code” means any (i) “back door,” “drop dead
device,” “time bomb,” “Trojan horse,” “virus,” “ransomware,” or “worm” (as such terms are commonly understood in the software industry), or (ii) other code designed or intended to have, or capable of performing, any of the following functions:
(a) disrupting, disabling, harming, interfering with or otherwise impeding in any manner the operation of, or providing unauthorized access to, an IT System on which such code is stored or installed; or (b) damaging or destroying any data or
file without consent or knowledge.
“Mergers” have the meaning specified in the Recitals hereto.
“Most Favored Customer” means the customer or category of
customers, as applicable, disclosed as the Company Group’s most favored customer to the General Services Administration in connection with the award of GSA Schedule Contract No. GS-23F-0037T.
“Multiemployer Plan” has the meaning specified in Section
4.14(g).
“NASDAQ” means The Nasdaq Global Select Market, The Nasdaq
Global Market or The Nasdaq Capital Market.
“New Plan” has the meaning specified in Section 7.11(b).
“NYSE” means the New York Stock Exchange.
“OFAC” has the meaning specified in the defined term “Sanctions
Laws”.
“Open Source Code” has the meaning specified in Section
4.23(e).
“OPM” has the meaning specified in Section 4.32.
“OPM BPA” has the meaning specified in Section 4.32.
“Organizational Documents” has the meaning specified in Section
4.01.
“Owned Intellectual Property” means, with respect to a Company
Party, all Intellectual Property that is owned or purported to be owned by such Company Party or any of its Subsidiaries.
“Owned Software” has the meaning specified in Section
4.23(e).
“Ownership Allocation” means, with respect to each holder of
ZF Common Stock, ZF Restricted Shares, IDX Common Stock, ZF Preferred Stock, IDX Preferred Stock, ZF Options (whether vested or not vested), IDX Options (whether vested or not vested), ZF Warrants, and IDX Warrants, in each case, as of
immediately prior to the Effective Time, the percentage set forth opposite the name of such holder in the Spreadsheet under the heading “Ownership Allocation” (subject to update, to the extent necessary, pursuant to Section 3.12).
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“Party” and “Parties” have the meanings specified in
the Preamble hereto.
“PCAOB” means the Public Company Accounting Oversight Board.
“Permits” has the meaning specified in Section 4.11.
“Permitted Liens” means (i) statutory or common law Liens of
mechanics, materialmen, warehousemen, landlords, carriers, repairmen, construction contractors and other similar Liens that arise in the ordinary course of business, and that relate to amounts not yet delinquent or that are being contested in
good faith through appropriate Actions, in each case only to the extent appropriate reserves have been established in accordance with GAAP, (ii) Liens arising under original purchase price conditional sales contracts and equipment leases with
third parties entered into in the ordinary course of business, (iii) Liens for Taxes not yet due and payable or which are being contested in good faith through appropriate Actions and for which appropriate reserves have been established in
accordance with GAAP, (iv) Liens, encumbrances and restrictions on real property (including defects or imperfections of title, easements, encroachments, covenants, rights of way, conditions, and similar restrictions of record) that (a) are
matters of record and (b) do not materially interfere with the present uses of such real property, (v) non-exclusive licenses of Intellectual Property entered into in the ordinary course of business, (vi) other Liens arising in the ordinary
course of business and not incurred in connection with the borrowing of money in connection with workers’ compensation, unemployment insurance or other types of social security, (vii) Liens securing obligations under the Comerica Credit
Facility, (viii) Liens securing obligations under the ZF Orix LSA or the ZF Stifel LSA, and (ix) Liens incurred in the ordinary course of business consistent with past practice, including security deposits.
“Person” means any individual, firm, corporation, partnership,
limited liability company, incorporated or unincorporated association, joint venture, joint stock company, Governmental Authority or other entity of any kind.
“Personal Information” means any data or other information
that is defined as “personal data,” “personally identifiable information,” “individually identifiable health information,” “protected health information,” “medical information,” “personal information”, or similar term under any applicable Law,
including any such data or information that alone or in combination with other information, identifies, relates to, describes, is reasonably capable of being associated with, or could reasonably be linked, directly or indirectly, with an
identified or identifiable individual or natural person, consumer, household or device, including any personally identifiable data (e.g., name, address, geolocation information, Internet Protocol (IP) address, financial account number, payment
card data, government-issued identifier, health or medical information, cookies, and unique device identifiers).
“PIPE Investment” has the meaning specified in the Recitals
hereto.
“PIPE Investment Amount” has the meaning specified in the
Recitals hereto.
“PIPE Investors” has the meaning specified in the Recitals
hereto.
“PIPE Subscription Agreements” has the meaning specified in
the Recitals hereto.
“Plan Termination Date” has the meaning specified in Section
7.11(d).
“PRC” has the meaning specified in Section 4.32.
“Pre-Closing Holders” means, collectively, the ZF Pre-Closing
Holders and the IDX Pre-Closing Holders.
“Pre-Domestication Acquiror Class B Shares” has the meaning
specified in the Recitals hereto.
“Pre-Domestication Acquiror Ordinary Shares” has the meaning
specified in the Recitals hereto.
“Pre-Domestication Acquiror Warrant” has the meaning specified
in the Recitals hereto.
“Privacy and Security Laws” means all applicable Laws
concerning data protection, privacy, or data security with respect to the Processing of Personal Information (including any security breach notification requirements), which may, as applicable, include the Health Insurance Portability and
Accountability Act (HIPAA), the Health Information Technology for Economic and Clinical Health (HITECH) Act, the Gramm-Leach-Bliley Act (GLBA), the Fair Credit Reporting Act (FCRA), the Fair and Accurate Credit Transaction Act (FACTA), the
Privacy Act of 1974, the CAN-SPAM Act, the Telephone Consumer Protection Act
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(TCPA), the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Family
Educational Rights and Privacy Act (FERPA), the Children’s Online Privacy Protection Act (COPPA), state Social Security number protection Laws, state data breach notification Laws, the California Consumer Privacy Act (CCPA), the Privacy and
Electronic Communications (EC Directive) Regulations 2003, the Data Protection (Processing of Sensitive Personal Data) Order 2000, the Regulation 2016/679 of the European Parliament and of the Council of 27 April 2016 (also referred to as the
General Data Protection Regulation or GDPR), the UK Data Protection Act 2018, the Dutch Personal Data Protection Act (WBP), the United Kingdom’s Data Protection Act 1998 (DPA) and Alberta’s Personal Information Protection Act.
“Privacy and Security Requirements” means, with respect to a
Company Party, any of the following to the extent relating to data privacy, data protection, or data security with respect to the Processing of Personal Information: (a) all Privacy and Security Laws (including security breach notification
requirements), (b) such Company Party’s and its Subsidiaries’ own internal or external-facing privacy policies, (c) binding industry standards and codes of conduct with which such Company Party and its Subsidiaries have represented compliance
(including the Payment Card Industry Data Security Standard, if applicable), and (d) any obligations under any Contracts of such Company Party and its Subsidiaries.
“Pro Rata Basis” shall mean, with respect to each Sponsor
Holder, in accordance with the ratio calculated by dividing (i) the number of shares of Acquiror Common Stock held by such Sponsor Holder (after giving effect to the Sponsor Holders Class B Conversion)
as of immediately following the Closing by (ii) the aggregate number of shares of Acquiror Common Stock held by all of the Sponsor Holders (after giving effect to the Sponsor Holders Class B Conversion)
as of immediately following the Closing.
“Processing” means the collection, use, storage, processing,
recording, distribution, transfer, import, export, protection (including security measures), disposal or disclosure or other activity regarding data (whether electronically or in any other form or medium), including Personal Information.
“Proxy Statement/Prospectus” has the meaning specified in Section
8.02(a)(i).
“Public Shareholders” has the meaning specified in Section
6.03.
“RBP” has the meaning specified in the defined term “ZF
Orix LSA”.
“Registered Intellectual Property” has the meaning specified
in Section 4.23(a).
“Registration Statement” has the meaning specified in Section
8.02(a)(i).
“Released Claims” has the meaning specified in Section
6.03.
“Representative” means, as to any Person, any of the officers,
directors, managers, employees, counsel, accountants, financial advisors, and consultants of such Person.
“Required Acquiror Shareholder Approval” means the approval of
each Required Transaction Proposal by the affirmative vote of the holders of the requisite number of Pre-Domestication Acquiror Ordinary Shares and Pre-Domestication Acquiror Class B Shares entitled to vote thereon, who attend and vote, whether
in person or by proxy at the Special Meeting (or any adjournment or postponement thereof), in accordance with the Acquiror Organizational Documents, the rules and regulations of the NYSE or NASDAQ, as applicable, and applicable Law.
“Required IDX Stockholder Approval” means the approval and
adoption of this Agreement and the Transactions by the written consent of the holders of a majority in voting power of (i) the outstanding shares of IDX Capital Stock and (ii) the outstanding shares of IDX Series A-1 Preferred Stock and IDX
Series A-2 Preferred Stock voting together as one class and on an as-converted basis, in each case in accordance with the IDX Certificate of Incorporation and applicable Law.
“Required Transaction Proposals” means, collectively, the
Domestication Proposal, the Business Combination Proposal, the Listing Proposal, the Equity Incentive Plan Proposal, the Charter Proposal, the Bylaws Proposal and the Director Election Proposal.
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“Required ZF Mandatory Conversion Approval” means the
approval of the ZF Mandatory Conversion by (i) the holders of at least a majority of the then-outstanding shares of ZF Preferred Stock, voting together as a single class on an as-converted basis, and (ii) the holders of at least a majority of
the then-outstanding shares of ZF Combined Series D Preferred Stock, voting together as a single class on an as-converted basis.
“Required ZF Stockholder Approval” means (i) the approval and
adoption of this Agreement and the Transactions by the written consent of the holders of a majority in voting power of (a) the outstanding shares of ZF Common Stock and the ZF Preferred Stock voting together as a single class on an as-converted
basis and (b) the outstanding shares of ZF Preferred Stock voting together as one class and on an as-converted basis, in each case in accordance with the ZF Certificate of Incorporation and applicable Law and (ii) the Required ZF Mandatory
Conversion Approval.
“Sanctioned Country” means any country or region that is or
has in the past five years been the subject or target of a comprehensive embargo under Sanctions Laws (including Cuba, Iran, North Korea, Sudan, Syria, Venezuela and the Crimea region of Ukraine).
“Sanctioned Person” means any individual or entity that is the
subject or target of applicable sanctions or restrictions under Sanctions Laws or export-import Laws, including: (i) any Person listed on any applicable U.S. or non-U.S. sanctions- or export-related restricted or prohibited party list,
including OFAC’s Specially Designated Nationals and Blocked Persons List, OFAC’s Sectoral Sanctions Identification List, the Entity, Denied Persons and Unverified Lists maintained by the U.S. Department of Commerce; (ii) any Person that is, in
the aggregate, 50% or greater owned, directly or indirectly, or otherwise controlled by a Person or Persons described in clause (i); or (iii) any national of a Sanctioned Country.
“Sanctions Laws” means all applicable U.S. and non-U.S. Laws
relating to economic or trade sanctions, including the Laws administered or enforced by the United States (including by the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”), U.S. Department of Commerce, or the
U.S. Department of State), and the United Nations Security Council.
“Schedules” means the disclosure schedules of the Company
Parties or Acquiror, as applicable.
“SEC” means the United States Securities and Exchange
Commission.
“SEC Reports” has the meaning specified in Section 5.08(a).
“Securities Act” means the Securities Act of 1933, as amended.
“Securities Laws” means the securities laws of any state,
federal or foreign entity and the rules and regulations promulgated thereunder.
“Signing Filing” has the meaning specified in Section
8.05(c).
“Signing Press Release” has the meaning specified in Section
8.05(c).
“Software” means software, technology, technical data, and
computer programs, whether in source code or object code form, and including (i) software implementations of algorithms, models, and methodologies, firmware, application programming interfaces, (ii) descriptions, schematics, specifications,
flow charts and other work product used to design, plan, organize and develop any of the foregoing, and (iii) documentation, including user documentation, user manuals and training materials, files, and records relating to any of the foregoing.
“Special Meeting” has the meaning specified in Section
8.02(b).
“Specified Employees” means with respect to a Company Party,
each Company Party Employee, officer, director, or other independent contractor of such Company Party or any of its Subsidiaries, whose target annual cash compensation exceeds $250,000.
“Sponsor” means JAR Sponsor, LLC, a Delaware limited liability
company.
“Sponsor Holders” shall mean Sponsor, Albert Goldstein and
Joseph Lieberman.
“Sponsor Holders Class B Conversion” has the meaning specified
in the Recitals hereto.
“Sponsor Holders Earnout Shares” has the meaning specified in
Section 3.10(a).
“Sponsor Support Letter Agreement” has the meaning specified
in the Recitals hereto.
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“Sponsor Working Capital Loan” means any loan made to
Acquiror by any of the Sponsor, an Affiliate of the Sponsor of any of Sponsor’s officers or directors, and evidenced by a promissory note or other Contract, for the purpose of financing expenses incurred in connection with a business
combination, provided that the aggregate principal amount of all Sponsor Working Capital Loans shall not exceed $2,000,000, the interest rate on any Sponsor Working Capital Loan shall not exceed 5% per annum, and provided further,
that any Sponsor Working Capital Loan may only be repayable in cash as an Acquiror Transaction Expense and may not be settled or converted into Acquiror Warrants or other Equity Securities of Acquiror.
“Spreadsheet” has the meaning specified in the Recitals.
“Stockholder Ownership Allocation” means, with respect to each
ZF Pre-Closing Holder and IDX Pre-Closing Holder, in each case, as of immediately prior to the Effective Time, the percentage set forth opposite the name of such ZF Pre-Closing Holder and IDX Pre-Closing Holder in the Spreadsheet under the
heading “Stockholder Ownership Allocation” (subject to update, to the extent necessary, pursuant to Section 3.12).
“Subscription Agreements” has the meaning specified in the
Recitals hereto.
“Subsidiary” means, with respect to a Person, any corporation
or other organization (including a limited liability company or a partnership), whether incorporated or unincorporated, of which such Person directly or indirectly owns or controls a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization or any organization of which such Person or any of its Subsidiaries is,
directly or indirectly, a general partner or managing member.
“Supermajority Acquiror Shareholder Approval” means, with
respect to the Domestication Proposal and the Charter Proposal only, the affirmative vote of holders of a majority of at least two-thirds of the shares of Pre-Domestication Acquiror Ordinary Shares and Pre-Domestication Acquiror Class B Shares,
voting together as a single class cast at the Special Meeting at which a quorum is present.
“Surviving Entities” means, collectively, ZF and the
Surviving IDX Entity.
“Surviving IDX Entity” has the meaning specified in the
Recitals hereto.
“Surviving Provisions” has the meaning specified in Section
10.02.
“Tax” means (i) any federal, state, provincial, territorial,
local, foreign and other tax, charge, impost, levy, duty, or governmental assessment of any kind in the nature of a tax, including alternative or add-on minimum, net income, franchise, gross income, adjusted gross income, gross receipts,
employment related (including employee withholding or employer payroll), ad valorem, transfer, franchise, license, sales, use, excise, severance, stamp, occupation, premium, personal property, real property, capital stock, profits, disability,
registration, value added, or estimated tax, together with any interest, penalty, addition to tax or additional amount imposed with respect thereto (or in lieu thereof), (ii) any liability for, or in respect of, any item described in clause
(i) of this definition as a result of being a member of an affiliated, combined, consolidated, unitary or other group for Tax purposes, including under Treasury Regulations Section 1.1502-6 (or any similar or corresponding provision of
state, local or foreign Law), and (iii) any liability for, or in respect of, any item described in clauses (i) or (ii) of this definition as a transferee or successor.
“Tax Proceeding” has the meaning specified in Section
8.04(d).
“Tax Return” means any return, report, statement, refund
claim, declaration, information return, estimate or other document filed or required to be filed in respect of Taxes, including any schedule or attachment thereto and including any amendments thereof.
“Terminating 401(k) Plan” has the meaning specified in Section
7.11(d).
“Termination Date” has the meaning specified in Section
10.01(c).
“Trade Controls” has the meaning specified in Section
4.30(a).
“Trade Secrets” means, collectively, trade secrets, know-how,
confidential research and development information, formulae, confidential price and cost information, processes, and other confidential information or proprietary rights.
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“Transaction Agreements” shall mean this Agreement, the
Convertible Notes, the Convertible Notes Indenture, the Sponsor Support Letter Agreement, the Subscription Agreements, the A&R Registration Rights Agreement, the Acquiror Charter, the Acquiror Bylaws, and all the agreements, documents,
instruments and certificates entered into in connection herewith or therewith and any and all exhibits and schedules thereto.
“Transaction Litigation” has the meaning specified in Section
8.01(d).
“Transactions” means the transactions, other than the
Domestication, contemplated by this Agreement to occur at or immediately prior to the Closing, including the Mergers.
“Transfer Taxes” has the meaning specified in Section
8.04(b).
“Transitional IDX Entity” has the meaning specified in the
Recitals hereto.
“Treasury Regulations” means the regulations promulgated
under the Code.
“Triggering Event I” shall mean the first date on which the
Common Share Price is equal to or greater than $12.50 after the Closing Date, but within the Earnout Period; provided, that (i) in the event of a Change of Control pursuant to which Acquiror’s stockholders receive, or have the right to
receive, cash, securities or other property attributing a value of at least $12.50 to each share of Acquiror Common Stock (as agreed in good faith by Sponsor and the board of directors of Acquiror), then Triggering Event I shall be deemed to
have occurred and (ii) in the event that, and as often as, the number of outstanding shares of Acquiror Common Stock is changed by reason of any dividend, subdivision, reclassification, recapitalization, split, combination, exchange or any
similar event, then the applicable Common Share Price threshold (i.e., $12.50) will, for all purposes of this Agreement (and the Sponsor Support Letter
Agreement), in each case be equitably adjusted to reflect such change.
“Triggering Event II” shall mean the first date on which the
Common Share Price is equal to or greater than $15.00 after the Closing Date, but within the Earnout Period; provided, that (i) in the event of a Change of Control pursuant to which Acquiror’s stockholders receive, or have the right to
receive, cash, securities or other property attributing a value of at least $15.00 to each share of Acquiror Common Stock (as agreed in good faith by Sponsor and the board of directors of Acquiror), then Triggering Event II shall be deemed to
have occurred and (ii) in the event that, and as often as, the number of outstanding shares of Acquiror Common Stock is changed by reason of any dividend, subdivision, reclassification, recapitalization, split, combination, exchange or any
similar event, then the applicable Common Share Price threshold (i.e., $15.00) will, for all purposes of this Agreement (and the Sponsor Support Letter
Agreement), in each case be equitably adjusted to reflect such change.
“Triggering Event III” shall mean the first date on which the
Common Share Price is equal to or greater than $17.50 after the Closing Date, but within the Earnout Period; provided, that (i) in the event of a Change of Control pursuant to which Acquiror’s stockholders receive, or have the right to
receive, cash, securities or other property attributing a value of at least $17.50 to each share of Acquiror Common Stock (as agreed in good faith by Sponsor and the board of directors of Acquiror), then Triggering Event III shall be deemed to
have occurred and (ii) in the event that, and as often as, the number of outstanding shares of Acquiror Common Stock is changed by reason of any dividend, subdivision, reclassification, recapitalization, split, combination, exchange or any
similar event, then the applicable Common Share Price threshold (i.e., $17.50) will, for all purposes of this Agreement (and the Sponsor Support Letter
Agreement), in each case be equitably adjusted to reflect such change.
“Triggering Events” shall mean Triggering Event I, Triggering
Event II and Triggering Event III, collectively.
“Trust Account” has the meaning specified in Section 5.06.
“Trust Agreement” has the meaning specified in Section
5.06.
“Trustee” has the meaning specified in Section 5.06.
“Units” has the meaning specified in Section 5.12.
“Updated Acquiror Closing Statement” has the meaning specified
in Section 3.06(a).
“Updated IDX Closing Statement” has the meaning specified in Section
3.06(c).
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“Updated ZF Closing Statement” has the meaning specified in
Section 3.06(b).
“US ZF Subsidiaries” has the meaning specified in the
defined term “ZF Orix LSA”.
“VigilanteATI” has the meaning specified in the defined term
“ZF Orix LSA”.
“Waived 280G Benefits” has the meaning specified in Section
6.11.
“WARN Act” means the Worker Adjustment and Retraining
Notification Act of 1988, as amended, or any similar Laws.
“Warrant Agreement” means the Warrant Agreement, dated as of
November 23, 2020, by and between Acquiror and Continental Stock Transfer & Trust Company (as amended or amended and restated from time to time).
“Written Consents” has the meaning specified in Section
6.07.
“ZF” has the meaning specified in the Preamble hereto.
“ZF Assumed Warrant” has the meaning specified in Section
3.01(c).
“ZF Audited Financial Statements” has the meaning specified in
Section 4.08(a).
“ZF Benefit Plan” has the meaning specified in Section
4.14(a).
“ZF Board Recommendation” has the meaning specified in Section
6.07.
“ZF Cancelled Shares” has the meaning specified in Section
3.01(a).
“ZF Capital Stock” means the ZF Common Stock and the ZF
Preferred Stock.
“ZF Certificate of Incorporation” means the Amended and
Restated Certificate of Incorporation of ZF, dated as of September 30, 2020, as amended from time to time.
“ZF Certificate of Merger” has the meaning specified in Section
2.02(a).
“ZF Chile” has the meaning specified in the defined term “ZF
Orix LSA”.
“ZF Closing Statement” has the meaning specified in Section
3.06(b).
“ZF Closing Stock Consideration” means a number of shares of
Acquiror Common Stock equal to (i) $866,250,000 divided by (ii) $10 (as appropriately adjusted as provided in Section 1.04).
“ZF Closing Stock Per Share Consideration” means a number of
shares of Acquiror Common Stock equal to (i) the ZF Closing Stock Consideration divided by (ii) the ZF Fully Diluted Shares of Stock.
“ZF Combined Series D Preferred Stock” means the ZF Series D
Preferred Stock, ZF Series D-1 Preferred Stock and ZF Series D-2 Preferred Stock.
“ZF Common Stock” means the common stock of ZF, par value
$0.00001 per share, with all the rights, preferences and privileges set forth in the ZF Certificate of Incorporation.
“ZF Confidentiality Agreement” has the meaning specified in Section
11.09.
“ZF Dissenting Shares” has the meaning specified in Section
3.01(f).
“ZF Effective Time” has the meaning specified in Section
2.02(a).
“ZF Financial Statements” has the meaning specified in Section
4.08(a).
“ZF Foreign Plan” has the meaning specified in Section
4.14(k).
“ZF Fully Diluted Shares of Stock” means the sum of (i) the
total number of shares of ZF Common Stock (excluding unvested ZF Restricted Shares) issued and outstanding immediately prior to the ZF Effective Time (after giving effect to the ZF Mandatory Conversion), plus
(ii) the total number of shares of ZF Common Stock issuable upon the exercise of all vested ZF Options that are outstanding immediately prior to the ZF Effective Time (including after giving effect to any acceleration of any unvested ZF Options
in connection with the consummation of the Transactions), plus (iii) the total number of shares of ZF Common Stock issuable upon the exercise or settlement of all ZF Warrants (whether or not then vested
or exercisable) that are outstanding
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immediately prior to the ZF Effective Time (and which are assumed and converted into
ZF Assumed Warrants), in each case of clauses (ii) and (iii), determined on a net exercise basis. For purposes of determining the number of shares of ZF Common Stock on a net exercise basis under clauses (ii) and (iii), the per-share value of
the ZF Common Stock shall be equal to the (A) the sum of (1) $866,250,000 plus (2) the aggregate exercise price of all vested ZF Options that are outstanding immediately prior to the ZF Effective Time
(including after giving effect to any acceleration of any unvested ZF Options in connection with the consummation of the Transactions) and all ZF Warrants (whether or not then vested or exercisable) that are outstanding immediately prior to the
ZF Effective Time (and which are assumed and converted into ZF Assumed Warrants), divided by (B) the ZF Fully Diluted Shares of Stock determined as if the words “net exercise basis” were replaced with
the words “cash exercise basis.”
“ZF India” has the meaning specified in the defined term “ZF
Orix LSA”.
“ZF Interim Financial Statements” has the meaning specified
in Section 4.08(a).
“ZF Knowledge Parties” has the meaning specified in Section
1.03.
“ZF Mandatory Conversion” means the conversion of the ZF
Preferred Stock into shares of ZF Common Stock immediately prior to Closing in accordance with Article Fourth, Section B, Sub-Section 5.1 of the ZF Certificate of Incorporation.
“ZF Material Adverse Effect” means, any change, event,
circumstance, occurrence, effect, development or state of facts that, individually or in the aggregate, with any other change, event, circumstance, occurrence, effect, development or state of facts, either (a) has a material adverse effect on
the business, assets, operations, results of operations or financial condition of ZF and its Subsidiaries, taken as a whole, or (b) prevents or materially delays or materially impacts the ability of ZF or its Subsidiaries to consummate all or
any of the Transactions or would reasonably be expected to have any such effect; provided, however, that none of the following, alone or in combination, shall be taken into account in determining whether a ZF Material Adverse
Effect has occurred: (i) changes or proposed changes in applicable Law, regulations or interpretations thereof or decisions by any Governmental Authority after the date of this Agreement (including COVID-19 Measures); (ii) changes or proposed
changes in GAAP (or any official interpretation thereof) after the date of this Agreement; (iii) any downturn in general economic conditions, including changes in the credit, debt, securities, financial, capital or reinsurance markets
(including changes in interest or exchange rates, prices of any security or market index or commodity or any disruption of such markets), in each case, in the United States or anywhere else in the world; (iv) any earthquake, hurricane, tornado,
pandemic or other natural or man-made disaster; (v) the taking of any action required by this Agreement; (vi) any acts of terrorism (including cyberterrorism) or war, the outbreak or escalation of hostilities, geopolitical conditions, local,
national or international political conditions; (vii) any failure of ZF to meet any projections or forecasts (provided that this clause (vii) shall not prevent a determination that any event not otherwise excluded from this definition of
ZF Material Adverse Effect underlying such failure to meet projections or forecasts has resulted, or would reasonably be expected to result in, a ZF Material Adverse Effect); (viii) any changes, events, circumstances, occurrences, effects or
developments generally applicable to the industries or markets in which ZF and its Subsidiaries operate (including increases in the cost of products, supplies, materials or other goods purchased from third party suppliers); (ix) the
announcement of this Agreement or consummation of the Transactions, including any termination of, reduction in or similar adverse impact (but in each case only to the extent attributable to such announcement or consummation) on relationships,
contractual or otherwise, with any landlords, customers, suppliers, distributors, partners or employees of ZF and its Subsidiaries; or (x) any action taken, or failures to take action, or such other changes or events, in each case by, or at the
request of, any Acquiror Party; provided, further, that any change, event, circumstance, occurrence, effect, development or state of facts referred to in the foregoing clauses (i), (ii), (iv), (vi) and (viii) shall be taken into
account in determining whether a ZF Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such change, event, circumstance, occurrence, effect, development or state of facts has a disproportionate
impact on ZF and its Subsidiaries (taken as a whole), as compared to other industry participants.
“ZF Material Contracts” has the meaning specified in Section
4.12(a).
“ZF Merger” has the meaning specified in the Recitals hereto.
“ZF Merger Sub” has the meaning specified in the Preamble
hereto.
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“ZF Most Recent Balance Sheet” has the meaning specified in
Section 4.08(a).
“ZF Option” means each option to purchase shares of ZF Common
Stock granted pursuant to the ZeroFox, Inc. 2013 Equity Incentive Plan, as amended through May 20, 2021, or otherwise.
“ZF Option Plan” means the ZeroFox, Inc. 2013 Equity
Incentive Plan, as amended from time to time.
“ZF Orix LSA” means that certain Loan and Security Agreement,
dated as of January 7, 2021, by and among ZF, RBP Financial Services, LLC (“RBP”), ZeroFOX Chile Holdings, LLC (“ZF Chile”), ZeroFOX India Holding, LLC (“ZF India”) and VigilanteATI, Inc. (“VigilanteATI” and,
together with RBP, ZF Chile and ZF India, the “US ZF Subsidiaries”), as Borrowers, and Orix Growth Capital, LLC, as Lender (as amended or amended and restated from time to time).
“ZF Payoff Amount” has the meaning specified in Section
3.04.
“ZF PIK Promissory Notes” means the promissory notes issued by
ZF on December 16, 2021 to each of New Enterprise Associates 14, L.P., Alsop Louie Capital 4, L.P., Highland Capital Partners 9 Limited Partnership, Highland Capital Partners 9-B Limited Partnership, and Highland Entrepreneurs’ Fund 9 Limited
Partnership, and Wolf Acquisitions, L.P.
“ZF Pre-Closing Holder” means each Person who holds ZF Common
Stock or ZF Restricted Shares immediately prior to the ZF Effective Time (after giving effect to the ZF Mandatory Conversion).
“ZF Preferred Stock” means the ZF Series Seed Preferred Stock,
ZF Series A Preferred Stock, ZF Series B Preferred Stock, ZF Series C Preferred Stock, ZF Series C-1 Preferred Stock, ZF Series D Preferred Stock, ZF Series D-1 Preferred Stock, ZF Series D-2 Preferred Stock and ZF Series E Preferred Stock with
all the rights, preferences and privileges set forth in the ZF Certificate of Incorporation.
“ZF Restricted Shares” means shares of ZF Common Stock granted
to employees or directors of ZF or an Affiliate of ZF, which shares are subject to vesting conditions.
“ZF Series A Preferred Stock” means the preferred stock of ZF,
par value $0.00001 per share, designated in the ZF Certificate of Incorporation as Series A Preferred Stock, with all the rights, preferences and privileges set forth in the ZF Certificate of Incorporation.
“ZF Series B Preferred Stock” means the preferred stock of ZF,
par value $0.00001 per share, designated in the ZF Certificate of Incorporation as Series B Preferred Stock, with all the rights, preferences and privileges set forth in the ZF Certificate of Incorporation.
“ZF Series C Preferred Stock” means the preferred stock of ZF,
par value $0.00001 per share, designated in the ZF Certificate of Incorporation as Series C Preferred Stock, with all the rights, preferences and privileges set forth in the ZF Certificate of Incorporation.
“ZF Series C-1 Preferred Stock” means the preferred stock of
ZF, par value $0.00001 per share, designated in the ZF Certificate of Incorporation as Series C-1 Preferred Stock, with all the rights, preferences and privileges set forth in the ZF Certificate of Incorporation.
“ZF Series D Preferred Stock” means the preferred stock of ZF,
par value $0.00001 per share, designated in the ZF Certificate of Incorporation as Series D Preferred Stock, with all the rights, preferences and privileges set forth in the ZF Certificate of Incorporation.
“ZF Series D-1 Preferred Stock” means the preferred stock of
ZF, par value $0.00001 per share, designated in the ZF Certificate of Incorporation as Series D-1 Preferred Stock, with all the rights, preferences and privileges set forth in the ZF Certificate of Incorporation.
“ZF Series D-2 Preferred Stock” means the preferred stock of
ZF, par value $0.00001 per share, designated in the ZF Certificate of Incorporation as Series D-2 Preferred Stock, with all the rights, preferences and privileges set forth in the ZF Certificate of Incorporation.
“ZF Series E Preferred Stock” means the preferred stock of ZF,
par value $0.00001 per share, designated in the ZF Certificate of Incorporation as Series E Preferred Stock, with all the rights, preferences and privileges set forth in the ZF Certificate of Incorporation.
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“ZF Series Seed Preferred Stock” means the preferred stock
of ZF, par value $0.00001 per share, designated in the ZF Certificate of Incorporation as Series Seed Preferred Stock, with all the rights, preferences and privileges set forth in the ZF Certificate of Incorporation.
“ZF Stifel LSA” has the meaning specified in Section
6.06(b).
“ZF Transaction Expenses” means all fees, costs and expenses
of ZF and its Subsidiaries collectively incurred prior to and through the Closing Date in connection with the negotiation, preparation and execution of this Agreement, the other Transaction Agreements, the performance and compliance with all
Transaction Agreements and conditions contained herein and therein to be performed or complied with at or before Closing, and the consummation of the Transactions and any other transactions contemplated by the Transaction Agreements, to the
extent unpaid as of the Closing, including (a) the fees, costs, expenses and disbursements of counsel, accountants, advisors and consultants of ZF and its Subsidiaries (including, for the avoidance of doubt, any fees, costs and expenses related
to the Investments) and (b) all severance, transaction-related bonuses, stay bonuses, retention awards, termination and change in control payments or other similar payments or benefits that become vested or payable upon or in connection with
the consummation of the Transactions, whether prior to, upon or after such consummation and whether alone or in connection with another event, to any current or former contractor, employee, consultant or other individual service provider of ZF
by ZF or any of its Subsidiaries or Affiliates (including the employer portion of any payroll, employment or similar Taxes associated with the foregoing).
“ZF Warrant” means each of (i) the Warrant to Purchase ZF
Series A Preferred Stock, dated as of May 22, 2015, by and between ZF and Silicon Valley Bank, (ii) the Warrant to Purchase ZF Series B Preferred Stock, dated as of September 1, 2016, by and between ZF and Silicon Valley Bank, (iii) the Warrant
to Purchase ZF Common Stock, dated as of June 1, 2017, between ZF and Silver Lake Waterman Fund II, LP, (iv) the Amended and Restated Warrant to Purchase ZF Series C-1 Preferred Stock, dated as of May 7, 2020, by and between ZF and Hercules
Capital, Inc., (v) the Warrant to Purchase ZF Series E Preferred Stock, dated as of January 7, 2021, between ZF and Stifel Bank, (vi) the Warrant to Purchase ZF Series E Preferred Stock, dated as of January 7, 2021, between ZF and Orix Finance
Equity Investors, LP, and (vii) the Warrant to Purchase ZF Series E Preferred Stock, dated as of December 8, 2021, between ZF and Stifel Bank. The term ZF Warrant also shall include the warrants that ZF
may grant to Orix Growth Capital, LLC or its Affiliate as disclosed on Schedule 6.01(d).
“ZF Written Consent” has the meaning specified in Section
6.07.
(a) Unless the context of this Agreement otherwise requires,
(i) words of any gender include each other gender, (ii) words using the singular or plural number also include the plural or singular number, respectively, (iii) the terms “hereof,” “herein,” “hereby,” “hereto” and derivative or similar words
refer to this entire Agreement, (iv) the terms “Article”, “Section”, “Schedule”, “Exhibit” and “Annex” refer to the specified Article, Section, Schedule, Exhibit or Annex of or to this Agreement unless otherwise specified, (v) the word
“including” shall mean “including without limitation,” (vi) the word “or” shall be disjunctive but not exclusive, and (vii) the phrase “to the extent” means the degree to which a thing extends (rather than if).
(b) When used herein with respect to a Company Party or its
Subsidiaries, “ordinary course of business” means an action taken, or omitted to be taken, in the ordinary and usual course of such Company Party’s and its Subsidiaries’ business, consistent with past practice (including recent past practice in
response to COVID-19 or COVID-19 Measures).
(c) Unless the context of this Agreement otherwise requires,
references to Contracts shall be deemed to include all subsequent amendments and other modifications thereto (subject to any restrictions on amendments or modifications set forth in this Agreement).
(d) Unless the context of this Agreement otherwise requires,
references to statutes shall include all regulations promulgated thereunder and references to Laws shall be construed as including all Laws consolidating, amending or replacing the Law.
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(e) The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent and no rule of strict construction shall be applied against any Party.
(f) Whenever this Agreement refers to a number of days, such number
shall refer to calendar days unless Business Days are specified. If any action is to be taken or given on or by a particular calendar day, and such calendar day is not a Business Day, then such action may be deferred until the next Business
Day.
(g) All accounting terms used herein and not expressly defined
herein shall have the meanings given to them under GAAP.
(h) The phrases “provided to,” “furnished to,” “made available” and
phrases of similar import when used herein, unless the context otherwise requires, means that a copy of the information or material referred to has been provided no later than 9:00 a.m. Eastern Time on the date that is three Business Days prior
to the date hereof to the Party to which such information or material is to be provided or furnished in the virtual “data room” maintained on (i) Intralinks under the title “IDX Virtual Data Room” regarding IDX and its Subsidiaries, or
(ii) Venue under the title “Northstar Confirmatory DD” regarding ZF and its Subsidiaries or (iii) by delivery to such Party or its legal counsel via electronic mail or hard copy form.
(i) References to “$” or “dollar” or “US$” shall be references to
United States dollars unless otherwise specified.
(j) Unless the context of this Agreement otherwise requires,
references to (i) a Company Party shall be deemed to refer to ZF and/or IDX, as applicable, and (ii) the Company Group shall be deemed to refer to (x) ZF and its direct and indirect Subsidiaries and/or (y) IDX and its direct and indirect
Subsidiaries, as applicable.
Section 1.03 Knowledge.
As used herein, the phrase “to the knowledge of” shall mean the knowledge, following reasonable inquiry of direct reports, of (a) with respect to Acquiror, the individuals listed on Schedule 1.03(a), (b) with respect to ZF, the
individuals listed on Schedule 1.03(b) (the “ZF Knowledge Parties”), and (c) with respect to IDX, the individuals listed on Schedule 1.03(c) (the “IDX Knowledge Parties”).
Section 1.04 Equitable
Adjustments. If, between the date of this Agreement and the Closing, the outstanding shares of ZF Common Stock, ZF Preferred Stock, IDX Common Stock, IDX Preferred Stock, Pre-Domestication Acquiror Ordinary Shares or Pre-Domestication
Acquiror Class B Shares shall have been changed into a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, reorganization, recapitalization, split, combination or exchange of shares,
or any similar event shall have occurred, then any number, value (including dollar value) or amount contained herein which is based upon the number of shares of ZF Common Stock, ZF Preferred Stock, IDX Common Stock, IDX Preferred Stock,
Pre-Domestication Acquiror Ordinary Shares or Pre-Domestication Acquiror Class B Shares, as applicable, will be appropriately adjusted to provide to the holders of shares of ZF Common Stock, ZF Preferred Stock, IDX Common Stock, IDX Preferred
Stock, Pre-Domestication Acquiror Ordinary Shares or Pre-Domestication Acquiror Class B Shares, as applicable, the same economic effect as contemplated by this Agreement prior to such event; provided, however, that this Section
1.04 shall not be construed to permit any Acquiror Party or Company Party to take any action with respect to their respective securities that is prohibited by the terms and conditions of this Agreement. For clarity, this Section 1.04
shall not apply to the issuance of Acquiror Common Stock pursuant to (a) the PIPE Subscription Agreements or (b) the conversion of Pre-Domestication Acquiror Class B Shares into Pre-Domestication Acquiror Ordinary Shares.
THE MERGERS
(a) At the ZF Effective Time, on the terms and subject to the
conditions set forth herein and in accordance with the applicable provisions of the DGCL, ZF and ZF Merger Sub shall consummate the ZF Merger, pursuant to which ZF Merger Sub shall be merged with and into ZF, following which the separate
existence of ZF Merger Sub shall cease and ZF shall continue after the ZF Merger as a direct, wholly-owned Subsidiary of L&F Holdings.
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(b) At the IDX Effective Time, on the terms and subject to the
conditions set forth herein and in accordance with the applicable provisions of the DGCL, IDX and IDX Merger Sub shall consummate the IDX Merger, pursuant to which IDX Merger Sub shall be merged with and into IDX, following which the separate
existence of IDX Merger Sub shall cease and IDX shall continue as the surviving entity after the IDX Merger (referred to herein as Transitional IDX Entity) as a direct, wholly-owned Subsidiary of L&F Holdings.
(c) Immediately following the IDX Merger, at the Effective Time, on
the terms and subject to the conditions set forth herein and in accordance with the applicable provisions of the DGCL and DLLCA, Transitional IDX Entity and IDX Forward Merger Sub shall consummate the IDX Forward Merger, pursuant to which
Transitional IDX Entity shall be merged with and into IDX Forward Merger Sub, following which the separate existence of Transitional IDX Entity shall cease and IDX Forward Merger Sub shall continue as the surviving entity after the IDX Forward
Merger as a direct, wholly-owned Subsidiary of L&F Holdings.
Section 2.02 Effective Time.
On the terms and subject to the conditions set forth herein, following the Domestication, on the Closing Date:
(a) ZF and ZF Merger Sub shall cause the ZF Merger to be consummated
by filing a certificate of merger (the “ZF Certificate of Merger”) with the Secretary of State of the State of Delaware in accordance with the applicable provisions of the DGCL. The time of such filing, or such later time as may be
agreed in writing by ZF and Acquiror and specified in the ZF Certificate of Merger, will be the effective time of and constitute the consummation of the ZF Merger (the “ZF Effective Time”).
(b) Immediately following the filing of the ZF Certificate of
Merger, IDX and IDX Merger Sub shall cause the IDX Merger to be consummated by filing a certificate of merger (the “IDX Certificate of Merger”) with the Secretary of State of the State of Delaware in accordance with the
applicable provisions of the DGCL, the time of such filing, or such later time as may be agreed in writing by IDX and Acquiror and specified in the IDX Certificate of Merger, will be the effective time of and constitute the consummation of the
IDX Merger (the “IDX Effective Time”).
(c) Immediately following the filing of the IDX Certificate of
Merger, Transitional IDX Entity and IDX Forward Merger Sub shall cause the IDX Forward Merger to be consummated by filing a certificate of merger (the “IDX Forward Certificate of Merger”) with the Secretary of State of the State of
Delaware in accordance with the applicable provisions of the DGCL and the DLLCA. The time of such filing, or such later time as may be agreed in writing by IDX Forward Merger Sub and Transitional IDX Entity and specified in the IDX Forward
Certificate of Merger, will be the effective time of and constitute the consummation of the IDX Forward Merger (the “Effective Time”).
(a) The effect of the ZF Merger shall be as provided in this
Agreement, the ZF Certificate of Merger and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the ZF Effective Time, all the property, rights, privileges, agreements, powers and
franchises, debts, liabilities, duties and obligations of ZF Merger Sub and ZF shall become the property, rights, privileges, agreements, powers and franchises, debts, liabilities, duties and obligations of ZF.
(b) The effect of the IDX Merger shall be as provided in this
Agreement, the IDX Certificate of Merger and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the IDX Effective Time, all the property, rights, privileges, agreements, powers and
franchises, debts, liabilities, duties and obligations of IDX Merger Sub and IDX shall become the property, rights, privileges, agreements, powers and franchises, debts, liabilities, duties and obligations of IDX.
(c) The effect of the IDX Forward Merger shall be as provided in
this Agreement, the IDX Forward Certificate of Merger and the applicable provisions of the DGCL and the DLLCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges,
agreements, powers and franchises, debts, liabilities, duties and obligations of Transitional IDX Entity and IDX Forward Merger Sub shall become the property, rights, privileges, agreements, powers and franchises, debts, liabilities, duties and
obligations of the Surviving IDX Entity.
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(a) At the ZF Effective Time, the ZF Certificate of Incorporation
shall, by virtue of the ZF Merger and without any further action on the part of ZF or ZF Merger Sub, be amended and restated to be in the form attached hereto as Exhibit E, which shall be the certificate of incorporation of ZF from and
after the ZF Effective Time until thereafter amended in accordance with the provisions thereof and applicable law. At the ZF Effective Time, the parties shall take all actions so that the bylaws of ZF shall be amended and restated to conform to
the bylaws of ZF Merger Sub as in effect immediately prior to the ZF Effective Time except that the name of the surviving corporation shall be “ZeroFox, Inc.” and as such shall be the bylaws of ZF until thereafter amended in accordance with the
provisions thereof, the certificate of incorporation of ZF and applicable law.
(b) At the IDX Effective Time, the IDX Certificate of Incorporation
and bylaws of IDX shall be the certificate of incorporation and bylaws of Transitional IDX Entity from and after the IDX Effective Time until thereafter amended in accordance with the provisions thereof and applicable law.
(c) At the Effective Time, the certificate of formation and pursuant
to Section 18-209(f) of the DLLCA, the limited liability company agreement of IDX Forward Merger Sub shall, by virtue of the IDX Forward Merger and without any further action on the part of IDX Forward Merger Sub or its members, be amended and
amended and restated, respectively, to be in the forms of amended certificate of formation and limited liability company agreement attached hereto as Exhibit F and Exhibit G (including that the name of the Surviving IDX Entity
shall be “IDX Holdings, LLC”), which shall be the amended certificate of formation and limited liability company agreement of the Surviving IDX Entity from and after the Effective Time until thereafter amended and in accordance with the
provisions thereof and applicable law.
(d) At the Effective Time, the parties shall take all action so that
the certificate of formation and limited liability company agreement of L&F Holdings shall be amended such that the name of L&F Holdings immediately after the Effective Time shall be “ZeroFox Holdings, LLC”.
Section 2.05 Directors and
Officers of ZF; Managers and Officers of Surviving IDX Entity; Managers and Officers of L&F Holdings.
(a) The parties shall take all necessary actions such that
immediately after the ZF Effective Time, the board of directors and officers of ZF shall be as set forth on Schedule 2.05(a), each to hold office in accordance with the ZF governing documents until such director’s or officer’s successor
is duly elected or appointed and qualified, or until the earlier of such director’s or officer’s death, resignation or removal.
(b) The parties shall take all necessary actions such that
immediately after the Effective Time, the board of managers and officers of Surviving IDX Entity shall be as set forth on Schedule 2.05(b), each to hold office in accordance with the Surviving IDX Entity governing documents until such
manager’s or officer’s successor is duly elected or appointed and qualified, or until the earlier of such manager’s or officer’s death, resignation or removal.
(c) The parties shall take all necessary actions such that
immediately after the Effective Time, the board of managers and officers of L&F Holdings shall be as set forth on Schedule 2.05(c), each to hold office in accordance with the governing documents of L&F Holdings until such
manager’s or officer’s successor is duly elected or appointed and qualified, or until the earlier of such manager’s or officer’s death, resignation or removal.
Section 2.06 Further
Assurances. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest ZF following the ZF Merger, IDX following the IDX Merger, and Surviving IDX Entity
following the IDX Forward Merger (as applicable) with full right, title and possession to all assets, property, rights, privileges, powers and franchises of ZF, ZF Merger Sub, IDX, IDX Merger Sub, Transitional IDX Entity and IDX Forward Merger
Sub (as applicable), the applicable directors, officers, stockholders, members and managers of ZF, ZF Merger Sub, IDX, IDX Merger Sub, Transitional IDX Entity, IDX Forward Merger Sub and Acquiror (or their designees) are fully authorized in the
name of their respective companies to take, and will take, all such lawful and necessary action, so long as such action is not inconsistent with this Agreement.
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MERGER CONSIDERATION; CLOSING
Section 3.01 Effect of ZF
Merger. On the terms and subject to the conditions set forth herein, at the ZF Effective Time, by virtue of the ZF Merger and without any further action on the part of any Party or any other Person, the following shall occur:
(a) ZF Common Stock. Each share of ZF Common Stock (including
ZF Restricted Shares) issued and outstanding immediately prior to the ZF Effective Time (after giving effect to the ZF Mandatory Conversion and other than ZF Dissenting Shares and ZF Cancelled Shares) will be automatically cancelled and
extinguished and converted into the right to receive a number of shares of Acquiror Common Stock equal to the ZF Closing Stock Per Share Consideration. The ZF Closing Stock Per Share Consideration issued in respect of ZF Restricted Shares will
continue to have, and be subject to, the same terms and conditions (including restrictions on vesting) relating thereto as in effect immediately prior to the ZF Effective Time. All shares of ZF Common Stock held in ZF’s treasury immediately
prior to the ZF Effective Time or owned by Acquiror or ZF Merger Sub immediately prior to the ZF Effective Time shall be automatically cancelled and shall cease to exist (the “ZF Cancelled Shares”), and no consideration shall be
delivered in exchange therefor.
(b) ZF Preferred Stock.
(i) ZF Series Seed Preferred Stock. Pursuant to the ZF
Mandatory Conversion, effective immediately prior to the ZF Effective Time, each share of ZF Series Seed Preferred Stock shall convert into two shares of ZF Common Stock with no further required action on the part of such holder of shares of ZF
Series Seed Preferred Stock or ZF.
(ii) ZF Series A Preferred Stock. Pursuant to the ZF
Mandatory Conversion, effective immediately prior to the ZF Effective Time, each share of ZF Series A Preferred Stock shall convert into two shares of ZF Common Stock with no further required action on the part of such holder of shares of ZF
Series A Preferred Stock or ZF.
(iii) ZF Series B Preferred Stock. Pursuant to the ZF
Mandatory Conversion, effective immediately prior to the ZF Effective Time, each share of ZF Series B Preferred Stock shall convert into two shares of ZF Common Stock with no further required action on the part of such holder of shares of ZF
Series B Preferred Stock or ZF.
(iv) ZF Series C Preferred Stock. Pursuant to the ZF
Mandatory Conversion, effective immediately prior to the ZF Effective Time, each share of ZF Series C Preferred Stock shall convert into two shares of ZF Common Stock with no further required action on the part of such holder of shares of ZF
Series C Preferred Stock or ZF.
(v) ZF Series C-1 Preferred Stock. Pursuant to the ZF
Mandatory Conversion, effective immediately prior to the ZF Effective Time, each share of ZF Series C-1 Preferred Stock shall convert into two shares of ZF Common Stock with no further required action on the part of such holder of shares of ZF
Series C-1 Preferred Stock or ZF.
(vi) ZF Series D Preferred Stock. Pursuant to the ZF
Mandatory Conversion, effective immediately prior to the ZF Effective Time, each share of ZF Series D Preferred Stock shall convert into two shares of ZF Common Stock with no further required action on the part of such holder of shares of ZF
Series D Preferred Stock or ZF.
(vii) ZF Series D-1 Preferred Stock. Pursuant to the ZF
Mandatory Conversion, effective immediately prior to the ZF Effective Time, each share of ZF Series D-1 Preferred Stock shall convert into two shares of ZF Common Stock with no further required action on the part of such holder of shares of ZF
Series D-1 Preferred Stock or ZF.
(viii) ZF Series D-2 Preferred Stock. Pursuant to the ZF
Mandatory Conversion, effective immediately prior to the ZF Effective Time, each share of ZF Series D-2 Preferred Stock shall convert into two shares of ZF Common Stock with no further required action on the part of such holder of shares of ZF
Series D-2 Preferred Stock or ZF.
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(ix) ZF Series E Preferred Stock. Pursuant to the ZF
Mandatory Conversion, effective immediately prior to the ZF Effective Time, each share of ZF Series E Preferred Stock shall convert into two shares of ZF Common Stock with no further required action on the part of such holder of shares of ZF
Series E Preferred Stock or ZF.
(c) ZF Warrants. Immediately prior to the ZF Effective Time,
it is anticipated that all outstanding ZF Warrants will have been exercised in exchange for shares of ZF Capital Stock in accordance with their terms and will no longer be outstanding and will automatically be cancelled, extinguished and
retired and will cease to exist, and each holder thereof will cease to have any rights with respect thereto, other than, for the avoidance of doubt, with respect to the ZF Capital Stock into which such ZF Warrants are exchanged. To the extent
not exercised and exchanged prior to the ZF Effective Time, each ZF Warrant issued, outstanding and unexercised immediately prior to the ZF Effective Time shall be assumed and converted into a warrant to purchase Acquiror Common Stock (each, a
“ZF Assumed Warrant”). Each such ZF Assumed Warrant as so assumed and converted shall continue to have, and shall be subject to, the same terms and conditions as applied to the underlying ZF Warrant immediately prior to the ZF Effective
Time (but taking into account any changes thereto by reason of this Agreement or the Transactions, including that each ZF Assumed Warrant shall be a warrant to purchase Acquiror Common Stock). Each such ZF Assumed Warrant as so assumed and
converted shall be a warrant to purchase (i) that number of shares of Acquiror Common Stock (rounded down to the nearest whole share) equal to the product of (A) the number of shares of ZF Common Stock subject to such ZF Warrant immediately
prior to the ZF Effective Time (assuming the exercise of such ZF Warrant immediately prior to the ZF Effective Time and, where applicable, the ZF Mandatory Conversion) and (B) the ZF Closing Stock Per Share Consideration, (ii) at an exercise
price per share of Acquiror Common Stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of ZF Common Stock applicable to the underlying ZF Warrant immediately prior to the ZF
Effective Time (giving effect to the exercise of such ZF Warrant immediately prior to the ZF Effective Time and, where applicable, the ZF Mandatory Conversion) by (y) the ZF Closing Stock Per Share Consideration.
(d) ZF Options. Each ZF Option (whether vested or unvested)
that is outstanding and unexercised as of immediately prior to the ZF Effective Time shall be assumed and converted into an option to purchase shares of Acquiror Common Stock (each, an “Acquiror Option”). Each such Acquiror Option as so
assumed and converted shall continue to have, and shall be subject to, the same terms and conditions as applied to the underlying ZF Option immediately prior to the ZF Effective Time (but taking into account any changes thereto by reason of
this Agreement or the Transactions, including that each Acquiror Option shall be an option to purchase Acquiror Common Stock). Each such Acquiror Option as so assumed and converted shall be an option to acquire (i) that number of shares of
Acquiror Common Stock (rounded down to the nearest whole share) equal to the product of (A) the number of shares of ZF Common Stock subject to such ZF Option immediately prior to the ZF Effective Time and (B) the ZF Closing Stock Per Share
Consideration, (ii) at an exercise price per share of Acquiror Common Stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (A) the exercise price per share of ZF Common Stock applicable to such ZF Option
immediately prior to the ZF Effective Time by (B) the ZF Closing Stock Per Share Consideration. Notwithstanding anything in this Section 3.01(d) to the contrary, the exercise price and the number of shares of Acquiror Common Stock
subject to the Acquiror Option shall be determined in a manner consistent with the requirements of Sections 424 and 409A of the Code (as applicable). ZF represents and warrants to IDX and the Acquiror Parties that there are no ZF Option grant
agreements, ZF employment agreements or other agreements or arrangements that would preclude the treatment of ZF Options as set forth in this Section 3.01(d). At the ZF Effective Time, by virtue of the ZF Merger and without any need of
any further corporate action, Acquiror shall assume the ZF Option Plan, with the result that Acquiror may issue the shares of Acquiror Common Stock after the ZF Effective Time pursuant to the exercise of the Acquiror Options under the ZF Option
Plan.
(e) ZF Merger Sub Equity Securities. Each share of common
stock of ZF Merger Sub issued and outstanding immediately prior to the ZF Effective Time shall be converted into and shall represent one fully paid and nonassessable share of common stock of ZF, which shall constitute the only outstanding
shares of common stock of ZF immediately following the ZF Effective Time.
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(f) ZF Dissenting Shares. Notwithstanding any other
provision of this Agreement to the contrary, any shares of capital stock of ZF issued and outstanding immediately prior to the ZF Effective Time and held by a holder who has not voted in favor of the ZF Merger or consented thereto in writing
and who has properly exercised and perfected appraisal rights for such shares in accordance with Section 262 of the DGCL, and has not effectively withdrawn or lost such appraisal rights (collectively, the “ZF Dissenting Shares”) shall
not be converted into or represent the right to receive the consideration for such capital stock of ZF set forth in Section 3.01(a), and the holder or holders of such shares shall be entitled only to such rights as may be granted to
such holder or holders under Section 262 of the DGCL; provided, however, that if any holder of ZF Dissenting Shares shall effectively withdraw or lose (through failure to perfect or otherwise) such holder’s appraisal rights and
dissenters’ rights under Section 262 of the DGCL, then, the right of such holder to receive the rights as may be granted under Section 262 of the DGCL shall cease and such ZF Dissenting Shares shall be deemed to have been converted as of the ZF
Effective Time into, and shall become exchangeable solely for, the right to receive the consideration for shares of capital stock of ZF set forth in Section 3.01(a), without interest.
Section 3.02 Effect of IDX
Merger. On the terms and subject to the conditions set forth herein, at the IDX Effective Time, by virtue of the IDX Merger and without any further action on the part of any Party or any other Person, the following shall occur:
(a) IDX Capital Stock. (i) Each share of IDX Common Stock
issued and outstanding immediately prior to the IDX Effective Time (other than IDX Dissenting Shares and IDX Cancelled Shares) will be automatically cancelled and extinguished and converted into the right to receive (A) a number of shares of
Acquiror Common Stock equal to the IDX Closing Stock Per Share Consideration and (B) an amount of cash equal to the IDX Closing Cash Per Share Consideration; (ii) each share of IDX Series A-1 Preferred Stock and IDX Series A-2 Preferred Stock
issued and outstanding immediately prior to the IDX Effective Time (other than IDX Dissenting Shares and IDX Cancelled Shares) will be automatically cancelled and extinguished and converted into the right to receive (A) a number of shares of
Acquiror Common Stock equal to the IDX Closing Stock Per Share Consideration, (B) an amount of cash equal to the IDX Closing Cash Per Share Consideration, and (C) an amount of cash equal to the IDX Liquidation Preference; and (iii) each share
of IDX Series B Preferred Stock issued and outstanding immediately prior to the IDX Effective Time (other than IDX Dissenting Shares and IDX Cancelled Shares) will be automatically cancelled and extinguished and converted into the right to
receive an amount of cash equal to the IDX Liquidation Preference; provided, that, the aggregate IDX Closing Cash Per Share Consideration payable to certain IDX Pre-Closing Holders shall be reduced as set forth in the Spreadsheet, and
the total amount so reduced shall be paid, at Closing, to such recipients as set forth in the Spreadsheet, in each case, in accordance with the IDX Earnout Documents. All shares of IDX Capital Stock held in IDX’s treasury immediately prior to
the IDX Effective Time or owned by Acquiror or IDX Merger Sub immediately prior to the IDX Effective Time shall be automatically cancelled and shall cease to exist (the “IDX Cancelled Shares”), and no consideration shall be
delivered in exchange therefor.
(b) IDX Warrants.
(i) Immediately prior to the IDX Effective Time, it is anticipated
that the outstanding IDX Cancelled Warrant will have been exercised in exchange for shares of IDX Common Stock in accordance with its terms and will no longer be outstanding and will automatically be cancelled, extinguished and retired and will
cease to exist, and the holder thereof will cease to have any rights with respect thereto, other than, for the avoidance of doubt, with respect to the IDX Common Stock into which such IDX Cancelled Warrant is exchanged. To the extent not
exercised and exchanged prior to the IDX Effective Time, upon notice by IDX in accordance with the terms of the IDX Cancelled Warrant, the IDX Cancelled Warrant will automatically be cancelled, extinguished and retired and will cease to exist,
and the holder thereof will cease to have any rights with respect thereto without the payment of any consideration therefor.
(ii) Immediately prior to the IDX Effective Time, it is anticipated
that all outstanding IDX Warrants will have been exercised in exchange for shares of IDX Capital Stock in accordance with their terms and will no longer be outstanding and will automatically be cancelled, extinguished and retired and will cease
to exist, and each holder thereof will cease to have any rights with respect thereto, other than, for the avoidance of doubt, with respect to the IDX Capital Stock into which such
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IDX Warrants are exchanged. To the extent not exercised and exchanged prior to the
IDX Effective Time, each IDX Warrant issued, outstanding and unexercised immediately prior to the IDX Effective Time shall be assumed and converted into a warrant to purchase Acquiror Common Stock (each, an “IDX Assumed Warrant”). Each
such IDX Assumed Warrant as so assumed and converted shall continue to have, and shall be subject to, the same terms and conditions as applied to the underlying IDX Warrant immediately prior to the IDX Effective Time (but taking into account
any changes thereto by reason of this Agreement or the Transactions, including that each IDX Assumed Warrant shall be a warrant to purchase Acquiror Common Stock). Each such IDX Common Warrant as so assumed and converted shall be a warrant to
purchase (i) that number of shares of Acquiror Common Stock (rounded down to the nearest whole share) equal to the product of (A) the number of shares of IDX Common Stock subject to the underlying IDX Common Warrant immediately prior to the IDX
Effective Time and (B) the IDX Total Per Share Consideration, (ii) at an exercise price per share of Acquiror Common Stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of IDX
Common Stock applicable to the underlying IDX Common Warrant immediately prior to the IDX Effective Time by (y) the IDX Total Per Share Consideration. Each such IDX Preferred Warrant as so assumed and converted shall be a warrant to purchase
(i) that number of shares of Acquiror Common Stock (rounded down to the nearest whole share) equal to the product of (A) the number of shares of IDX Preferred Stock subject to the underlying IDX Warrant immediately prior to the IDX Effective
Time and (B) the IDX Total Preferred Per Share Consideration, (ii) at an exercise price per share of Acquiror Common Stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of IDX
Preferred Stock applicable to the underlying IDX Preferred Warrant immediately prior to the IDX Effective Time by (y) the IDX Total Preferred Per Share Consideration.
(c) IDX Options. Each IDX Option (whether vested or unvested)
that is outstanding and unexercised as of immediately prior to the IDX Effective Time shall be assumed and converted into an Acquiror Option. Each such Acquiror Option as so assumed and converted shall continue to have, and shall be subject to,
the same terms and conditions as applied to the underlying IDX Option immediately prior to the IDX Effective Time (but taking into account any changes thereto by reason of this Agreement or the Transactions, including that each Acquiror Option
shall be an option to purchase Acquiror Common Stock). Each such Acquiror Option as so assumed and converted shall be an option to acquire (i) that number of shares of Acquiror Common Stock (rounded down to the nearest whole share) equal to the
product of (A) the number of shares of IDX Capital Stock subject to such IDX Option immediately prior to the IDX Effective Time and (B) the IDX Total Per Share Consideration, (ii) at an exercise price per share of Acquiror Common Stock (rounded
up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of IDX Common Stock applicable to such IDX Option immediately prior to the IDX Effective Time by (y) the IDX Total Per Share
Consideration. Notwithstanding anything in this Section 3.02(c) to the contrary, the exercise price and the number of shares of Acquiror Common Stock subject to the Acquiror Option shall be determined in a manner consistent with the
requirements of Sections 424 and 409A of the Code (as applicable). IDX represents and warrants to ZF and the Acquiror Parties that there are no IDX Option grant agreements, IDX employment agreements, or other agreements or arrangements that
would preclude the treatment of IDX Options as set forth in this Section 3.02(c). At the IDX Effective Time, by virtue of the IDX Merger and without any need of any further corporate action, Acquiror shall assume the IDX Option Plans,
with the result that Acquiror may issue the shares of Acquiror Common Stock after the IDX Effective Time pursuant to the exercise of the Acquiror Options under the IDX Option Plans.
(d) IDX Merger Sub Equity Securities. Each share of common
stock of IDX Merger Sub issued and outstanding immediately prior to the IDX Effective Time shall be converted into and shall represent one fully paid and nonassessable share of common stock of IDX, which shall constitute the only outstanding
shares of common stock of IDX immediately following the IDX Effective Time.
(e) IDX Dissenting Shares. Notwithstanding any other
provision of this Agreement to the contrary, any shares of capital stock of IDX issued and outstanding immediately prior to the IDX Effective Time and held by a holder who has not voted in favor of the IDX Merger or consented thereto in writing
and who has properly exercised and perfected appraisal rights for such shares in accordance with Section 262 of the DGCL, and has not effectively withdrawn or lost such appraisal rights (collectively, the “IDX Dissenting
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Shares”) shall not be converted into or represent the right to receive the
consideration for such capital stock of IDX set forth in Section 3.02(a), and the holder or holders of such shares shall be entitled only to such rights as may be granted to such holder or holders under Section 262 of the DGCL; provided,
however, that if any holder of IDX Dissenting Shares shall effectively withdraw or lose (through failure to perfect or otherwise) such holder’s appraisal rights and dissenters’ rights under Section 262 of the DGCL, then, the right of
such holder to receive the rights as may be granted under Section 262 of the DGCL shall cease and such IDX Dissenting Shares shall be deemed to have been converted as of the IDX Effective Time into, and shall become exchangeable solely for, the
right to receive the consideration for shares of capital stock of IDX set forth in Section 3.02(a), without interest.
Section 3.03 Effect of IDX
Forward Merger. On the terms and subject to the conditions set forth herein, at the Effective Time, by virtue of the IDX Forward Merger and without any further action on the part of any Party or any other Person, each share of
Transitional IDX Entity Common Stock issued and outstanding immediately prior to the Effective Time will be canceled and no consideration shall be issued in respect thereto and the limited liability company interest of IDX Forward Merger Sub
shall remain unchanged and continue to remain outstanding and shall constitute 100% of the outstanding Equity Securities of the Surviving IDX Entity.
Section 3.04 ZF Payoff Amount.
At the Closing, immediately prior to the ZF Effective Time, the Acquiror shall cause the Trustee to release from the Trust Account or otherwise cause to be paid an aggregate amount equal to the ZF Transaction Expenses (the “ZF Payoff Amount”),
and shall pay, by wire transfer of immediately available funds, the ZF Payoff Amount out of such released funds or other funds of Acquiror pursuant to wire instructions provided to it by ZF for the applicable owed parties at least two Business
Days prior to Closing.
Section 3.05 IDX Debt Amount.
At the Closing, immediately prior to the IDX Effective Time, Acquiror shall cause the Trustee to release from the Trust Account or otherwise cause to be paid an aggregate amount equal to the sum of (a) an amount of funds sufficient to pay off
and discharge in full all of IDX’s obligations (other than inchoate indemnity obligations and ongoing banking services) under the Comerica Credit Facility and the IDX Convertible Promissory Notes, plus
(b) the IDX Transaction Expenses (such aggregate amount pursuant to clauses (a) through (b), the “IDX Debt Amount”), and shall pay, by wire transfer of immediately available funds, the IDX Debt Amount out of such released
funds or other funds of Acquiror pursuant to wire instructions provided at least two Business Days prior to Closing to Acquiror by IDX for the applicable owed parties (including under the IDX Debt Payoff Letters).
(a) On the date that is five Business Days prior to the Closing
Date, Acquiror shall deliver to ZF and IDX a written statement (the “Acquiror Closing Statement”) setting forth its good faith estimate and calculation of the Acquiror Transaction Expenses, including a detailed itemization of the
components thereof and reasonable supporting documentation and detail therefor (including invoices), and determined pursuant to the definitions contained in this Agreement. From and after delivery of the Acquiror Closing Statement and through
the Closing Date, (i) Acquiror shall promptly provide to ZF and IDX any changes to the Acquiror Closing Statement (including any component thereof) (the “Updated Acquiror Closing Statement”), and (ii) ZF and IDX shall have the
right to review and comment on such calculations and estimates, Acquiror shall consider in good faith any such comments made by ZF or IDX, and ZF, IDX and Acquiror shall cooperate with each other through the Closing Date and use good faith
efforts to resolve any differences regarding the calculations and estimates contained in the Updated Acquiror Closing Statement (and any updates or revisions as may be agreed to by ZF, IDX and Acquiror shall be included in the Updated Acquiror
Closing Statement). Acquiror shall, and shall cause its Representatives to, (x) reasonably cooperate with ZF, IDX and their respective Representatives to the extent related to ZF’s or IDX’s review of the Acquiror Closing Statement and Updated
Acquiror Closing Statement and the calculations and estimates contained therein (including engaging in good faith discussions related thereto) and (y) provide reasonable access to personnel, books, records and other information during normal
business hours to the extent related to the preparation of the Acquiror Closing Statement and Updated Acquiror Closing Statement and reasonably requested by ZF, IDX or their respective Representatives in connection with such review; provided,
that ZF and IDX shall not, and shall cause their respective Representatives to not, unreasonably interfere with the business of Acquiror and its Subsidiaries in connection with any such access. Notwithstanding anything in this Agreement to the
contrary, Acquiror Transaction Expenses may not exceed
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$30,000,000 (the “Acquiror Transaction Expenses Cap”) without ZF’s and IDX’s
prior written consent, which shall not be unreasonably withheld, conditioned or delayed; provided, that any Acquiror Transaction Expenses in respect of or related to an upsizing of the Investments above the Investment Amount shall not
be subject to the Acquiror Transaction Expenses Cap.
(b) On the date that is five Business Days prior to the Closing
Date, ZF shall deliver to Acquiror and IDX a written statement (the “ZF Closing Statement”) setting forth its good faith estimate and calculation of the ZF Transaction Expenses, including a detailed itemization of the components thereof
and reasonable supporting documentation and detail therefor (including invoices), and determined pursuant to the definitions contained in this Agreement. From and after delivery of the ZF Closing Statement and through the Closing Date, (i) ZF
shall promptly provide to Acquiror and IDX any changes to the ZF Closing Statement (including any component thereof) (the “Updated ZF Closing Statement”), and (ii) Acquiror and IDX shall have the right to review and comment on such
calculations and estimates, ZF shall consider in good faith any such comments made by Acquiror and IDX, and ZF, IDX and Acquiror shall cooperate with each other through the Closing Date and use good faith efforts to resolve any differences
regarding the calculations and estimates contained in the Updated ZF Closing Statement. ZF shall, and shall cause its Representatives to, (x) reasonably cooperate with Acquiror, IDX and their respective Representatives to the extent related to
Acquiror’s or IDX’s review of the ZF Closing Statement and Updated ZF Closing Statement and the calculations and estimates contained therein (including engaging in good faith discussions related thereto) and (y) provide reasonable access to
personnel, books, records and other information during normal business hours to the extent related to the preparation of the ZF Closing Statement and Updated ZF Closing Statement and reasonably requested by Acquiror, IDX or their respective
Representatives in connection with such review; provided, that Acquiror and IDX shall not, and shall cause their respective Representatives to not, unreasonably interfere with the business of ZF and its Subsidiaries in connection with
any such access.
(c) On the date that is five Business Days prior to the Closing
Date, IDX shall deliver to ZF and Acquiror a written statement (the “IDX Closing Statement”) setting forth its good faith estimate and calculation of the IDX Transaction Expenses and IDX Closing Cash Consideration, including a detailed
itemization of the components thereof (including the IDX Debt Amount, the IDX Closing Working Capital Shortfall and the IDX Cash Amount) and reasonable supporting documentation and detail therefor
(including invoices), and determined pursuant to the definitions contained in this Agreement. From and after delivery of the IDX Closing Statement and through the Closing Date, (i) IDX shall promptly provide to ZF and Acquiror any changes to
the IDX Closing Statement (including any component thereof) (the “Updated IDX Closing Statement”), and (ii) ZF and Acquiror shall have the right to review and comment on such calculations and estimates, IDX shall consider in good
faith any such comments made by ZF or Acquiror, and IDX, ZF and Acquiror shall cooperate with each other through the Closing Date and use good faith efforts to resolve any differences regarding the calculations and estimates contained in the
Updated IDX Closing Statement. IDX shall, and shall cause its Representatives to, (x) reasonably cooperate with ZF and Acquiror and their respective Representatives to the extent related to ZF’s or Acquiror’s review of the IDX Closing Statement
and Updated IDX Closing Statement and the calculations and estimates contained therein (including engaging in good faith discussions related thereto) and (y) provide reasonable access to personnel, books, records and other information during
normal business hours to the extent related to the preparation of the IDX Closing Statement and Updated IDX Closing Statement and reasonably requested by ZF or Acquiror or their respective Representatives in connection with such review; provided,
that each of ZF and Acquiror shall not, and shall cause their respective Representatives to not, unreasonably interfere with the business of IDX and its Subsidiaries in connection with any such access.
Section 3.07 Closing. The
closing of the Mergers (the “Closing”) shall take place (a) electronically by the mutual exchange of electronic signatures (including portable document format (PDF)) commencing as promptly as practicable (and in any event no later than
9:00 a.m. Eastern Time on the third Business Day) following the satisfaction or (to the extent permitted by applicable Law) waiver of the conditions set forth in Article IX (other than those conditions that by their terms or nature are
to be satisfied at the Closing; provided, that such conditions are satisfied or (to the extent permitted by applicable Law) waived in writing) or (b) at such other place, time or date as Acquiror, ZF and IDX may mutually agree in
writing. The date on which the Closing shall occur is referred to herein as the “Closing Date.”
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Section 3.08 Withholding
Rights. Notwithstanding anything in this Agreement to the contrary, Acquiror, ZF, IDX, Transitional IDX Entity, ZF Merger Sub, IDX Merger Sub, Surviving IDX Entity and their respective Affiliates and agents shall be entitled to deduct and
withhold from any amounts otherwise payable pursuant to this Agreement, any amounts that are required to be deducted or withheld with respect to the making of such payments under applicable Law. To the extent that any amounts are to be withheld
from value deliverable to the ZF Pre-Closing Holders or the IDX Pre-Closing Holders (other than any such value that is subject to withholding because (a) it is properly treated as compensation for applicable Tax purposes, or (b) ZF or IDX, as
applicable, has failed to deliver the certificate and accompanying notice or forms described in Section 9.02(d)), Acquiror shall use commercially reasonable efforts to provide notice to the applicable holder at least five days prior to
the day the relevant withholding is to be made (and all Parties agree to use commercially reasonable efforts to cooperate to reduce or eliminate any such withholding). To the extent that any amounts are deducted or withheld consistent with the
terms of this Section 3.08 and paid over to the appropriate Governmental Authority, such deducted or withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such
deduction or withholding was made.
Section 3.09 Fractional
Shares. No certificate or scrip representing fractional shares of Acquiror Common Stock shall be issued in the Mergers, and such fractional share interests shall not entitle the owner thereof to vote or to any other rights of a
stockholder of Acquiror. Notwithstanding any other provision of this Agreement, (a) each ZF Pre-Closing Holder of ZF Common Stock converted pursuant to the ZF Merger who would otherwise have been entitled to receive a fraction of a share of
Acquiror Common Stock shall receive (aggregating for this purpose all the shares of Acquiror Common Stock such holder is entitled to receive hereunder), in lieu thereof, cash, without interest, in an amount equal to the product of (i) such
fractional part of a share of Acquiror Common Stock, multiplied by (ii) $10 and (b) each IDX Pre-Closing Holder of IDX Capital Stock converted pursuant to the IDX Merger who would otherwise have been entitled to receive a fraction of a share of
Acquiror Common Stock shall receive (aggregating for this purpose all the shares of Acquiror Common Stock such holder is entitled to receive hereunder), in lieu thereof, cash, without interest, in an amount equal to the product of (i) such
fractional part of a share of Acquiror Common Stock, multiplied by (ii) $10.
(a) Potential Forfeiture. In accordance with the Sponsor
Support Letter Agreement, the Sponsor Holders have agreed that, effective upon the Closing, the Sponsor Holders will, on a Pro Rata Basis, subject 1,293,750 shares of Acquiror Common Stock that will be owned by the Sponsor Holders (the “Sponsor
Holders Earnout Shares”) to forfeiture (by automatic transfer to Acquiror) if the Triggering Events do not occur during the Earnout Period, with such Sponsor Holders Earnout Shares vesting (and therefore no longer subject to
forfeiture) pursuant to the terms of this Section 3.10. Until the occurrence of the applicable Triggering Event, certificates representing the Sponsor Holders Earnout Shares shall bear a legend referencing that they are subject to
forfeiture pursuant to the provisions of this Agreement, and any transfer agent for Acquiror Common Stock will be given appropriate stop transfer orders that will be applicable until the Sponsor Holders Earnout Shares are vested; provided,
however, that upon the vesting of any Sponsor Holders Earnout Shares in accordance with the terms herein, Acquiror shall immediately cause the removal of such legend and direct such transfer agent that such stop transfer orders are no
longer applicable. For the avoidance of doubt, each Triggering Event shall only occur once, if at all.
(b) Vesting. Until the earlier of all of the Sponsor Holders
Earnout Shares having become fully vested or the expiry of the Earnout Period:
(i) one-third of the Sponsor Holders Earnout Shares (431,250 shares)
shall immediately become fully vested and no longer subject to forfeiture upon the occurrence of Triggering Event I;
(ii) one-third of the Sponsor Holders Earnout Shares (431,250
shares) shall immediately become fully vested and no longer subject to forfeiture upon the occurrence of Triggering Event II; and
(iii) one-third of the Sponsor Holders Earnout Shares (431,250
shares) shall immediately become fully vested and no longer subject to forfeiture upon the occurrence of Triggering Event III.
(c) Adjustment. If, and as often as, the outstanding shares
of Acquiror Common Stock are changed into a different number of shares or a different class, by reason of any dividend, subdivision,
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reclassification, recapitalization, split, combination or exchange, or any similar
event after the date hereof, then the number of Sponsor Holders Earnout Shares to be surrendered or forfeited pursuant to this Section 3.10 will in each case be equitably adjusted to reflect such change.
(d) Dividends and Distributions. To the extent any dividends
or other distributions are paid or otherwise made by Acquiror (including, without limitation, any shares of Acquiror Common Stock or other equity securities of Acquiror distributed in connection with a share split, share dividend, or
reclassification, or through merger, amalgamation, consolidation, recapitalization or other similar event) during the Earnout Period, and the Sponsor Holders would have been entitled to such dividends or other distributions in respect of the
Sponsor Holders Earnout Shares if such Sponsor Holders Earnout Shares were not subject to forfeiture as of the record date for such dividends or other distributions, Acquiror shall hold such portion of such dividends or other distributions in
escrow or a segregated account for the benefit of the Sponsor Holders, and (i) in the event all or any portion of the Sponsor Holders Earnout Shares are earned in accordance with this Section 3.10, the portion of such dividends or other
distributions in respect of the Sponsor Holders Earnout Shares so earned shall be released to the Sponsor Holders, on a Pro Rata Basis, at the time such Sponsor Holders Earnout Shares are earned in accordance with this Section 3.10 or
(ii) in the event all or any portion of the Sponsor Holders Earnout Shares are forfeited in accordance with this Section 3.10, the portion of such dividends or other distributions in respect of the Sponsor Holders Earnout Shares so
forfeited shall be forfeited to Acquiror.
Section 3.11 Exchange Agent;
Surrender of Share Certificates and Payment of Closing Stock Consideration.
(a) Subject to this Section 3.11, promptly following the
Effective Time, Acquiror shall deliver, or cause to be delivered to each holder of ZF Common Stock, ZF Restricted Shares and IDX Capital Stock (which for clarity shall include holders of ZF Preferred Stock as converted to ZF Common Stock prior
to the Effective Time pursuant to Section 3.01(b), but shall exclude holders of ZF Options, IDX Options, ZF Warrants, and IDX Warrants), the ZF Closing Stock Consideration, IDX Closing Stock Consideration, IDX Closing Cash Consideration
and IDX Liquidation Preference, as applicable, payable to such holders in accordance with the terms of this Article III, including any cash in lieu of fractional shares in accordance with Section 3.09.
(b) Following the date hereof and prior to the Effective Time,
Acquiror shall, at the Acquiror’s sole cost and expense, appoint a bank or trust company reasonably acceptable to ZF and IDX (the “Exchange Agent”) to act as the exchange agent for the payment and delivery of the ZF Closing Stock
Consideration, IDX Closing Stock Consideration, IDX Closing Cash Consideration, and any cash in lieu of fractional shares in accordance with Section 3.09 and IDX Liquidation Preference in accordance with this Section 3.11; provided,
however, that Acquiror shall afford ZF and IDX the opportunity to review any proposed Contract with the Exchange Agent prior to execution, and shall consider in good faith ZF and IDX’s reasonable comments thereto.
(c) Promptly after the appointment of the Exchange Agent, Acquiror
shall cause the Exchange Agent to mail to each holder of record of ZF Common Stock, ZF Restricted Shares and IDX Capital Stock entitled to receive the ZF Closing Stock Consideration, IDX Closing Stock Consideration, IDX Closing Cash
Consideration and IDX Liquidation Preference, as applicable, pursuant to this Article III (which for clarity shall include holders of ZF Preferred Stock as converted to ZF Common Stock prior to the ZF Effective Time pursuant to Section
3.01(b), but shall exclude holders of ZF Options, IDX Options, ZF Warrants, and IDX Warrants), a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of such Certificates to the Exchange Agent) in a customary form to be agreed to, reasonably and in good faith, by Acquiror, ZF and IDX (a “Letter of Transmittal”) and instructions for use in effecting the surrender
of the certificates evidencing such ZF Common Stock or IDX Capital Stock (which for clarity shall include holders of ZF Preferred Stock as converted to shares of ZF Common Stock prior to the ZF Effective Time pursuant to Section 3.01(b),
but shall exclude holders of ZF Options, IDX Options, ZF Warrants, and IDX Warrants), in physical or electronic form, as the case may be (collectively, the “Certificates” and each, a “Certificate”), to the extent
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such ZF Common Stock or IDX Capital Stock is represented by the Certificates, in
exchange for the applicable portion of ZF Closing Stock Consideration, IDX Closing Stock Consideration, IDX Closing Cash Consideration and IDX Liquidation Preference, as applicable (and any cash in lieu of fractional shares pursuant to Section
3.09 payable to such holder).
(d) The Exchange Agent shall issue to each holder of record of ZF
Common Stock, ZF Restricted Shares and IDX Capital Stock entitled to receive a portion of the ZF Closing Stock Consideration, IDX Closing Stock Consideration, IDX Closing Cash Consideration and IDX Liquidation Preference, as applicable,
pursuant to this Article III (and any cash in lieu of fractional shares pursuant to Section 3.09) that has delivered a Certificate (only to the extent such ZF Common Stock, ZF Restricted Shares or IDX Capital Stock, as
applicable, is represented by a Certificate) (together with a Letter of Transmittal duly completed and validly executed in accordance with the instructions thereto and customary tax forms that the Exchange Agent may reasonably require in
connection therewith), the portion of the ZF Closing Stock Consideration, IDX Closing Stock Consideration, IDX Closing Cash Consideration and IDX Liquidation Preference, as applicable, with respect to such Certificate (or any ZF Common Stock,
ZF Restricted Shares or IDX Capital Stock not represented by a Certificate) so surrendered and the Certificate shall forthwith be canceled.
(e) The Exchange Agent shall deliver the ZF Closing Stock
Consideration, IDX Closing Stock Consideration, IDX Closing Cash Consideration and IDX Liquidation Preference, as applicable (and any cash in lieu of fractional shares pursuant to Section 3.09), into which such ZF Common Stock, ZF
Restricted Shares or IDX Capital Stock have been converted (which for clarity shall include holders of ZF Preferred Stock as converted to ZF Common Stock prior to the ZF Effective Time pursuant to Section 3.01(b), but shall exclude
holders of ZF Options, IDX Options, ZF Warrants, and IDX Warrants), as reflected in the Stockholder Ownership Allocation, electronically through book-entry delivery, to each ZF Pre-Closing Holder or IDX Pre-Closing Holder, as applicable, whose
shares of ZF Common Stock, ZF Restricted Shares or IDX Capital Stock are held in book entry form who have delivered a Letter of Transmittal duly completed and validly executed in accordance with the instructions thereto and customary tax forms
that the Exchange Agent may reasonably require in connection therewith or, upon the written request of any ZF Pre-Closing Holder or IDX Pre-Closing Holder, as applicable, in the form of an original stock certificate to the address set forth in
such stockholder’s Letter of Transmittal (and any cash in lieu of fractional shares pursuant to Section 3.09).
(f) Unless otherwise provided herein, no interest shall be paid or
shall accrue on any ZF Closing Stock Consideration, IDX Closing Stock Consideration, IDX Closing Cash Consideration or IDX Liquidation Preference payable upon surrender of any Certificate (or any ZF Common Stock, ZF Restricted Shares or IDX
Capital Stock not represented by a Certificate). Until so surrendered, each outstanding Certificate (or any ZF Common Stock, ZF Restricted Shares or IDX Capital Stock not represented by a Certificate) that prior to the Effective Time
represented shares of ZF Common Stock, ZF Restricted Shares or IDX Capital Stock shall be deemed from and after the Effective Time, for all purposes, to evidence only the right to receive the portion of the ZF Closing Stock Consideration, IDX
Closing Stock Consideration, IDX Closing Cash Consideration and IDX Liquidation Preference, as applicable (and any cash in lieu of fractional shares pursuant to Section 3.09). If after the Effective Time, any Certificate (or any ZF
Common Stock, ZF Restricted Shares or IDX Capital Stock not represented by a Certificate) is presented to the Exchange Agent, it shall be canceled and exchanged as provided in this Section 3.11.
(g) If any portion of the ZF Closing Stock Consideration, IDX
Closing Stock Consideration, IDX Closing Cash Consideration or IDX Liquidation Preference, as applicable, is to be paid to a Person other than the Person in whose name the surrendered Certificate (or any ZF Common Stock, ZF Restricted Shares or
IDX Capital Stock not represented by a Certificate) is registered, it shall be a condition to such payment that (i) such Certificate shall be properly endorsed or shall otherwise be in proper form for transfer, and (ii) the Person requesting
such payment shall pay to the Exchange Agent any transfer or other Tax required as a result of such payment to a Person other than the registered holder of such Certificate (or any ZF Common Stock, ZF Restricted Shares or IDX Capital Stock not
represented by a Certificate (which for
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clarity shall include holders of ZF Preferred Stock as converted to ZF Common Stock
prior to the ZF Effective Time pursuant to Section 3.01(b), but shall exclude holders of ZF Options, IDX Options, ZF Warrants, and IDX Warrants) or establish to the reasonable satisfaction of the Exchange Agent that such Tax has been
paid or is not payable.
(h) No dividends or other distributions declared or made after the
Effective Time with respect to the Acquiror Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate (or ZF Common Stock, ZF Restricted Shares or IDX Capital Stock not represented by
a Certificate) with respect to the Acquiror Common Stock issuable to such holder hereunder in consideration for the surrender of such Certificate (or ZF Common Stock, ZF Restricted Shares or IDX Capital Stock not represented by a Certificate)
until the holder of such Certificate (or ZF Common Stock, ZF Restricted Shares or IDX Capital Stock not represented by a Certificate) shall surrender such Certificate (or ZF Common Stock, ZF Restricted Shares or IDX Capital Stock not
represented by a Certificate). Subject to the effect of escheat, tax or other applicable Laws, following surrender of any such Certificate (or ZF Common Stock, ZF Restricted Shares or IDX Capital Stock not represented by a Certificate), there
shall be paid to the holder of the certificates representing shares of Acquiror Common Stock issued in exchange therefor, without interest, (i) the amount of dividends or other distributions with a record date after the Effective Time and
theretofore paid with respect to such shares of Acquiror Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions, with a record date after the Effective Time but prior to surrender and a payment
date occurring after surrender, payable with respect to such whole shares of Acquiror Common Stock.
(i) Notwithstanding anything in this Agreement to the contrary, any
ZF Closing Stock Consideration, IDX Closing Stock Consideration, IDX Closing Cash Consideration or IDX Liquidation Preference, as applicable (and any cash in lieu of fractional shares pursuant to Section 3.09), remaining unclaimed by
any ZF Pre-Closing Holder or IDX Pre-Closing Holder, immediately prior to such time when the amounts would otherwise escheat to or become property of any Governmental Authority shall become, to the extent permitted by applicable Law, the
property of Acquiror free and clear of any claims or interest of any Person previously entitled thereto.
(j) If any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of loss and indemnity by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by ZF, IDX or the Exchange Agent, the posting by such Person of a bond, in such reasonable amount as
ZF or IDX, as applicable, may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent shall issue, in exchange for such lost, stolen or destroyed Certificate, the ZF Closing Stock
Consideration, IDX Closing Stock Consideration, IDX Closing Cash Consideration and IDX Liquidation Preference, as applicable, (and any cash in lieu of fractional shares pursuant to Section 3.09), to be paid in respect of the ZF Common
Stock, ZF Restricted Shares or IDX Capital Stock, as applicable (which for clarity shall include holders of ZF Preferred Stock as converted to ZF Common Stock prior to the ZF Effective Time pursuant to Section 3.01(b), but shall exclude
holders of ZF Options, IDX Options, ZF Warrants, and IDX Warrants), formerly represented by such Certificate in accordance with this Agreement.
Section 3.12 Update to
Spreadsheet. No later than the close of business on the fifth Business Day preceding the anticipated Closing Date, ZF and IDX shall have the right to prepare and deliver to Acquiror an updated Spreadsheet containing changes to the
Ownership Allocation, the Stockholder Ownership Allocation, the allocation of the ZF Closing Stock Consideration, IDX Closing Stock Consideration, IDX Closing Cash Consideration and IDX Liquidation Preference to be received by each holder of ZF
Common Stock, ZF Restricted Shares and IDX Capital Stock (which for clarity shall include holders of ZF Preferred Stock as converted to ZF Common Stock prior to the ZF Effective Time pursuant to Section 3.01(b), but shall exclude
holders of ZF Options, IDX Options, ZF Warrants, and IDX Warrants), as well as the number of Acquiror Options, ZF Assumed Warrants and IDX Assumed Warrants, as applicable, to be received by each holder of ZF Options, IDX Options, ZF Warrants,
and IDX Warrants pursuant to the terms of this Agreement, as applicable, in each case, as of the Closing Date and by applying the same methodology, assumptions, formulas and techniques used in the preparation of the original Spreadsheet but as
of the Closing. The Parties shall meet and confer
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regarding such updated Spreadsheet no later than the third Business day prior to the
anticipated Closing Date, and shall make such changes thereto as the Parties may mutually and in good faith agree so that the updated Spreadsheet reflects any such changes. Such updated Spreadsheet shall be the “Spreadsheet” for all purposes of
this Agreement.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY PARTIES
Except as set forth in the Schedules to this Agreement dated as of
the date of this Agreement (each of which qualifies (i) the correspondingly numbered representation, warranty or covenant if specified therein and (ii) such other representations, warranties or covenants where its relevance as an exception to
(or disclosure for purposes of) such other representation, warranty or covenant is reasonably apparent on its face), each of ZF and IDX severally (and not jointly) represents and warrants to Sponsor and the Acquiror Parties as follows, in each
case as of the date hereof and as of the Closing Date, solely in respect of the matters set forth below regarding itself and, where applicable, its Subsidiaries (for the avoidance of doubt, the representations and warranties made in Section
4.06(a), Section 4.06(b), Section 4.06(c), Section 4.08(a), Section 4.08(b), Section 4.08(c), Section 4.08(d), Section 4.09(a), Section 4.12, Section 4.14, Section 4.17
and Section 4.25 are provided only by ZF and pertain only to ZF and, where applicable, its Subsidiaries, and the representations and warranties made in Section 4.06(d), Section 4.06(e), Section 4.06(f), Section
4.08(e), Section 4.08(f), Section 4.08(g), Section 4.08(h), Section 4.09(b), Section 4.13, Section 4.15, Section 4.18, Section 4.26 and Section 4.32 are
provided only by IDX and pertain only to IDX and, where applicable, its Subsidiaries):
Section 4.01 Corporate
Organization of the Company Parties. Such Company Party has been duly incorporated, is validly existing and is in good standing under the Laws of the State of Delaware and has the corporate power and authority to own, operate and lease
its properties, rights and assets and to conduct its business as it is now being conducted. The copies of the certificate of incorporation and bylaws (collectively, “Organizational Documents”) of such Company Party, as in effect on the
date hereof, previously made available by such Company Party to Acquiror are (a) true, correct and complete, (b) in full force and effect, and (c) have not been amended in any respect from the copies made available to Acquiror. Such Company
Party is duly licensed or qualified and in good standing as a foreign entity in each jurisdiction in which the ownership of its property or the character of its activities is such as to require it to be so licensed or qualified, except where
failure to be in good standing or so licensed or qualified has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. Such Company Party is not in violation of any of the
provisions of its Organizational Documents, except where such violation has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
Section 4.02 Subsidiaries.
The Subsidiaries of such Company Party, together with details of their respective jurisdiction of incorporation or organization and names of their respective equityholders and details of equity ownership, are set forth on Schedule 4.02.
Such Company Party’s Subsidiaries have been duly incorporated, formed or organized, are validly existing under the laws of their jurisdiction of incorporation or organization and have the power and authority to own, operate and lease their
properties, rights and assets and to conduct their business as it is now being conducted, except (other than with respect to due incorporation (or, as the case may be, due formation or organization) and valid existence) in each case has not
had, and would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. Each of such Company Party’s Subsidiaries is duly licensed or qualified and in good standing as a foreign or
extra-provincial corporation (or other entity, if applicable) in each jurisdiction in which its ownership of property or the character of its activities is such as to require it to be in good standing or so licensed or qualified, except where
the failure to be in good standing or so licensed or qualified has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
Section 4.03 Due
Authorization. Such Company Party has the requisite corporate power and authority to execute and deliver this Agreement and each other Transaction Agreement to which it is a party and (subject to the approvals described in Section
4.05 and upon receipt of the Required ZF Stockholder Approval or the Required IDX Stockholder Approval, as applicable) to perform all obligations to be performed by it hereunder and thereunder and to consummate the Transactions and the
other transactions contemplated thereby. The execution, delivery and performance of this Agreement and such Transaction Agreements and the consummation of the Transactions and the other transactions contemplated thereby have been duly
authorized by the board of directors of such Company Party and, except for the Required ZF Stockholder Approval or the Required IDX
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Stockholder Approval, as applicable, no other corporate proceeding on the part of
such Company Party is necessary to authorize this Agreement or any other Transaction Agreements to which it is a party or such Company Party’s performance hereunder or thereunder. This Agreement has been, and each such other Transaction
Agreement to which such Company Party will be party (when executed and delivered by such Company Party) will be, duly and validly executed and delivered by such Company Party and, assuming due and valid authorization, execution and delivery by
each other party hereto and thereto, this Agreement constitutes, and each such other Transaction Agreement to which such Company Party will be party, will constitute, a valid and binding obligation of such Company Party, enforceable against
such Company Party in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting or relating to creditors’ rights generally and subject, as to
enforceability, to general principles of equity, whether such enforceability is considered in a proceeding in equity or at Law (the “Enforceability Exceptions”).
Section 4.04 No Conflict.
Except as set forth on Schedule 4.04, the execution, delivery and performance by such Company Party of this Agreement and the other Transaction Agreements to which it is a party and upon receipt of the Required ZF Stockholder Approval
or the Required IDX Stockholder approval, as applicable, the consummation by such Company Party of the Transactions and the other transactions contemplated thereby do not and will not (a) contravene or conflict with the Organizational Documents
of such Company Party or, in any material respect, the equivalent organizational documents of its Subsidiaries, (b) subject to the approvals described in Section 4.05, contravene or conflict with or constitute a violation of any
provision of any Law, Permit or Governmental Order binding upon or applicable to such Company Party or any of its Subsidiaries or any of their respective assets or properties, (c) subject to the approvals described in Section 4.05,
violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or result in the termination or
acceleration of, or a right of termination, cancellation, modification, acceleration or amendment under, accelerate the performance required by, or result in the acceleration or trigger of any payment, posting of collateral (or right to require
the posting of collateral), time of payment, vesting or increase in the amount of any compensation or benefit payable pursuant to, any of the terms, conditions or provisions of any Contract to which such Company Party or any of its Subsidiaries
is a party or by which any of their respective assets or properties may be bound or affected or any Permit of such Company Party or its Subsidiaries, or (d) result in the creation or imposition of any Lien on any asset, property or Equity
Security of such Company Party or any of its Subsidiaries, except in the case of each of clauses (b) through (d) as has not been, and would not reasonably be expected to be, individually or in the aggregate, material to such Company Party and
its Subsidiaries, taken as a whole.
Section 4.05 Governmental
Authorities; Consents. Assuming the truth and completeness of the representations and warranties of the Acquiror Parties and the other Company Party contained in this Agreement, no action by, consent, approval, permit or authorization of,
or designation, declaration or filing with, any Governmental Authority or notice, approval, consent, waiver or authorization from any Governmental Authority is required on the part of such Company Party with respect to such Company Party’s
execution, delivery and performance of this Agreement and the other Transaction Agreements and the consummation of the Transactions and the other transactions contemplated thereby, except for (a) applicable requirements of the HSR Act, (b) the
filing of (i) the ZF Certificate of Merger, (ii) the IDX Certificate of Merger, (iii) the IDX Forward Certificate of Merger and (iv) the Acquiror Charter, each in accordance with the DGCL and, the DLLCA in the case of the IDX Forward
Certificate of Merger, and (c) any actions, consents, approvals, permits or authorizations, designations, declarations or filings, the absence of which would not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(a) Schedule 4.06(a) sets forth as of the date hereof the
Equity Securities of ZF (including the number and class or series (as applicable)) and the record ownership (including the percentage interests held thereby) thereof, and such Equity Securities are free and clear of all Liens and free of any
other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such ownership interests) in each case imposed by or resulting from any Contract to which ZF is a party and have been duly authorized,
validly issued, are, in the case of shares of stock, fully paid and non-assessable, and have not been issued in violation of preemptive or similar rights. With respect to each ZF Option and ZF Restricted Share award, Schedule 4.06(a)
sets forth, as of the date hereof (as applicable): (i) the name of the holder
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thereof; (ii) the number of shares of ZF Common Stock issuable upon the exercise of
such ZF Option or subject to such ZF Restricted Share award, as applicable; (iii) in the case of a ZF Option, the exercise price thereof; (iv) the date of grant thereof; (v) in the case of a ZF Option, the expiration date thereof; (vi) in the
case of a ZF option, whether such option is intended to be an incentive stock option under Code Section 422; and (vii) the vesting schedule for such ZF Option or ZF Restricted Share award. Each grant of a ZF Option or a ZF Restricted Share was
made in all material respects in accordance with the terms of the applicable governing plan document and award agreements and applicable Law. All ZF Options were granted with a per share exercise price at least equal to the fair market value of
the underlying share of ZF Common Stock on the date such ZF Option was granted (within the meaning of Section 409A or Section 422 of the Code and the Treasury Regulations promulgated thereunder). Except for the Equity Securities of ZF set forth
on Schedule 4.06(a), as of the date hereof, there are no other Equity Securities of ZF authorized, reserved, issued or outstanding other than Equity Securities authorized under the ZF Certificate of Incorporation and Equity Securities
reserved for issuance under the ZF Option Plan.
(b) Except as set forth on Schedule 4.06(a), as of the date
hereof, there are no outstanding or authorized stock options, equity appreciation rights, phantom equity, profit participation, restricted stock, restricted stock unit, performance stock unit, or similar compensatory equity or equity-linked
awards with respect to the Equity Securities of, or other equity or voting interest in, ZF or any of its Subsidiaries. No Person is entitled to any preemptive or similar rights to subscribe for Equity Securities of ZF or any of its
Subsidiaries. There are no outstanding contractual obligations of ZF to repurchase, redeem or otherwise acquire any Equity Securities of ZF or any of its Subsidiaries. Except as set forth on Schedule 4.06(a), there are no outstanding
bonds, debentures, notes or other Indebtedness of ZF or any of its Subsidiaries having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matter for which any of ZF’s or any of its
Subsidiaries’ stockholders or members may vote. Except as set forth on Schedule 4.06(b), none of ZF or any of its Subsidiaries is party to any shareholders agreement, voting agreement, proxies, registration rights agreement or other
agreements or understandings relating to its equity interests.
(c) (i) There are no declared but unpaid dividends or distributions
in respect of any Equity Securities of ZF or any of its Subsidiaries and (ii) since December 31, 2020, none of ZF or any of its Subsidiaries has made, declared, set aside, established a record date for or paid any dividends or distributions.
(d) Schedule 4.06(d) sets forth as of the date hereof the
Equity Securities of IDX (including the number and class or series (as applicable)) and the record ownership (including the percentage interests held thereby) thereof, and such Equity Securities are free and clear of all Liens and free of any
other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such ownership interests) in each case imposed by or resulting from any Contract to which IDX is a party and have been duly
authorized, validly issued, are, in the case of shares of stock, fully paid and non-assessable, and have not been issued in violation of preemptive or similar rights. With respect to each IDX Option, Schedule 4.06(d) sets forth as of
the date hereof: (i) the name of the holder thereof; (ii) the number of shares of IDX Common Stock issuable upon the exercise of such IDX Option; (iii) the exercise price thereof; (iv) the date of grant thereof; (v) the expiration date thereof;
(vi) whether such option is intended to be an incentive stock option under Code Section 422; and (vii) the vesting schedule for such IDX Option. Each grant of an IDX Option was made in all material respects in accordance with the terms of the
applicable governing plan document and award agreements and applicable Law. All IDX Options were granted with a per share exercise price at least equal to the fair market value of the underlying share of IDX Common Stock on the date such IDX
Option was granted (within the meaning of Section 409 or Section 422 of the Code and the Treasury Regulations promulgated thereunder). Except for the Equity Securities of IDX set forth on Schedule 4.06(d), as of the date hereof, there
are no other Equity Securities of IDX authorized, reserved, issued or outstanding other than Equity Securities authorized under the IDX Certificate of Incorporation and Equity Securities reserved for issuance under the IDX Option Plans.
(e) Except as set forth on Schedule 4.06(d), as of the date
hereof, there are no outstanding or authorized stock options, equity appreciation rights, phantom equity, profit participation, restricted stock, restricted stock unit, performance stock unit, or similar compensatory equity or equity-linked
awards with respect to the Equity Securities of, or other equity or voting interest in, IDX or any of its Subsidiaries. No Person is entitled to any preemptive or similar rights to subscribe for Equity Securities of IDX or any of its
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Subsidiaries. There are no outstanding contractual obligations of IDX to repurchase,
redeem or otherwise acquire any Equity Securities of IDX or any of its Subsidiaries. Except as set forth on Schedule 4.06(d), there are no outstanding bonds, debentures, notes or other Indebtedness of IDX or any of its Subsidiaries
having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matter for which any of IDX’s or any of its Subsidiaries’ stockholders may vote. Except as set forth on Schedule 4.06(e),
none of IDX or any of its Subsidiaries is party to any shareholders agreement, voting agreement, proxies, registration rights agreement or other agreements or understandings relating to its equity interests.
(f) (i) There are no declared but unpaid dividends or distributions
in respect of any Equity Securities of IDX or any of its Subsidiaries and (ii) since December 31, 2020, none of IDX or any of its Subsidiaries has made, declared, set aside, established a record date for or paid any dividends or distributions.
(a) The outstanding shares of capital stock or other equity
interests of such Company Party’s Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable. All of the outstanding Equity Securities in each of such Company Party’s Subsidiaries are solely owned by such
Company Party, directly or indirectly, free and clear of any Liens (other than Liens securing obligations under the Comerica Credit Facility in the case of IDX) and have not been issued in violation of preemptive or similar rights. Except for
Equity Securities owned by such Company Party or any wholly-owned Subsidiary of such Company Party, there are no Equity Securities of any of such Company Party’s Subsidiaries authorized, reserved, issued or outstanding other than Equity
Securities authorized under the organizational documents of such Company Party’s Subsidiaries.
(b) There are no outstanding or authorized equity appreciation
rights, phantom equity, profit participation or similar compensatory equity or equity-linked awards with respect to the Equity Securities of, or other equity or voting interest in, any of such Company Party’s Subsidiaries. No Person is entitled
to any preemptive or similar rights to subscribe for Equity Securities of any of such Company Party’s Subsidiaries. There are no outstanding contractual obligations of any of such Company Party’s Subsidiaries to repurchase, redeem or otherwise
acquire any Equity Securities of any such Company Party Subsidiary. There are no outstanding bonds, debentures, notes or other Indebtedness of any of such Company Party’s Subsidiaries having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matter for which any such Company Party Subsidiary’s stockholders may vote. None of such Company Party’s Subsidiaries is a party to any shareholders agreement, voting agreement,
proxies, registration rights agreement or other agreements or understandings relating to its equity interests.
(c) Except for Equity Securities in any wholly-owned Subsidiary of
such Company Party or as set forth on Schedule 4.07, neither such Company Party nor any of its Subsidiaries owns any Equity Securities in any Person. No shares of capital stock are held in treasury by any of such Company Party’s
Subsidiaries.
(a) Attached as Schedule 4.08(a) hereto are true, correct,
accurate and complete copies of (i) the audited consolidated balance sheets of ZF and its Subsidiaries as of January 31, 2021, January 31, 2020 and January 31, 2019 and the related audited consolidated statements of comprehensive loss,
redeemable convertible preferred stock and stockholders’ deficit and cash flows for the years then ended, together with the auditor’s reports thereon (the “ZF Audited Financial Statements”), and (ii) the unaudited consolidated condensed
balance sheet of ZF as at October 31, 2021 (the “ZF Most Recent Balance Sheet”), and the related unaudited consolidated condensed statements of comprehensive loss, redeemable convertible preferred stock and stockholders’ deficit and cash
flows for the nine-month period ended October 31, 2021 (the “ZF Interim Financial Statements” and, together with the ZF Audited Financial Statements, the “ZF Financial Statements”).
(b) The ZF Financial Statements present fairly, in all material
respects, the consolidated financial position, cash flows, loss, changes in equity and results of operations of ZF and its Subsidiaries as of the dates and for the periods indicated in the ZF Financial Statements in conformity with GAAP during
the
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periods involved (except in the case of the ZF Interim Financial Statements for the
absence of footnotes and other presentation items and for normal and recurring year-end adjustments) and were derived from, and accurately reflect, the books and records of ZF and its Subsidiaries.
(c) ZF and its Subsidiaries have established and maintain systems of
internal accounting controls that are designed to provide reasonable assurance that (i) all transactions are executed in accordance with management’s authorization and (ii) all transactions are recorded as necessary to permit preparation of
proper and accurate financial statements in accordance with GAAP and to maintain accountability for ZF’s and its Subsidiaries’ assets. ZF and its Subsidiaries maintain and, for all periods covered by the ZF Financial Statements, have maintained
books and records of ZF and its Subsidiaries in the ordinary course of business that are accurate and complete and reflect the revenues, expenses, assets and liabilities of ZF and its Subsidiaries in all material respects.
(d) Except as set forth on Schedule 4.08(d), neither ZF nor
its independent auditors has identified or been made aware of (after reasonable inquiry) any (i) “significant deficiency” in the internal controls over financial reporting of ZF and its Subsidiaries, (ii) “material weakness” in the internal
controls over financial reporting of ZF and its Subsidiaries, or (iii) fraud, whether or not material, that involves management or other employees of ZF and its Subsidiaries who have a significant role in the internal controls over financial
reporting of ZF and its Subsidiaries.
(e) Attached as Schedule 4.08(e) hereto are true, correct,
accurate and complete copies of (i) the audited consolidated balance sheets of IDX and its Subsidiaries as of December 31, 2020 and December 31, 2019, and the related audited consolidated statements of income, changes in stockholders’ deficit
and cash flows for the years then ended, together with the auditor’s reports thereon (the “IDX Audited Financial Statements”), and (ii) the unaudited consolidated condensed balance sheet of IDX as at September 30, 2021 (the “IDX
Most Recent Balance Sheet”) and the related unaudited consolidated condensed statements of income, changes in stockholders’ equity and cash flows for the nine-month period ended September 30, 2021 (the “IDX Interim Financial Statements”
and, together with the IDX Audited Financial Statements, the “IDX Financial Statements”).
(f) The IDX Financial Statements present fairly, in all material
respects, the consolidated financial position, cash flows, income, changes in equity and results of operations of IDX and its Subsidiaries as of the dates and for the periods indicated in the IDX Financial Statements in conformity with GAAP
during the periods involved (except in the case of the IDX Interim Financial Statements for the absence of footnotes and other presentation items and for normal and recurring year-end adjustments) and were derived from, and accurately reflect,
the books and records of IDX and its Subsidiaries.
(g) IDX and its Subsidiaries have established and maintain systems
of internal accounting controls that are designed to provide reasonable assurance that (i) all transactions are executed in accordance with management’s authorization and (ii) all transactions are recorded as necessary to permit preparation of
proper and accurate financial statements in accordance with GAAP and to maintain accountability for IDX’s and its Subsidiaries’ assets. IDX and its Subsidiaries maintain and, for all periods covered by the IDX Financial Statements, have
maintained books and records of IDX and its Subsidiaries in the ordinary course of business that are accurate and complete and reflect the revenues, expenses, assets and liabilities of IDX and its Subsidiaries in all material respects.
(h) Neither IDX nor IDX’s independent auditors has identified or
been made aware of (after reasonable inquiry) any (i) “significant deficiency” in the internal controls over financial reporting of IDX and its Subsidiaries, (ii) “material weakness” in the internal controls over financial reporting of IDX and
its Subsidiaries, or (iii) fraud, whether or not material, that involves management or other employees of IDX and its Subsidiaries who have a significant role in the internal controls over financial reporting of IDX and its Subsidiaries.
(a) Except as set forth on Schedule 4.09(a), as of the date
hereof, neither ZF nor any of its Subsidiaries has any liability, debt or obligation, whether accrued, contingent, absolute, determined, determinable or otherwise, except for liabilities, debts or obligations (a) reflected or reserved for in
the ZF Most Recent Balance Sheet, (b) that have arisen since October 31, 2021 in the ordinary course of business
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of ZF and its Subsidiaries, none of which is a liability for a breach of contract,
breach of warranty or infringement or violation of Law, (c) arising under this Agreement or any other Transaction Agreement or the performance by ZF of its obligations hereunder or thereunder, including ZF Transaction Expenses, (d) that would
not be required to be set forth on a consolidated balance sheet of ZF and its Subsidiaries prepared in accordance with GAAP, or (e) that would not reasonably be expected to be material to ZF and its Subsidiaries, taken as whole. Neither ZF nor
any of its Subsidiaries is a party to any “off-balance sheet arrangement” (as defined in Item 303(a) of Regulation S-K promulgated by the SEC).
(b) Except as set forth on Schedule 4.09(b), as of the date
hereof, neither IDX nor any of its Subsidiaries has any liability, debt or obligation, whether accrued, contingent, absolute, determined, determinable or otherwise, except for liabilities, debts or obligations (a) reflected or reserved for in
the IDX Most Recent Balance Sheet, (b) that have arisen since September 30, 2021 in the ordinary course of business of IDX and its Subsidiaries, none of which is a liability for a breach of contract, breach of warranty or infringement or
violation of Law, (c) arising under this Agreement or any other Transaction Agreement or the performance by IDX of its obligations hereunder or thereunder, including IDX Transaction Expenses, (d) that would not be required to be set forth on a
consolidated balance sheet of IDX and its Subsidiaries prepared in accordance with GAAP, or (e) that would not reasonably be expected to be material to IDX and its Subsidiaries, taken as whole. Neither IDX nor any of its Subsidiaries is a party
to any “off-balance sheet arrangement” (as defined in Item 303(a) of Regulation S-K promulgated by the SEC).
Section 4.10 Litigation and
Proceedings. There is no, and since June 1, 2018, there has been no, pending or, to the knowledge of such Company Party, threatened Actions by, against or affecting such Company Party or any of its Subsidiaries or any of their properties,
rights or assets that, as of the date hereof or as of the Closing Date, would reasonably be expected to (a) involve an amount in controversy (not counting insurance deductibles) of at least $500,000 or (b) be, individually or in the aggregate,
material to such Company Party and its Subsidiaries taken as a whole or would have a Company Material Adverse Effect. There is no, and since June 1, 2018 there has been no, Governmental Order imposed upon or, to the knowledge of such Company
Party, threatened against such Company Party or any of its Subsidiaries or any of their properties, rights or assets that, as of the date hereof or as of the Closing Date, would reasonably be expected to be, individually or in the aggregate,
material to such Company Party and its Subsidiaries taken as a whole or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. Neither such Company Party nor any of its Subsidiaries is party
to a settlement or similar agreement regarding any of the matters set forth in the two preceding sentences that contains any ongoing obligations, restrictions or liabilities (of any nature) that would reasonably be expected to be, individually
or in the aggregate, material to such Company Party and its Subsidiaries taken as a whole or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
Section 4.11 Compliance with
Laws. Except where the failure to be, or to have been, in compliance with such Laws has not, and would not, individually or in the aggregate, be material to such Company Party and its Subsidiaries, taken as a whole, or would not
reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, or as otherwise set forth on Schedule 4.11, such Company Party and its Subsidiaries are, and since June 1, 2018 have been, in
compliance with all applicable Laws. Such Company Party and its Subsidiaries hold, and since June 1, 2018 have (a) held, all licenses, approvals, clearances, consents, registrations, franchises and permits necessary for the lawful conduct of
their business (the “Permits”), except where the failure to so hold has not had, and would not be reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, (b) to the extent applicable,
maintained at least a “satisfactory” rating with respect to any such Permits with a Governmental Authority and (c) complied in all material respects with all applicable requirements under such Permits. Since June 1, 2018, (a) neither such
Company Party nor any of its Subsidiaries has received any written notice of any violations of applicable Laws, Governmental Orders or Permits (other than allegations asserted by providers in connection with requests for claims adjustments by
such providers in the ordinary course of business), (b) to the knowledge of such Company Party, no assertion or Action of any violation of any Law, Governmental Order or Permit by such Company Party or any of its Subsidiaries is currently
threatened against such Company Party or any of its Subsidiaries (other than allegations asserted by providers in connection with requests for claims adjustments by such providers in the ordinary course of business), and (c) neither such
Company Party nor any of its Subsidiaries has had any such Permit revoked, excluding terminations as may occur in the ordinary course of business, in the case of the foregoing clauses (a), (b) and (c), except as has not
had, and would not be reasonably be expected to have, individually or in the
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aggregate, a Company Material Adverse Effect. No investigation or review by any
Governmental Authority with respect to such Company Party or any of its Subsidiaries is pending or, to the knowledge of such Company Party, threatened, and no such investigations have been conducted by any Governmental Authority since June 1,
2018, in each case, except as has not had, and would not be reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
(a) Schedule 4.12(a) contains a true and complete listing of
all Contracts described in clauses (i) through (xvi) of this Section 4.12(a) to which, as of the date of this Agreement, ZF or any of its Subsidiaries is a party or by which any of their respective assets is bound
(together with all material amendments, waivers or other changes thereto) other than any purchase orders entered into in the ordinary course of business (all such Contracts as described in clauses (i) through (xvi), collectively,
the “ZF Material Contracts”). True, correct and complete copies of the ZF Material Contracts have been delivered to or made available to Acquiror or its agents or Representatives.
(i) Each Contract that involves aggregate payments or consideration
furnished (A) by ZF or by any of its Subsidiaries of more than $500,000 or (B) to ZF or to any of its Subsidiaries of more than $500,000, in each case, in the calendar year ended December 31, 2020 or any subsequent calendar year;
(ii) Each Contract relating to Indebtedness with a principal amount
(including the amount of any undrawn but available commitments thereunder) in excess of $1,000,000;
(iii) Each Contract that is a purchase and sale or similar agreement
for the acquisition of any Person or any business unit thereof or the disposition of any material assets of ZF or any of its Subsidiaries (A) since June 1, 2018, in each case, involving payments in excess of $1,000,000 or (B) pursuant to which
there are any material ongoing obligations;
(iv) Each lease, rental or occupancy agreement, license, installment
and conditional sale agreement and each other Contract with outstanding obligations that (A) provides for the ownership of, leasing of, occupancy of, title to, use of, or any leasehold or other interest in any real or personal property and
(B) involves aggregate payments in excess of $400,000 in any calendar year, other than sales or purchase agreements in the ordinary course of business and sales of obsolete equipment;
(v) Each joint venture Contract, agreement establishing an entity
that is a partnership, limited liability company agreement or similar Contract (other than Contracts between wholly-owned Subsidiaries of ZF) that is material to the business of ZF and its Subsidiaries, taken as a whole;
(vi) Each Contract requiring capital expenditures by ZF or its
Subsidiaries after the date of this Agreement in an amount in excess of $500,000 in the aggregate;
(vii) Each Contract prohibiting or restricting in any material
respect the ability of ZF or its Subsidiaries to engage in any business, to solicit any potential customer, to operate in any geographical area or to compete with any Person, in each case, in any material respect, other than customary
non-solicitation and no-hire provisions entered into in the ordinary course of business;
(viii) Each Contract under which ZF or any of its Subsidiaries (A)
is a licensee with respect to any item of Intellectual Property (excluding (v) non-exclusive licenses for commercially available, “off-the-shelf software” products (including for software as a service) and commercially available threat
intelligence data feeds, (w) non-disclosure agreements, contractor services agreements, consulting services agreements, or employment proprietary agreements, (x) non-exclusive licenses having a value of less than $100,000, (y) non-exclusive
Intellectual Property license grants incidental to marketing, printing or advertising arrangements, and (z) any licenses for Open Source Code, in each case, entered into in the ordinary course of business and used solely for ZF’s or any of its
Subsidiaries’ internal use), (B) is a licensor or otherwise grants to a third party any right(s) to use specifically any item of Owned Intellectual Property owned by ZF or any of its Subsidiaries (excluding non-exclusive licenses granted by ZF
or any of its Subsidiaries to customers, channel partners and technology partners in the ordinary
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course of business), or (C) entered into to settle or resolve any Intellectual
Property-related dispute, including settlement agreements, covenants not to sue, consent agreements, and co-existence agreements, in each case involving an amount in controversy of at least $500,000;
(ix) Each Contract for the development of Intellectual Property by a
third party (other than pursuant to ZF’s standard form employee invention assignment or consulting or independent contractor agreements, copies of which have been provided to Acquiror) that involves aggregate payments or consideration furnished
by ZF or by any of its Subsidiaries of more than $250,000 in any calendar year;
(x) Each Contract for employment or engagement with any individual
(including employees, directors, officers, and individual independent contractors) that (A) provides for annual base compensation in excess of $250,000, (B) provides for the payment or accelerated vesting of any compensation or benefits in
connection with the consummation of the Transactions, including any severance, retention, change of control, transaction, or similar payments, or (C) otherwise restricts the ability of ZF or any of its Subsidiaries to terminate employment or
engagement of such individual at any time for any reason or no reason without penalty or liability other than in the ordinary course of business or as otherwise required by Law;
(xi) Each CBA with ZF or any of its Subsidiaries, on the one hand,
and any labor union, labor organization or works council representing employees of ZF or such Subsidiary, on the other hand;
(xii) Each Contract that is a settlement, conciliation or similar
agreement with any Governmental Authority or pursuant to which ZF or any of its Subsidiaries will have any outstanding obligation in excess of $100,000 after the date of this Agreement;
(xiii) Each sales commission or brokerage Contract that involves
annual referral payments in excess of $1,000,000 or is not cancellable on 90 or less calendar days’ notice prior to the expiration of the then current term without payment or penalty;
(xiv) Any Contract with (A) any Affiliate of ZF (other than a
Subsidiary of ZF) or (B) any Affiliate or family member of any ZF Pre-Closing Holder;
(xv) Any Contract with a Governmental Authority requiring a Permit,
except to the extent such Contract involves payments furnished to ZF or any of its Subsidiaries of less than $100,000 per year;
(xvi) Any Contract that is a currency or interest hedging
arrangement; and
(xvii) Any commitment to enter into agreements of the type described
in clauses (i) through (xv) of this Section 4.12(a).
(b) Except for any Contract that has terminated or as set forth on Schedule
4.12(b), or will terminate, upon the expiration of the stated term thereof prior to the Closing Date and except as would not reasonably be expected to be, individually or in the aggregate, material to ZF and its Subsidiaries, taken as a
whole, as of the date of this Agreement, each ZF Material Contract is (i) in full force and effect and (ii) represents the legal, valid and binding obligations of ZF or one of its Subsidiaries that is a party thereto and, to the knowledge of
ZF, represents the legal, valid and binding obligations of the other parties thereto, in each case, subject to the Enforceability Exceptions. Except as has not been, and would not reasonably be expected to be, individually or in the aggregate,
material to ZF and its Subsidiaries taken as a whole, (w) neither ZF, any of its Subsidiaries nor, to the knowledge of ZF, any other party thereto is or is alleged to be in breach of or default under any ZF Material Contract, (x) since June 1,
2020, neither ZF nor any of its Subsidiaries has received any written claim or notice of breach of or default under any such Contract, (y) to the knowledge of ZF, no event has occurred which individually or together with other events, would
reasonably be expected to result in a breach of or a default under any such ZF Material Contract (in each case, with or without notice or lapse of time or both), and (z) no party to any such ZF Material Contract that is a customer of or
supplier to ZF or any of its Subsidiaries has, within the past 12 months, canceled or terminated its business with, or threatened in writing to cancel or terminate its business with, ZF or any of its Subsidiaries.
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(a) Schedule 4.13(a) contains a true and complete listing of
all Contracts described in clauses (i) through (xvi) of this Section 4.13(a) to which, as of the date of this Agreement, IDX or any of its Subsidiaries is a party or by which any of their respective assets is bound
(together with all material amendments, waivers or other changes thereto) other than any purchase orders entered into in the ordinary course of business (all such Contracts as described in clauses (i) through (xvi), collectively,
the “IDX Material Contracts”). True, correct and complete copies of the IDX Material Contracts have been delivered to or made available to Acquiror or its agents or Representatives.
(i) Each Contract that involves aggregate payments or consideration
furnished (A) by IDX or by any of its Subsidiaries of more than $500,000 or (B) to IDX or to any of its Subsidiaries of more than $500,000, in each case, in the calendar year ended December 31, 2020 or any subsequent calendar year;
(ii) Each Contract relating to Indebtedness with a principal amount
(including the amount of any undrawn but available commitments thereunder) in excess of $1,000,000;
(iii) Each Contract that is a purchase and sale or similar agreement
for the acquisition of any Person or any business unit thereof or the disposition of any material assets of IDX or any of its Subsidiaries (A) since June 1, 2018, in each case, involving payments in excess of $1,000,000 or (B) pursuant to which
there are any material ongoing obligations;
(iv) Each lease, rental or occupancy agreement, license, installment
and conditional sale agreement and each other Contract with outstanding obligations that (A) provides for the ownership of, leasing of, occupancy of, title to, use of, or any leasehold or other interest in any real or personal property and
(B) involves aggregate payments in excess of $400,000 in any calendar year, other than sales or purchase agreements in the ordinary course of business and sales of obsolete equipment;
(v) Each joint venture Contract, agreement establishing an entity
that is a partnership, limited liability company agreement or similar Contract (other than Contracts between wholly-owned Subsidiaries of IDX) that is material to the business of IDX and its Subsidiaries, taken as a whole;
(vi) Each Contract requiring capital expenditures by IDX or its
Subsidiaries after the date of this Agreement in an amount in excess of $500,000 in the aggregate;
(vii) Each Contract prohibiting or restricting in any material
respect the ability of IDX or its Subsidiaries to engage in any business, to solicit any potential customer, to operate in any geographical area or to compete with any Person, in each case, in any material respect, other than customary
non-solicitation and no-hire provisions entered into in the ordinary course of business;
(viii) Each Contract under which IDX or any of its Subsidiaries (A)
is a licensee with respect to any item of Intellectual Property (excluding (v) non-exclusive licenses for commercially available, “off-the-shelf software” products (including for software as a service) and commercially available threat
intelligence data feeds, (w) non-disclosure agreements, contractor services agreements, consulting services agreements, or employment proprietary agreements, (x) non-exclusive licenses having a value of less than $100,000, (y) non-exclusive
Intellectual Property license grants incidental to marketing, printing or advertising arrangements, and (z) any licenses for Open Source Code, in each case, entered into in the ordinary course of business and used solely for IDX’s or any of its
Subsidiaries’ internal use), (B) is a licensor or otherwise grants to a third party any right(s) to use specifically any item of Owned Intellectual Property owned by IDX or any of its Subsidiaries (excluding non-exclusive licenses granted by
IDX or any of its Subsidiaries to customers, channel partners and technology partners in the ordinary course of business), or (C) entered into to settle or resolve any Intellectual Property-related dispute, including settlement agreements,
covenants not to sue, consent agreements, and co-existence agreements, in each case involving an amount in controversy of at least $500,000;
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(ix) Each Contract for the development of Intellectual Property
by a third party (other than pursuant to IDX’s standard form employee invention assignment or consulting or independent contractor agreements, copies of which have been provided to Acquiror) that involves aggregate payments or consideration
furnished by IDX or by any of its Subsidiaries of more than $250,000 in any calendar year;
(x) Each Contract for employment or engagement with any individual
(including employees, directors, officers, and individual independent contractors) that (A) provides for annual base compensation in excess of $250,000, (B) provides for the payment or accelerated vesting of any compensation or benefits in
connection with the consummation of the Transactions, including any severance, retention, change of control, transaction, or similar payments, or (C) otherwise restricts the ability of IDX or any of its Subsidiaries to terminate employment or
engagement of such individual at any time for any reason or no reason without penalty or liability other than in the ordinary course of business or as otherwise required by Law;
(xi) Each CBA with IDX or any of its Subsidiaries, on the one hand,
and any labor union, labor organization or works council representing employees of IDX or such Subsidiary, on the other hand;
(xii) Each Contract that is a settlement, conciliation or similar
agreement with any Governmental Authority or pursuant to which IDX or any of its Subsidiaries will have any outstanding obligation in excess of $100,000 after the date of this Agreement;
(xiii) Each sales commission or brokerage Contract that involves
annual referral payments in excess of $1,000,000 or is not cancellable on 90 or less calendar days’ notice prior to the expiration of the then current term without payment or penalty;
(xiv) Any Contract with (A) any Affiliate of IDX (other than a
Subsidiary of IDX) or (B) any Affiliate or family member of any IDX Pre-Closing Holder;
(xv) Any Contract with a Governmental Authority requiring a Permit,
except to the extent such Contract involves payments furnished to IDX or any of its Subsidiaries of less than $100,000 per year;
(xvi) Any Contract that is a currency or interest hedging
arrangement; and
(xvii) Any commitment to enter into agreements of the type described
in clauses (i) through (xv) of this Section 4.13(a).
(b) Except for any Contract that has terminated or as set forth on Schedule
4.13(b), or will terminate, upon the expiration of the stated term thereof prior to the Closing Date and except as would not reasonably be expected to be, individually or in the aggregate, material to IDX and its Subsidiaries, taken as a
whole, as of the date of this Agreement, each IDX Material Contract is (i) in full force and effect and (ii) represents the legal, valid and binding obligations of IDX or one of its Subsidiaries that is a party thereto and, to the knowledge of
IDX, represents the legal, valid and binding obligations of the other parties thereto, in each case, subject to the Enforceability Exceptions. Except as has not been, and would not reasonably be expected to be, individually or in the aggregate,
material to IDX and its Subsidiaries taken as a whole, (w) neither IDX, any of its Subsidiaries nor, to the knowledge of IDX, any other party thereto is or is alleged to be in breach of or default under any IDX Material Contract, (x) since
June 1, 2020, neither IDX nor any of its Subsidiaries has received any written claim or notice of breach of or default under any such IDX Material Contract, (y) to the knowledge of IDX, no event has occurred which individually or together with
other events, would reasonably be expected to result in a breach of or a default under any such IDX Material Contract (in each case, with or without notice or lapse of time or both), and (z) no party to any such IDX Material Contract that is a
customer of or supplier to IDX or any of its Subsidiaries has, within the past 12 months, canceled or terminated its business with, or threatened in writing to cancel or terminate its business with, IDX or any of its Subsidiaries.
(a) Schedule 4.14(a) sets forth a true and complete list of
each ZF Benefit Plan; provided, however, that any individual employment agreement (or offer letter) or individual consulting agreement or sales compensation agreement that, in either case, is consistent in all material respects
with the applicable template listed on Schedule 4.14(a), shall not be required to be listed on Schedule 4.14(a). For purposes of
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this Agreement, a “ZF Benefit Plan” means each “employee benefit plan” as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), whether or not subject to ERISA, and each equity ownership, equity purchase, equity option, phantom equity, equity appreciation right,
restricted stock, restricted stock unit, performance stock unit, equity or other equity-based incentive award, severance or termination payment or benefit, employment, consulting, retention, change-in-control, fringe benefit or prerequisited,
bonus, incentive, commission, deferred compensation, employee loan, pension, retirement, profit sharing, health, welfare, accident, disability, sick pay or paid time off, and each other benefit or compensation plan, agreement, program, policy,
Contract or other arrangement, which is contributed to, required to be contributed to, sponsored by or maintained by ZF or any of its Subsidiaries, including for the benefit of any Company Party Service Provider of ZF or any of its
Subsidiaries, or under or with respect to which ZF or any of its Subsidiaries has or could reasonably be expected to have any liability or obligation, contingent or otherwise, in any case, excluding any statutory plan, program or arrangement
that is both required under applicable Laws and maintained by Governmental Authority.
(b) With respect to each ZF Benefit Plan, ZF has delivered or made
available to Acquiror copies of (i) such ZF Benefit Plan and any trust agreement or other funding instrument relating to such plan, (ii) the most recent summary plan description, if any, required under ERISA with respect to such ZF Benefit
Plan, (iii) the most recent annual report on Form 5500 and all attachments with respect to each ZF Benefit Plan (if applicable), (iv) the most recent actuarial valuation (if applicable) relating to such ZF Benefit Plan, (v) the most recent
determination or opinion letter, if any, issued by the U.S. Internal Revenue Service (“IRS”) with respect to any ZF Benefit Plan, and (vi) any material or non-routine correspondence with any Governmental Authority within the past three
years.
(c) Each ZF Benefit Plan has been established, maintained, funded
and administered in all material respects in accordance with its terms and in compliance with all applicable Laws, including ERISA and the Code. All contributions, premiums or other payments that are due with respect to any ZF Benefit Plan have
been timely made in accordance with the terms of such ZF Benefit Plan and the requirements of all applicable Laws and all such amounts due for any period ending on or before the Closing Date have been made or properly accrued and reflected in
ZF’s financial statements to the extent required by GAAP.
(d) Each ZF Benefit Plan which is intended to be qualified within
the meaning of Section 401(a) of the Code is so qualified in all material respects and (i) has received a favorable determination letter as to its qualification or (ii) has been established under an IRS pre-approved plan document for which a
current favorable IRS advisory letter or opinion letter has been obtained by the plan sponsor and is valid as to the adopting employer, and nothing has occurred, whether by action or failure to act, that could reasonably be expected to
adversely affect such qualification.
(e) No event has occurred and no condition exists that could subject
ZF or any of its Subsidiaries, either directly or by reason of their affiliation with an ERISA Affiliate, to any material Tax, fine, Lien, penalty or other liability imposed by ERISA, the Code or other applicable Law. There do not exist any
pending or, to the knowledge of ZF, threatened claims or Actions (other than routine claims for benefits), audits or investigations with respect to any ZF Benefit Plan or the assets thereof, and, to the knowledge of ZF, there are no facts or
circumstances that could give rise to any such claims or Actions. There have been no “prohibited transactions” within the meaning of Section 4975 of the Code or Sections 406 or 407 of ERISA and not otherwise exempt under Section 408 of ERISA
with respect to any ZF Benefit Plans that could reasonably be expected to result in material liability to ZF or any of its Subsidiaries. No breaches of fiduciary duty (as determined under ERISA) with respect to any ZF Benefit Plan have occurred
that could reasonably be expected to result in material liability to ZF or any of its Subsidiaries.
(f) No ZF Benefit Plan provides, and neither ZF nor any of its
Subsidiaries has any current or projected liability or obligation in respect of providing, post-employment, post-retirement, post-ownership or post-termination health, medical or life insurance benefits for any current, former or retired
Company Party Service Provider of ZF or any of its Subsidiaries or any other Person, except (i) as required to avoid an excise tax under Section 4980B of the Code (“COBRA”) or similar applicable state Law, (ii) if provided for under the
terms of the applicable insurance Contract, coverage through the end of the calendar month in which a termination of employment occurs, or (iii) pursuant to an applicable agreement, plan or policy listed on Schedule 4.14(f) (including a
template) requiring ZF or any of its Subsidiaries to pay or subsidize COBRA premiums for a terminated employee following the employee’s termination. Neither ZF nor any of
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its Subsidiaries has incurred (whether or not assessed) any material Tax, liability
or other penalty with respect to the reporting requirements under Sections 6055 and 6056 of the Code, as applicable, or under Section 4980B, 4980D or 4980H of the Code, and no circumstances exist or events have occurred that could reasonably be
expected to result in the imposition of any such material Taxes, penalties or liabilities.
(g) None of ZF, any of its Subsidiaries, or any of its ERISA
Affiliates sponsors, maintains, contributes to, is required to contribute to, or otherwise has or could reasonably be expected to have any current or contingent liability or obligation under or with respect to: (i) a multiemployer plan (as
defined in Section 3(37) of ERISA or Section 4001(a)(3) of the Code) (a “Multiemployer Plan”), (ii) a “defined benefit plan” (as defined in Section 3(35) of ERISA) or any plan that is or was subject to Section 302 or Title IV of ERISA or
Section 412 or Section 4971 of the Code, (iii) a “multiple employer plan” (within the meaning of Section 210 of ERISA or Section 413(c) of the Code), or (iv) a “multiple employer welfare arrangement” (as defined in Section 3(40) of ERISA).
Neither ZF nor any of its Subsidiaries has any current or contingent material liability or material obligation on account of at any time being considered a single employer under Section 414 of the Code with any other Person.
(h) Except as set forth on Schedule 4.14(h), neither the
execution and delivery of this Agreement by ZF nor the consummation of the Mergers will (whether alone or in connection with any other event(s), including, but not limited to, a termination of employment) (i) result in the acceleration,
funding, vesting or creation of any rights of any current or former Company Party Service Provider of ZF or its Subsidiaries (or any dependent or beneficiary thereof) to any compensatory payments or benefits or increases in any compensatory
payments or benefits (including any loan forgiveness) under any ZF Benefit Plan (or under any arrangement that would be a ZF Benefit Plan if in effect as of the date of this Agreement), (ii) result in the payment to any current or former
Company Party Service Provider of ZF or its Subsidiaries of any severance or termination payments or benefits, or any increase in severance or termination payments or benefits upon any termination of employment or service, (iii) limit or
restrict the right of ZF to merge, amend or terminate any ZF Benefit Plan, or (iv) result in any payments or benefits under any agreement with ZF or any of its Subsidiaries that, individually or in combination with any other payment or benefit,
would constitute the payment of any “excess parachute payment” within the meaning of Section 280G of the Code (or corresponding provision of state law) to any Company Party Service Provider of ZF or its Subsidiaries who is a “disqualified
individual” within the meaning of Section 280G of the Code.
(i) Except as set forth on Schedule 4.14(i), neither ZF nor
any of its Subsidiaries maintains any obligations to gross-up or reimburse any individual for any Tax or related interest or penalties incurred by such individual, including under Sections 409A or 4999 of the Code or otherwise.
(j) Each ZF Benefit Plan that is a “nonqualified deferred
compensation plan” within the meaning of Section 409A(d)(1) of the Code is in material documentary compliance with, and has been maintained, operated and administered in all material respects in compliance with, Section 409A of the Code, and
all applicable regulations, other guidance issued, and notices issued thereunder.
(k) Without limiting the generality of Section 4.14(a)
through Section 4.14(j) above, with respect to each ZF Benefit Plan that is subject to the Laws of a jurisdiction other than the United States (whether or not United States Law also applies) (a “ZF Foreign Plan”): (i) all
employer and employee contributions to each ZF Foreign Plan required by Law or by the terms of such ZF Foreign Plan have been timely made in all material respects, or, if applicable, accrued in accordance with normal accounting practices;
(ii) each ZF Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities; (iii) no ZF Foreign Plan is a defined benefit retirement plan, seniority premium,
termination indemnity, gratuity or similar plan or arrangement; and (iv) no ZF Foreign Plan has any unfunded or underfunded liabilities.
(a) Schedule 4.15(a) sets forth a true and complete list of
each IDX Benefit Plan; provided, however, that any individual employment agreement (or offer letter) or individual consulting agreement or sales compensation agreement that, in either case, is consistent in all material respects
with the applicable template listed on Schedule 4.15(a), shall not be required to be listed on Schedule 4.15(a). For purposes of this Agreement, an “IDX Benefit Plan” means each “employee benefit plan” as defined in
Section 3(3) of ERISA, whether or not subject to ERISA, and each equity ownership, equity purchase, equity option,
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phantom equity, equity appreciation right, restricted stock, restricted stock unit,
performance stock unit, equity or other equity-based incentive award, severance or termination payment or benefit, employment, consulting, retention, change-in-control, fringe benefit or prerequisited, bonus, incentive, commission, deferred
compensation, employee loan, pension, retirement, profit sharing, health, welfare, accident, disability, sick pay or paid time off, and each other benefit or compensation plan, agreement, program, policy, Contract or other arrangement, which is
contributed to, required to be contributed to, sponsored by or maintained by IDX or any of its Subsidiaries, including for the benefit of any Company Party Service Provider of IDX or any of its Subsidiaries, or under or with respect to which
IDX or any of its Subsidiaries has or could reasonably be expected to have any liability or obligation, contingent or otherwise, in any case, excluding any statutory plan, program or arrangement that is both required under applicable Laws and
maintained by Governmental Authority.
(b) With respect to each IDX Benefit Plan, IDX has delivered or made
available to Acquiror copies of (i) such IDX Benefit Plan and any trust agreement or other funding instrument relating to such plan, (ii) the most recent summary plan description, if any, required under ERISA with respect to such IDX Benefit
Plan, (iii) the most recent annual report on Form 5500 and all attachments with respect to each IDX Benefit Plan (if applicable), (iv) the most recent actuarial valuation (if applicable) relating to such IDX Benefit Plan, (v) the most recent
determination or opinion letter, if any, issued by the IRS with respect to any IDX Benefit Plan, and (vi) any material or non-routine correspondence with any Governmental Authority within the past three years.
(c) Each IDX Benefit Plan has been established, maintained, funded
and administered in all material respects in accordance with its terms and in compliance with all applicable Laws, including ERISA and the Code. All contributions, premiums or other payments that are due with respect to any IDX Benefit Plan
have been timely made in accordance with the terms of such IDX Benefit Plan and the requirements of all applicable Laws and all such amounts due for any period ending on or before the Closing Date have been made or properly accrued and
reflected in ZF’s financial statements to the extent required by GAAP.
(d) Each IDX Benefit Plan which is intended to be qualified within
the meaning of Section 401(a) of the Code is so qualified in all material respects and (i) has received a favorable determination letter as to its qualification or (ii) has been established under an IRS pre-approved plan document for which a
current favorable IRS advisory letter or opinion letter has been obtained by the plan sponsor and is valid as to the adopting employer, and nothing has occurred, whether by action or failure to act, that could reasonably be expected to
adversely affect such qualification.
(e) No event has occurred and no condition exists that could subject
IDX or any of its Subsidiaries, either directly or by reason of their affiliation with an ERISA Affiliate, to any material Tax, fine, Lien, penalty or other liability imposed by ERISA, the Code or other applicable Law. There do not exist any
pending or, to the knowledge of IDX, threatened claims or Actions (other than routine claims for benefits), audits or investigations with respect to any IDX Benefit Plan or the assets thereof, and, to the knowledge of IDX, there are no facts or
circumstances that could give rise to any such claims or Actions. There have been no “prohibited transactions” within the meaning of Section 4975 of the Code or Sections 406 or 407 of ERISA and not otherwise exempt under Section 408 of ERISA
with respect to any IDX Benefit Plans that could reasonably be expected to result in material liability to IDX or any of its Subsidiaries. No breaches of fiduciary duty (as determined under ERISA) with respect to any IDX Benefit Plan have
occurred that could reasonably be expected to result in material liability to IDX or any of its Subsidiaries.
(f) No IDX Benefit Plan provides, and neither IDX nor any of its
Subsidiaries has any current or projected liability or obligation in respect of providing, post-employment, post-retirement, post-ownership or post-termination health, medical or life insurance benefits for any current, former or retired
Company Party Service Provider of IDX or any of its Subsidiaries or any other Person, except (i) as required to avoid an excise tax under COBRA or similar applicable state Law, (ii) if provided for under the terms of the applicable insurance
Contract, coverage through the end of the calendar month in which a termination of employment occurs, or (iii) pursuant to an applicable agreement, plan or policy listed on Schedule 4.15(f) (including a template) requiring IDX or any of
its Subsidiaries to pay or subsidize COBRA premiums for a terminated employee following the employee’s termination. Neither IDX nor any of its Subsidiaries has incurred (whether or not assessed) any material Tax, liability or other penalty with
respect to the reporting
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requirements under Sections 6055 and 6056 of the Code, as applicable, or under
Section 4980B, 4980D or 4980H of the Code, and no circumstances exist or events have occurred that could reasonably be expected to result in the imposition of any such material Taxes, penalties or liabilities.
(g) None of IDX, any of its Subsidiaries, or any of its ERISA
Affiliates sponsors, maintains, contributes to, is required to contribute to, or otherwise has or could reasonably be expected to have any current or contingent liability or obligation under or with respect to: (i) a Multiemployer Plan, (ii) a
“defined benefit plan” (as defined in Section 3(35) of ERISA) or any plan that is or was subject to Section 302 or Title IV of ERISA or Section 412 or Section 4971 of the Code, (iii) a “multiple employer plan” (within the meaning of Section 210
of ERISA or Section 413(c) of the Code), or (iv) a “multiple employer welfare arrangement” (as defined in Section 3(40) of ERISA). Neither IDX nor any of its Subsidiaries has any current or contingent material liability or material obligation
on account of at any time being considered a single employer under Section 414 of the Code with any other Person.
(h) Except as set forth on Schedule 4.15(h), neither the
execution and delivery of this Agreement by IDX nor the consummation of the Mergers will (whether alone or in connection with any other event(s), including, but not limited to, a termination of employment) (i) result in the acceleration,
funding, vesting or creation of any rights of any current or former Company Party Service Provider of IDX or its Subsidiaries (or any dependent or beneficiary thereof) to any compensatory payments or benefits or increases in any compensatory
payments or benefits (including any loan forgiveness) under any IDX Benefit Plan (or under any arrangement that would be a IDX Benefit Plan if in effect as of the date of this Agreement), (ii) result in the payment to any current or former
Company Party Service Provider of IDX or its Subsidiaries of any severance or termination payments or benefits, or any increase in severance or termination payments or benefits upon any termination of employment or service, (iii) limit or
restrict the right of IDX to merge, amend or terminate any IDX Benefit Plan, or (iv) result in any payments or benefits under any agreement with IDX or any of its Subsidiaries that, individually or in combination with any other payment or
benefit, would constitute the payment of any “excess parachute payment” within the meaning of Section 280G of the Code (or corresponding provision of state law) to any Company Party Service Provider of IDX or its Subsidiaries who is a
“disqualified individual” within the meaning of Section 280G of the Code.
(i) Except as set forth on Schedule 4.15(i), neither IDX nor
any of its Subsidiaries maintains any obligations to gross-up or reimburse any individual for any Tax or related interest or penalties incurred by such individual, including under Sections 409A or 4999 of the Code or otherwise.
(j) Each IDX Benefit Plan that is a “nonqualified deferred
compensation plan” within the meaning of Section 409A(d)(1) of the Code is in material documentary compliance with, and has been maintained, operated and administered in all material respects in compliance with, Section 409A of the Code, and
all applicable regulations, other guidance issued, and notices issued thereunder.
(k) Without limiting the generality of Section 4.15(a) through
Section 4.15(j) above, with respect to each IDX Benefit Plan that is subject to the Laws of a jurisdiction other than the United States (whether or not United States Law also applies) (an “IDX Foreign Plan”): (i) all employer and
employee contributions to each IDX Foreign Plan required by Law or by the terms of such IDX Foreign Plan have been timely made in all material respects, or, if applicable, accrued in accordance with normal accounting practices; (ii) each IDX
Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities; (iii) no IDX Foreign Plan is a defined benefit retirement plan, seniority premium, termination
indemnity, gratuity or similar plan or arrangement; and (iv) no IDX Foreign Plan has any unfunded or underfunded liabilities.
(a) Neither such Company Party nor any of its Subsidiaries is party
to or bound by any CBA and no such Company Party’s Company Party Employees are represented by any labor union, other labor organization or works council with respect to their employment with such Company Party or any of its Subsidiaries. There
are, and since June 1, 2018 there have been, no pending, or to the knowledge of such Company Party, threatened (i) labor organizing activities or representation or certification proceedings by any labor union, works council or other labor
organization to organize any of such Company Party’s Company Party Employees, or (ii) material labor disputes, labor grievances, labor arbitrations, unfair labor practice charges, strikes, lockouts, picketing, hand billing, slowdowns, concerted
refusals to work overtime,
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work stoppages or other material labor disputes against or affecting such Company
Party or any of its Subsidiaries. Such Company Party and its Subsidiaries have no notice or consultation obligations to any labor union, labor organization or works council, which is representing any of such Company Party’s Company Party
Employees, in connection with the execution of this Agreement or consummation of the Transactions.
(b) Except as set forth on Schedule 4.16(b), such Company
Party and its Subsidiaries are, and since June 1, 2018 have been, in compliance in all material respects with all applicable Laws regarding labor, employment and employment practices, including all Laws respecting terms and conditions of
employment, health and safety, employee classification (including the classification of independent contractors and exempt and non-exempt employees), discrimination, harassment or retaliation, whistleblowing, wages and hours, immigration
(including the completion of Forms I-9 for all U.S. employees and the proper confirmation of employee visas), disability rights or benefits, equal opportunity, plant closures and layoffs (including the WARN Act), COVID-19, affirmative action,
workers’ compensation, labor relations, employee leave issues, employee trainings and notices, and unemployment insurance.
(c) Except as would not, individually or in the aggregate,
reasonably be expected to result in material liability to such Company Party and its Subsidiaries, taken as a whole: (i) such Company Party and its Subsidiaries have fully and timely paid all wages, salaries, wage premiums, commissions,
bonuses, severance and termination payments, fees, and other compensation that have come due and payable to such Company Party’s or its Subsidiaries’ current or former directors, officers, employees or independent contractors under applicable
Law, Contract or company policy, and (ii) neither such Company Party nor its Subsidiaries have had direct or indirect liability regarding any misclassification of any person as an independent contractor rather than as an employee since June 1,
2018.
(d) To the knowledge of such Company Party and except as would not,
individually or in the aggregate, reasonably be expected to result in material liability to such Company Party and its Subsidiaries, taken as a whole, no current or former employee or independent contractor is in any material respect in
violation of any term of any Company Party Benefit Plan, including, but not limited to, any employment agreement, nondisclosure agreement, common law nondisclosure obligation, fiduciary duty, noncompetition agreement, nonsolicitation agreement,
restrictive covenant or other obligation: (i) owed to such Company Party or any of its Subsidiaries; or (ii) owed to any third party with respect to such person’s right to be employed or engaged by such Company Party or any of its Subsidiaries.
(e) Such Company Party and its Subsidiaries have complied with their
legal obligations regarding any formal sexual harassment, discrimination or unlawful retaliation allegations raised in the last three years against any of its Company Party Employees (including, without limitation, taking corrective action
where necessary). Such Company Party and its Subsidiaries do not reasonably expect any material liabilities with respect to any allegations of sexual harassment, discrimination or unlawful retaliation and are not aware of any allegations
relating to officers, directors, employees, contractors, or agents of the Company Group Members, that, if known to the public, would bring such Company Party into material disrepute.
(f) Except as set forth on Schedule 4.16(f), no material
employee layoff, facility closure or shutdown (whether voluntary or by Governmental Order), reduction-in-force, furlough, temporary layoff, material work schedule change or reduction in hours, salary or wages, or other workforce changes
affecting the Company Party Employees of such Company Party or its Subsidiaries has occurred since March 1, 2020 or is currently contemplated, planned or announced, including as a result of COVID-19 or any COVID-19 Measures.
(g) Since June 1, 2018, neither such Company Party nor any of its
Subsidiaries has implemented any plant closing or employee layoffs that would trigger notice obligations under the WARN Act.
(h) Such Company Party has not received written notice that any Key
Employee intends to terminate his or her employment with such Company Party prior to the one year anniversary of the Closing.
(a) All material Tax Returns required by Law to be filed by ZF and
its Subsidiaries have been duly filed with the appropriate Governmental Authority, and all such Tax Returns are true, correct and complete in all material respects.
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(b) All material amounts of Taxes due and owing by ZF and its
Subsidiaries (whether or not reflected on any Tax Return) have been duly paid to the appropriate Governmental Authority, and since the date of the ZF Most Recent Balance Sheet, none of ZF or any of its Subsidiaries has incurred or accrued any
material Tax liability or material amounts of taxable income or gain outside the ordinary course of business other than any liabilities incurred in connection with the Transactions.
(c) ZF and each of its Subsidiaries has (A) withheld and deducted
all material amounts of Taxes required to have been withheld or deducted by it in connection with amounts paid or owed to any employee, independent contractor, creditor, member, or any other third party, (B) duly and timely remitted such
amounts to the appropriate Governmental Authority, and (C) complied in all material respects with applicable Laws with respect to Tax withholding, including all reporting and record keeping requirements.
(d) Neither ZF nor any of its Subsidiaries is engaged in any
material audit, administrative proceeding or judicial proceeding with respect to Taxes. Neither ZF nor any of its Subsidiaries is the subject of any dispute or claim with respect to a material amount of Taxes, other than disputes or claims that
have been resolved, and no such claims have been threatened in writing. All material deficiencies for Taxes asserted or assessed in writing against ZF and its Subsidiaries have been fully and timely (taking into account applicable extensions)
paid, settled or withdrawn. No written claim has been made by any Governmental Authority in a jurisdiction where ZF or any of its Subsidiaries does not file a Tax Return that such entity is or may be subject to material Taxes or required to
file a Tax Return in respect of material Taxes in that jurisdiction. There are no outstanding agreements extending or waiving the statutory period of limitations applicable to any claim for, or the period for the collection or assessment or
reassessment of, material Taxes of ZF and its Subsidiaries, and no written request for any such waiver or extension is currently pending.
(e) Neither ZF nor any of its Subsidiaries (or any predecessor
thereof) has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying for income tax-free treatment under Section 355 of the Code (or so much of Section 356 of the Code as relates to
Section 355 of the Code).
(f) Neither ZF nor any of its Subsidiaries has been a party to any
“listed transaction” within the meaning of Treasury Regulations Section 1.6011-4(b)(2) (or any similar or corresponding provision of state, local or foreign Law).
(g) Neither ZF nor any of its Subsidiaries will be required to
include any material item of income in, or exclude any material item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (A) change in, or use of an improper, method of
accounting for a taxable period (or portion thereof) ending on or prior to the Closing Date and made prior to the Closing; (B) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state,
local or foreign Law) entered into prior to the Closing; (C) installment sale or open transaction disposition made prior to the Closing; (D) intercompany transactions or any excess loss account described in Treasury Regulations under Section
1502 of the Code (or any corresponding or similar provision of state, local or foreign Law); or (E) prepaid amount or deferred revenue received prior to the Closing outside the ordinary course of business. Neither ZF nor any of its Subsidiaries
will be required to make any payment after the Closing Date as a result of an election under Section 965(h) of the Code.
(h) There are no Liens with respect to Taxes on any of the equity
interests or assets of ZF and its Subsidiaries, other than Liens for Taxes not yet due and payable.
(i) Neither ZF nor any of its Subsidiaries (A) has been a member of
an affiliated, combined, consolidated, unitary or other group for Tax purposes other than such a group that includes only ZF or any of its Subsidiaries, or (B) has any material liability for or in respect of the Taxes of any Person (other than
ZF or any of its Subsidiaries) (1) as a result of being a member of an affiliated, combined, consolidated, unitary or other group for Tax purposes, including under Treasury Regulations Section 1.1502-6 (or any similar or corresponding provision
of state, local or foreign Law) or (2) as a transferee or successor, by Contract, assumption or operation of law, or otherwise (except, in each case, for liabilities pursuant to customary commercial Contracts entered into in the ordinary course
of business and not primarily relating to Taxes).
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(j) Neither ZF nor any of its Subsidiaries is a party to, or
bound by, or has any obligation to any Governmental Authority or other Person under any Tax allocation, Tax sharing, Tax indemnification or similar agreement or arrangement (except, in each case, for liabilities pursuant to customary commercial
contracts entered into in the ordinary course of business and not primarily relating to Taxes).
(k) Schedule 4.17(k) sets forth the classification of ZF and
each of its Subsidiaries for U.S. federal income Tax purposes.
(l) Except as set forth on Schedule 4.17(l), neither ZF nor
any of its Subsidiaries has applied for or received any relief from Taxes under COVID-19 Measures, the Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster or any similar Law, including by claiming an
employee retention credit or deferring any amount of employer or employee payroll Taxes.
(m) Neither ZF nor any of its Subsidiaries has taken any action (or
permitted any action to be taken), nor is aware of any fact or circumstance, that would reasonably be expected to prevent the Mergers from qualifying for the Intended Income Tax Treatment.
(n) Neither ZF nor any of its Subsidiaries is or has ever been a
resident for Tax purposes in any non-U.S. jurisdiction other than the jurisdiction of its incorporation or formation, as applicable, and does not nor has ever had any branch, agency, permanent establishment or other taxable presence in any
non-U.S. jurisdiction other than the jurisdiction of its incorporation or formation, as applicable.
(a) All material Tax Returns required by Law to be filed by IDX and
its Subsidiaries have been duly filed with the appropriate Governmental Authority, and all such Tax Returns are true, correct and complete in all material respects.
(b) All material amounts of Taxes due and owing by IDX and its
Subsidiaries (whether or not reflected on any Tax Return) have been duly paid to the appropriate Governmental Authority, and since the date of the IDX Most Recent Balance Sheet, none of IDX or any of its Subsidiaries has incurred or accrued any
material Tax liability or material amounts of taxable income or gain outside the ordinary course of business other than any liabilities incurred in connection with the Transactions.
(c) IDX and each of its Subsidiaries has (A) withheld and deducted
all material amounts of Taxes required to have been withheld or deducted by it in connection with amounts paid or owed to any employee, independent contractor, creditor, member, or any other third party, (B) duly and timely remitted such
amounts to the appropriate Governmental Authority, and (C) complied in all material respects with applicable Laws with respect to Tax withholding, including all reporting and record keeping requirements.
(d) Neither IDX nor any of its Subsidiaries is engaged in any
material audit, administrative proceeding or judicial proceeding with respect to Taxes. Neither IDX nor any of its Subsidiaries is the subject of any dispute or claim with respect to a material amount of Taxes, other than disputes or claims
that have been resolved, and no such claims have been threatened in writing. All material deficiencies for Taxes asserted or assessed in writing against IDX and its Subsidiaries have been fully and timely (taking into account applicable
extensions) paid, settled or withdrawn. No written claim has been made by any Governmental Authority in a jurisdiction where IDX or any of its Subsidiaries does not file a Tax Return that such entity is or may be subject to material Taxes or
required to file a Tax Return in respect of material Taxes in that jurisdiction. There are no outstanding agreements extending or waiving the statutory period of limitations applicable to any claim for, or the period for the collection or
assessment or reassessment of, material Taxes of IDX and its Subsidiaries, and no written request for any such waiver or extension is currently pending.
(e) Neither IDX nor any of its Subsidiaries (or any predecessor
thereof) has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying for income tax-free treatment under Section 355 of the Code (or so much of Section 356 of the Code as relates to
Section 355 of the Code).
(f) Neither IDX nor any of its Subsidiaries has been a party to any
“listed transaction” within the meaning of Treasury Regulations Section 1.6011-4(b)(2) (or any similar or corresponding provision of state, local or foreign Law).
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(g) Neither IDX nor any of its Subsidiaries will be required to
include any material item of income in, or exclude any material item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (A) change in, or use of an improper, method of
accounting for a taxable period (or portion thereof) ending on or prior to the Closing Date and made prior to the Closing; (B) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state,
local or foreign Law) entered into prior to the Closing; (C) installment sale or open transaction disposition made prior to the Closing; (D) intercompany transactions or any excess loss account described in Treasury Regulations under Section
1502 of the Code (or any corresponding or similar provision of state, local or foreign Law); or (E) prepaid amount or deferred revenue received prior to the Closing outside the ordinary course of business. Neither IDX nor any of its
Subsidiaries will be required to make any payment after the Closing Date as a result of an election under Section 965(h) of the Code.
(h) There are no Liens with respect to Taxes on any of the equity
interests or assets of IDX and its Subsidiaries, other than Liens for Taxes not yet due and payable.
(i) Neither IDX nor any of its Subsidiaries (A) has been a member of
an affiliated, combined, consolidated, unitary or other group for Tax purposes other than such a group that includes only IDX or any of its Subsidiaries, or (B) has any material liability for or in respect of the Taxes of any Person (other than
IDX or any of its Subsidiaries) (1) as a result of being a member of an affiliated, combined, consolidated, unitary or other group for Tax purposes, including under Treasury Regulations Section 1.1502-6 (or any similar or corresponding
provision of state, local or foreign Law) or (2) as a transferee or successor, by Contract, assumption or operation of law, or otherwise (except, in each case, for liabilities pursuant to customary commercial Contracts entered into in the
ordinary course of business and not primarily relating to Taxes).
(j) Neither IDX nor any of its Subsidiaries is a party to, or bound
by, or has any obligation to any Governmental Authority or other Person under any Tax allocation, Tax sharing, Tax indemnification or similar agreement or arrangement (except, in each case, for liabilities pursuant to customary commercial
contracts entered into in the ordinary course of business and not primarily relating to Taxes).
(k) Schedule 4.18(k) sets forth the classification of IDX and
each of its Subsidiaries for U.S. federal income Tax purposes.
(l) Neither IDX nor any of its Subsidiaries has applied for or
received any relief from Taxes under COVID-19 Measures, the Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster or any similar Law, including by claiming an employee retention credit or deferring any amount
of employer or employee payroll Taxes.
(m) Neither IDX nor any of its Subsidiaries has taken any action (or
permitted any action to be taken), nor is aware of any fact or circumstance, that would reasonably be expected to prevent the Mergers from qualifying for the Intended Income Tax Treatment.
(n) Neither IDX nor any of its Subsidiaries is or has ever been a
resident for Tax purposes in any non-U.S. jurisdiction other than the jurisdiction of its incorporation or formation, as applicable, and does not nor has ever had any branch, agency, permanent establishment or other taxable presence in any
non-U.S. jurisdiction other than the jurisdiction of its incorporation or formation, as applicable.
Section 4.19 Insurance. Schedule
4.19 contains a list of all material policies or programs of self-insurance of property, fire and casualty, product liability, workers’ compensation and other forms of insurance held by, or for the benefit of, such Company Party or its
Subsidiaries as of the date of this Agreement. With respect to each such insurance policy required to be listed on Schedule 4.19, except as has not had or would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect, (a) all premiums due have been paid (other than retroactive or retrospective premium adjustments and adjustments in the respect of self-funded general liability and automobile liability fronting programs,
self-funded health programs and self-funded general liability and automobile liability front programs, self-funded health programs and self-funded workers’ compensation programs that are not yet, but may be, required to be paid with respect to
any period end prior to the Closing Date), (b) the policy is legal, valid, binding and enforceable in accordance with its terms and, except for policies that have expired under their terms in the ordinary course, is in full force and effect,
(c) neither such Company Party nor any of its Subsidiaries is in breach or default (including any such breach or
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default with respect to the payment of premiums or the giving of notice), and, to
such Company Party’s knowledge, no event has occurred which, with notice or the lapse of time or both, would constitute such a breach or default, or permit termination or modification, under the policy, and to the knowledge of such Company
Party, no such action has been threatened, and (d) as of the date hereof, no written notice of cancellation, non-renewal, disallowance or reduction in coverage or claim or termination has been received other than in connection with ordinary
renewals.
Section 4.20 Permits.
Except for such failures to hold all Permits or be in compliance as would not reasonably be expected to be, individually or in the aggregate, material to such Company Party and its Subsidiaries taken as a whole, such Company Party and its
Subsidiaries, (a) hold all Permits, and (b) are in compliance with the terms of all Permits necessary for the ownership and operation of their respective businesses. No event has occurred with respect to any of the Permits which permits, or
after the giving of notice or lapse of time or both would permit, revocation, cancellation or termination thereof, or would result in any other material impairment of the rights of the holder of any such Permit, except where the revocation,
cancellation, termination or material impairment would not reasonably be expected to be, individually or in the aggregate, material to such Company Party and its Subsidiaries, taken as a whole. Except as would not reasonably be expected to be,
individually or in the aggregate, material to such Company Party and its Subsidiaries taken as a whole, there is no pending or, to the knowledge of such Company Party, threatened (orally or in writing) legal proceeding with any Governmental
Authority having jurisdiction or authority over the operations of such Company Party or any of its Subsidiaries that would reasonably be expected to impair the validity of any Permit, or result in the revocation, cancellation, termination or
material impairment of any Permit.
Section 4.21 Equipment and
Other Tangible Property. Such Company Party or one of its Subsidiaries owns and has good title to all material equipment and other tangible property and assets reflected on the books of such Company Party and its Subsidiaries as owned by
such Company Party or one of its Subsidiaries, free and clear of all Liens other than Permitted Liens, except as would not be material, individually or in the aggregate, to such Company Party and its Subsidiaries, taken as a whole.
(a) Schedule 4.22(a) contains a true, correct and complete
list, as of the date of this Agreement, of all Leased Real Property held by such Company Party or its Subsidiaries including the address of each such Leased Real Property and a true, correct and complete list of all material Contracts pursuant
to which such Company Party or any of its Subsidiaries uses or occupies (or has been granted an option to use or occupy) the Leased Real Property or is otherwise a party with respect to the Leased Real Property (collectively, the “Leases”),
including all amendments, extensions, renewals, guaranties and other agreements with respect thereto. Each Company Party has made available to Acquiror true, correct and complete copies of the Leases. Such Company Party or one of its
Subsidiaries has a valid and subsisting leasehold estate in all Leased Real Property, such Company Party’s or Subsidiary’s possession and quiet enjoyment of the Leased Real Property under such Leases has not been disturbed, and to the knowledge
of such Company Party, there are no material disputes with respect to any Lease, in each case, subject only to Permitted Liens. With respect to each Lease, (i) such Lease is legal, valid, binding and enforceable and in full force and effect
against such Company Party or one of its Subsidiaries and, to such Company Party’s knowledge, the other party thereto, subject to the Enforceability Exceptions, and each such Lease is in full force and effect, (ii) each Lease has not been
amended or modified except as reflected in the modifications, amendments, supplements, waivers and side letters made available to Acquiror, (iii) neither such Company Party nor any of its Subsidiaries has received or given any written notice of
default or breach under any of the Leases and to the knowledge of such Company Party, neither such Company Party nor any of its Subsidiaries has received oral notice of any default or breach that has not been cured, (iv) to the knowledge of
such Company Party, there does not exist under any Lease any event or condition which, with notice or lapse of time or both, would become a default or breach by such Company Party or one of its Subsidiaries or, in each case, to such Company
Party’s knowledge, the other party thereto, (v) neither such Company Party nor any of its Subsidiaries has subleased, licensed or otherwise granted any Person the right to use or occupy such Leased Real Property or any portion thereof and
(vi) except as set forth on Schedule 4.22(a)(vi), neither such Company Party nor any of its Subsidiaries has collaterally assigned or granted any other security interest in such Lease or any interest therein.
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(b) Neither such Company Party nor any of its Subsidiaries is in
default or violation of, or not in material compliance with, any legal requirements applicable to its occupancy of the Leased Real Property, except as would not reasonably be expected to be, individually or in the aggregate, material to such
Company Party and its Subsidiaries, taken as a whole.
(c) Neither such Company nor any of its Subsidiaries owns any
land, buildings or other real property.
(a) Schedule 4.23(a) sets forth a complete and correct list,
as of the date of this Agreement, of all (i) registrations or applications for the following that are included in the Owned Intellectual Property or Intellectual Property exclusively licensed to such Company Party or any of its Subsidiaries:
(A) trademarks, (B) patents, (C) copyrights, and (D) internet domain names, specifying as to each item, as applicable, the owner(s) of record, jurisdiction of application or registration, the application or registration number, and the date of
application or registration (“Registered Intellectual Property”). All Owned Intellectual Property is subsisting (to the extent that it constitutes Registered Intellectual Property), and, to the knowledge of such Company Party, valid and
enforceable. All filing, registration, maintenance, and renewal fees currently due in connection with the Registered Intellectual Property have been paid; all documents, recordations, and certificates in connection with such Registered
Intellectual Property currently required to be filed in the name of such Company Party or any of its Subsidiaries have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions;
and all internet domain names are registered in the name of and are under the full administrative and operational control of such Company Party or its applicable Subsidiary. Such Company Party or one of its Subsidiaries (i) solely and
exclusively owns all right, title and interest in and to the Owned Intellectual Property and (ii) has the right to use pursuant to a valid, written agreement all other Intellectual Property used in or necessary for the operation of the
respective businesses of such Company Party and its Subsidiaries, as presently conducted (“Licensed Intellectual Property”), in each case, free and clear of all Liens other than Permitted Liens.
(b) To the knowledge of such Company Party, neither the execution of
this Agreement nor the consummation of the Transactions will result in: (i) the loss or impairment of such Company Party’s or any of its Subsidiaries’ right to own or use any of its material Company Party Intellectual Property, or (ii) the
payment of any additional consideration for such Company Party’s or any of its Subsidiaries’ right to own or use any of its Company Party Intellectual Property.
(c) There is not, and there has not in the last three years been,
any Action pending, threatened or received in writing, by such Company Party or any of its Subsidiaries with respect to Intellectual Property. To the knowledge of such Company Party, neither such Company Party, nor any of its Subsidiaries nor
the conduct of their businesses infringes, misappropriates or otherwise violates, or has, in the past three years, infringed, misappropriated or otherwise violated, any Intellectual Property of any third party. To the knowledge of such Company
Party, no third party is currently infringing, misappropriating, diluting or otherwise violating, or has, in the last three years, infringed, misappropriated, diluted or otherwise violated, any of the Owned Intellectual Property, except as
would not, individually or in the aggregate, reasonably be expected to result in material liability to such Company Party and its Subsidiaries, taken as a whole.
(d) Such Company Party and its Subsidiaries have taken commercially
reasonable steps under the circumstances to maintain, preserve, and protect all of its material Owned Intellectual Property. Each current or former employee, consultant and independent contractor of such Company Party and its Subsidiaries who
has contributed to or participated in the creation of any Owned Intellectual Property has executed and delivered to such Company Party or one of its Subsidiaries either a (i) “work-for-hire” agreement under which such Company Party or one of
its Subsidiaries is deemed to be the owner or author of all Intellectual Property rights created or developed by such Person, or (ii) a written assignment by such Person (by way of a present grant of assignment) in favor of such Company Party
or one of its Subsidiaries of all right, title and interest in and to such Intellectual Property, and in case of the foregoing clauses (i) and (ii), that also prohibits such Person, where commercially reasonable or customary,
from using or disclosing any Trade Secrets included in the Owned Intellectual Property. Neither such Company Party nor any of its Subsidiaries, nor to the knowledge of such Company Party, any other Person, is in material breach of any such
agreement.
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(e) Such Company Party and its Subsidiaries are in possession of
the source code and object code for all Software constituting their Owned Intellectual Property (“Owned Software”). Neither such Company Party nor any of its Subsidiaries has incorporated any “open source”, “copyleft” or analogous
license (including any license approved by the Open Source Initiative and listed at http://www.opensource.org/licenses) (“Open Source Code”) into Owned Software, distributed Open Source Code in conjunction with Owned Software or used
Open Source Code, in each case in a manner that requires that any of the Owned Software (other than such Open Source Code) to be (i) disclosed or distributed in source code form, (ii) licensed for the purpose of making derivative works, or
(iii) redistributable at no charge or minimal charge.
(f) Such Company Party and its Subsidiaries use commercially
reasonable efforts to protect the IT Systems, including using commercially reasonable efforts designed to protect the confidentiality, integrity and security of the IT Systems and all information stored or contained therein or transmitted
thereby from any loss, theft, or unauthorized disclosure, use, access, interruption, or modification by any Person. All IT Systems (A) operate and run in a reasonable and efficient business manner in all material respects, and (B) are free from
any Malicious Code, material defect, bug or programming, or material design or documentation error, in each case, except as has not resulted in or would not, individually or in the aggregate, reasonably be expected to result in material
liability to such Company Party and its Subsidiaries, taken as a whole. The IT Systems are sufficient for the current needs of such Company Party and its Subsidiaries, in all material respects. Since June 1, 2018, there have not been any
material failures, breakdowns or continued substandard performance of any IT Systems that have caused a material failure or disruption of the IT Systems. Such Company Party and its Subsidiaries have implemented and maintained commercially
reasonable disaster recovery and business continuity plans, procedures and facilities, acted in accordance therewith, and has taken commercially reasonable steps to test such plans and procedures on a periodic basis.
(g) Such Company Party and its Subsidiaries are, and at all times
since June 1, 2018 have been, in compliance with all Privacy and Security Requirements that apply to such Company Party and its Subsidiaries, except where the failure to be, or to have been, in compliance with such Laws has not been, and would
not, individually or in the aggregate, reasonably be expected to be material to such Company Party and its Subsidiaries, taken as a whole. Such Company Party and its Subsidiaries have in place, maintain and enforce commercially reasonable
policies, procedures, and rules regarding data privacy, protection, and security. Since June 1, 2018, such Company Party and its Subsidiaries have not experienced any (i) data security breaches of the IT Systems, (ii) unauthorized access or use
of any of the IT Systems, or (iii) unauthorized acquisition, access to, disclosure, or use of any Personal Information, Trade Secrets, or other confidential or proprietary information owned by or under the custody or control of such Company
Party or its Subsidiaries, and neither such Company Party nor any of its Subsidiaries has received any written complaints from any Person with respect thereto, except in the case of the foregoing clauses (ii) and (iii), as has not resulted in
or would not, individually or in the aggregate, reasonably be expected to result in a material liability to such Company Party and its Subsidiaries, taken as a whole.
(h) To the knowledge of such Company Party, at all times since
June 1, 2018, all third parties who have performed services for such Company Party and its Subsidiaries relating to the conduct of their respective businesses and have had access to Personal Information in connection with the performance of
such services and all activities undertaken by such Company Party and its Subsidiaries with respect to the collection of any data (Personal Information or otherwise) in connection with the performance of any services, have complied with all
applicable Privacy and Security Requirements, except as would not, individually or in the aggregate, reasonably be expected to result in material liability to such Company Party and its Subsidiaries, taken as a whole.
(i) There is (and since June 1, 2018 there has been) no pending or,
to the knowledge of such Company Party, threatened Actions by or against such Company Party or any of its Subsidiaries initiated by any Person (including (i) the United States Federal Trade Commission, any state attorney general or similar
state official, (ii) any other Governmental Authority, foreign or domestic or (iii) any regulatory or
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self-regulatory entity) alleging that any Processing of Personal Information by or
on behalf of such Company Party is or was in material violation of any Privacy and Security Requirements that apply to such Company Party or any of its Subsidiaries, nor, to the knowledge of such Company Party is there a reasonable basis for
the forgoing.
Section 4.24 Environmental
Matters. Except as would not, individually or in the aggregate, reasonably be expected to result in material liability to such Company Party and its Subsidiaries, taken as a whole:
(a) Such Company Party and its Subsidiaries are, and since June 1,
2018 have been, in compliance in all material respects with all Environmental Laws, which includes and has included holding and complying in all material respects with all Permits required under Environmental Laws.
(b) There are no Actions or notices of violation pending against or,
to the knowledge of such Company Party, threatened in writing against such Company Party or any of its Subsidiaries alleging, and such Company Party and its Subsidiaries have not received any notice, report or other information regarding, any
material violations of or material liability under any Environmental Law or any material violations or material liability concerning any Hazardous Materials, nor, to the knowledge of such Company Party, is there any basis for any such claims or
notices.
Section 4.25 ZF Absence of
Changes. From and after October 31, 2021, (i) no ZF Material Adverse Effect shall have occurred and is continuing and (ii) neither ZF nor any of its Subsidiaries has taken any action between such date and the date of this Agreement that
would have required the consent of Acquiror pursuant to Section 6.01 if such action had been taken after the date hereof (and where such consent could properly have been withheld in accordance with Section 6.01).
Section 4.26 IDX Absence of
Changes. From and after September 30, 2021, (i) no IDX Material Adverse Effect shall have occurred and is continuing and (ii) neither IDX nor any of its Subsidiaries has taken any action between such date and the date of this Agreement
that would have required the consent of Acquiror pursuant to Section 6.01 if such action had been taken after the date hereof (and where such consent could properly have been withheld in accordance with Section 6.01).
Section 4.27 Brokers’ Fees.
Except as set forth on Schedule 4.27, no broker, finder, financial advisor, investment banker or other Person is entitled to any brokerage fee, finders’ fee or other similar fee, commission or other similar payment in connection with
the Transactions based upon arrangements made by such Company Party, any of its Subsidiaries or any of its Affiliates.
Section 4.28 Related Party
Transactions. Except for the Contracts set forth on Schedule 4.28, there are no Contracts between such Company Party or any of its Subsidiaries, on the one hand, and any Affiliate, officer, director or holder of Equity Securities
of such Company Party or any of its Subsidiaries or, to such Company Party’s knowledge, any Affiliate or family member of any of the foregoing, on the other hand, except in each case, for (a) employment agreements, fringe benefits and other
compensation paid to directors, officers and employees consistent with previously established policies, (b) reimbursements of expenses incurred in connection with their employment or service (excluding from clause (a) and this clause
(b) any loans made by such Company Party or its Subsidiaries to any officer, director, employee, member or stockholder and all related arrangements, including any pledge arrangements), and (c) amounts paid pursuant to Company Party
Benefit Plans listed on Schedule 4.14(a) and Schedule 4.15(a), as applicable.
Section 4.29 Information
Provided. None of the information relating to such Company Party or its Subsidiaries supplied or to be supplied by such Company Party, or by any other Person acting on behalf of such Company Party, in writing specifically for inclusion in
the Registration Statement will, as of the time the Registration Statement becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, such Company Party makes no representation or warranty with respect to: (a) statements made or incorporated by reference therein based on
information supplied by any Acquiror Party or the other Company Party for inclusion or incorporation by reference in the Registration Statement or any SEC Reports; or (b) any projections or forecasts included in the Registration Statement.
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(a) Neither such Company Party nor any of its Subsidiaries, nor, to
the knowledge of such Company Party, any of their respective officers, directors or employees, nor, to the knowledge of such Company Party, any agents or other third-party representatives acting on behalf of such Company Party or any of its
Subsidiaries, is currently, or has been since June 1, 2016: (i) a Sanctioned Person; (ii) organized, resident or located in a Sanctioned Country; (iii) engaging in any dealings or transactions with any Sanctioned Person or in any Sanctioned
Country, to the extent such activities violate applicable Sanctions Laws; (iv) engaging in any export, re-export, transfer or provision of any goods, software, technology, data or service without, or exceeding the scope of, any required or
applicable licenses or authorizations; or (v) otherwise in violation of applicable Sanctions Laws, export-import Laws administered by the U.S. Department of Commerce and the U.S. Department of State’s Directorate of Defense Trade Controls, or
U.S. anti-boycott Laws (collectively, “Trade Controls”).
(b) Neither such Company Party nor any of its Subsidiaries, nor, to
the knowledge of such Company Party, any of their respective officers, directors or employees, nor, to the knowledge of such Company Party, any agents or other third-party representatives acting on behalf of such Company Party or any of its
Subsidiaries, has since June 1, 2016 (i) made any unlawful payment or given, offered, promised, or authorized or agreed to give, or received, any money or thing of value, directly or indirectly, to or from any Government Official or other
Person in violation of any Anti-Corruption Laws or (ii) otherwise been in violation of any Anti-Corruption Laws.
(c) Since June 1, 2016, neither such Company Party nor any of its
Subsidiaries has received from any Governmental Authority or any other Person any notice, subpoena, inquiry, or internal or external allegation; or made any voluntary or involuntary disclosure to a Governmental Authority related to, or
conducted any internal investigation or audit concerning any actual or potential violation or wrongdoing related to, Trade Controls or Anti-Corruption Laws. Such Company Party and its Subsidiaries have maintained and enforced policies,
procedures and internal controls reasonably designed to ensure compliance with Anti-Corruption Laws and Trade Controls.
(a) Since June 1, 2018, such Company and its Subsidiaries have
complied in all material respects with all statutory and regulatory requirements with respect to each of the Government Contracts and Government Bids. Such Company Party and its Subsidiaries have established and maintain adequate internal
controls for compliance with its Government Contracts.
(b) Since June 1, 2018, (i) neither such Company Party nor any of
its Subsidiaries has received any written notice of termination for default or convenience, cure notice, or show cause notice from any Governmental Authority or any prime contractor or higher-tier subcontractor with respect to any Government
Contract, and (ii) such Company Party and its Subsidiaries have complied with all material terms and conditions of the Government Contracts.
(c) Since June 1, 2018, to such Company Party’s knowledge, there
have not been any outstanding or unsettled allegations of fraud, false claims or overpayments nor is there any pending (i) civil fraud or criminal investigation of such Company Party or any of its Subsidiaries by any Governmental Authority,
(ii) suspension or debarment proceeding (or equivalent proceeding) against such Company Party or any of its Subsidiaries, (iii) audit, review, inspection, survey or examination of records relating to any Government Contract, (iv) disclosure or
obligation to make any disclosure to any Governmental Agency (pursuant to FAR 52.203-13 or any other disclosure requirement or program or (v) request by a Governmental Authority for a contract price adjustment based on any claimed disallowance,
claim of defective pricing, or any other withholding or offset by any Governmental Authority.
(d) Neither such Company Party nor any of its Subsidiaries nor any
of their respective Principals (as that term is defined under Federal Acquisition Regulation 2.101) is, or within the past three years has been, proposed for debarment, debarred, suspended, or otherwise declared ineligible from participation in
the award of a Government Contract.
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2022 (“GS-23F-0037T”) as described in the latest GSA Contractor Assessment
Report. ITGS’s GSA contract prices under GS-23F-0037T are discounted an additional 0.00% - 26.87% from its Most Favored Customer prices, excluding the required 0.75% Industrial Funding Fee. ITGS does not have an active Basis of Award customer
pricing change that would require ITGS to apply a price reduction under GS-23F-0037T pursuant to FAR 552.238-75, Price Reductions (MAY 2004) (ALTERNATE I - MAY 2003), the GSA Price Reduction Clause (“PRC”). None of the items sold under
GS-23F-0037T are sold commercially by IDX or its Subsidiaries. Neither IDX nor its Subsidiaries are aware of any current or potential PRC violations by ITGS under GS-23F-0037T. The United States Office of Personnel Management (“OPM”) has
a Blanket Purchase Agreement Call contract in effect under GS-23F-0037T (the “OPM BPA”) and orders placed thereunder are issued off of the GS-23F-0037T GSA Schedule, and to the knowledge of IDX and its Subsidiaries, GSA will allow ITGS
to renew or extend the GS-23F-0037T GSA Schedule in 2022.
REPRESENTATIONS AND WARRANTIES OF ACQUIROR PARTIES
Except as set forth in the Schedules to this Agreement dated as of
the date of this Agreement (each of which qualifies (i) the correspondingly numbered representation, warranty or covenant if specified therein and (ii) such other representations, warranties or covenants where its relevance as an exception to
(or disclosure for purposes of) such other representation, warranty or covenant is reasonably apparent on its face) or in the SEC Reports filed or furnished by Acquiror prior to the date hereof (excluding any disclosures in such SEC Reports
under the headings “Risk Factors,” “Forward-Looking Statements” or “Qualitative Disclosures About Market Risk” and other disclosures, in each case to the extent that are predictive, cautionary or forward looking in nature) (provided, however,
that nothing set forth in or disclosed in the SEC Reports filed by Acquiror will qualify, or be deemed to qualify, the representations and warranties set forth in Section 5.02 (Due Authorization), Section 5.06 (Trust Account), Section
5.07 (Brokers’ Fees), Section 5.09 (Business Activities), Section 5.11 (Capitalization) and Section 5.14 (Related Party Transactions)), each Acquiror Party represents and warrants to the Company Parties as follows,
in each case as of the date hereof and as of the Closing Date:
Section 5.01 Corporate
Organization. Each Acquiror Party is an exempted company, corporation, limited liability company or other applicable business entity duly organized, incorporated or formed, as applicable, validly existing and in good standing (or the
equivalent thereof, if applicable, in each case, with respect to the jurisdictions that recognize the concept of good standing or any equivalent thereof) under the Laws of its jurisdiction of organization, incorporation or formation (as
applicable) and has the requisite exempted company, corporate, limited liability company or other similar power and authority to own, lease or operate its assets and properties and to conduct its business as it is now being conducted, except
(other than with respect to each Acquiror Party’s due organization and valid existence) as would not, individually or in the aggregate, reasonably be expected to have an Acquiror Material Adverse Effect. The copies of the organizational
documents of each of the Acquiror Parties previously delivered by Acquiror to the Company Parties are true, correct and complete and are in effect as of the date of this Agreement. Each of the Acquiror Parties is, and at all times has been, in
compliance in all material respects with all restrictions, covenants, terms and provisions set forth in its respective organizational documents. Each of the Acquiror Parties is duly licensed or qualified and in good standing as a foreign
corporation or foreign limited liability company, as applicable, in all jurisdictions in which its ownership of property or the character of its activities is such as to require it to be so licensed or qualified, except where failure to be so
licensed or qualified has not had and would not, reasonably be expected to have, individually or in the aggregate, an Acquiror Material Adverse Effect.
(a) Each of the Acquiror Parties has the requisite exempted company,
corporate, limited liability company or other similar power and authority to execute and deliver this Agreement and each other Transaction Agreement to which it is a party and, with respect to Acquiror, upon receipt of the Acquiror Shareholder
Approval, to perform its obligations hereunder and thereunder and to consummate the Domestication, the Transactions and the other transactions contemplated by the other Transaction Agreements. L&F Holdings, as sole stockholder of each of ZF
Merger Sub and IDX Merger Sub, has delivered consents (which shall become effective immediately after the execution of this Agreement in accordance with Section 228(c) of the DGCL) approving this Agreement and the Transactions. The execution,
delivery and performance of this Agreement and such other Transaction Agreements and the consummation of the Domestication, the Transactions and the other transactions contemplated thereby have
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been duly and validly authorized and approved by the board of directors or
equivalent governing body of the applicable Acquiror Party and, except for the Acquiror Shareholder Approval and the adoption of this Agreement by L&F Holdings (in its capacity as sole stockholder of each of ZF Merger Sub and IDX Merger
Sub), no other corporate or equivalent proceeding on the part of any Acquiror Party is necessary to authorize this Agreement or such other Transaction Agreements or any Acquiror Party’s performance hereunder or thereunder. This Agreement has
been, and each such other Transaction Agreement to which such Acquiror Party will be party (when executed and delivered by such Acquiror Party) will be, duly and validly executed and delivered by such Acquiror Party and, assuming due
authorization and execution by each other party hereto and thereto, this Agreement constitutes, and each such other Transaction Agreement to which such Acquiror Party will be party, will constitute a legal, valid and binding obligation of such
Acquiror Party, enforceable against each Acquiror Party in accordance with its terms, subject to the Enforceability Exceptions.
(b) At a meeting duly called and held, the Acquiror Board has:
(i) determined that this Agreement, the Domestication, the Transactions and the other transactions contemplated by the other Transaction Agreements are fair to and in the best interests of Acquiror’s shareholders, (ii) approved the Transactions
as a Business Combination, (iii) approved of the issuance of shares of Acquiror Common Stock in connection with the Transactions as may be required under NYSE or NASDAQ listing requirements, as applicable, (iv) resolved to recommend to
Acquiror’s shareholders’ approval of each of the Acquiror Shareholder Matters, and (v) determined that the fair market value of the Company Parties is equal to at least 80% of the amount held in the Trust Account (excluding any deferred
underwriting commissions and taxes payable on interest earned on the Trust Account) as of the date hereof.
(c) At the Special Meeting:
(i) approval by the Acquiror Shareholders of the Domestication
Proposal shall require the Supermajority Acquiror Shareholder Approval;
(ii) approval by the Acquiror Shareholders of the Acquiror Charter
Proposal shall require the Supermajority Acquiror Shareholder Approval; and
(iii) approval by the Acquiror Shareholders of each Acquiror
Shareholder Matter other than the Domestication Proposal and the Charter Proposal shall require the Majority Acquiror Shareholder Approval.
(d) The foregoing votes are the only votes of any of Acquiror’s
shareholders necessary in connection with entry into this Agreement and the other Transaction Agreements by the Acquiror Parties and the consummation of the Domestication, the Transactions and the other transactions contemplated by the other
Transaction Agreements.
Section 5.03 No Conflict.
The execution, delivery and performance of this Agreement and any Transaction Agreement to which any Acquiror Party is a party by such Acquiror Party and, upon receipt of the Acquiror Shareholder Approval, the consummation of the Domestication,
the Transactions and the transactions contemplated by any of the other Transaction Agreements do not and will not (a) conflict with or violate any provision of, or result in the breach of the Acquiror Organizational Documents or any
organizational documents of any Subsidiaries of Acquiror, (b) conflict with or result in any violation of any provision of any Law, Permit or Governmental Order binding on or applicable to Acquiror, any Subsidiaries of Acquiror or any of their
respective properties or assets, (c) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default)
under, or result in the termination or acceleration of, or a right of termination, cancellation, modification, acceleration or amendment under, accelerate the performance required by, or result in the acceleration or trigger of any payment,
posting of collateral (or right to require the posting of collateral), time of payment, vesting or increase in the amount of any compensation or benefit payable pursuant to, any of the terms, conditions or provisions of any Contract to which
Acquiror or any of its Subsidiaries is a party or by which any of their respective assets or properties may be bound or affected, or (d) result in the creation of any Lien upon any of the properties or assets of Acquiror or any Subsidiaries of
Acquiror, except in the case of each of clauses (b) through (d) as has not had, and would not reasonably be expected to have, individually or in the aggregate, an Acquiror Material Adverse Effect.
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Section 5.04 Litigation
and Proceedings. There are no pending or, to the knowledge of Acquiror, threatened, Actions and, to the knowledge of Acquiror, there are no pending or threatened investigations, in each case, against any Acquiror Party or Sponsor, or
otherwise affecting any Acquiror Party or Sponsor or their respective assets or properties, which, if determined adversely, could, individually or in the aggregate, have an Acquiror Material Adverse Effect. There is no unsatisfied judgment or
any open injunction binding upon any Acquiror Party or Sponsor which would, individually or in the aggregate, reasonably be expected to have an Acquiror Material Adverse Effect. The business of each of the Acquiror Parties has been conducted in
all material respects in accordance with all applicable Laws. No Acquiror Party has received any written notice of any violation of Law.
Section 5.05 Governmental
Authorities; Consents. Assuming the truth and completeness of the representations and warranties of the Company Parties contained in this Agreement, no action by, consent, approval, permit or authorization of, or designation, declaration
or filing with, any Governmental Authority or notice, approval, consent, waiver or authorization from any Governmental Authority is required on the part of any Acquiror Party with respect to the execution or delivery and performance of this
Agreement by each Acquiror Party or any Transaction Agreement to which any of the Acquiror Parties is a party, as applicable, or the consummation of the Domestication, the Transactions or the other transactions contemplated thereby, except for
(a) applicable requirements of the HSR Act, (b) the filing of (i) the ZF Certificate of Merger, (ii) the IDX Certificate of Merger, (iii) the IDX Forward Certificate of Merger, and (iv) the Acquiror Charter, each in accordance with the DGCL
and, the DLLCA in the case of the IDX Forward Certificate of Merger, (c) the filing with the SEC of (i) the Registration Statement (and the effectiveness of the Registration Statement under the Securities Act) and (ii) such reports under
Section 13(a) or 15(d) of the Exchange Act as may be required in connection with this Agreement, the other Transaction Agreements or the Transactions or the other transactions contemplated thereby, (d) such filings with and approval of NYSE or
NASDAQ, as applicable, to permit the Acquiror Common Stock to be issued in connection with the transactions contemplated by this Agreement and the other Transaction Agreements to be listed on the NYSE or NASDAQ, as applicable, (e) all filings
required to be made with the Cayman Islands Registrar of Companies in connection with the Domestication or (f) any actions, consents, approvals, permits or authorizations, designations, declarations or filings, the absence of which would not,
individually or in the aggregate, reasonably be expected to have an Acquiror Material Adverse Effect.
Section 5.06 Trust Account.
As of the date hereof, there is at least $175,106,330 held in a trust account (the “Trust Account”), maintained by Continental Stock Transfer & Trust Company, a New York corporation, acting as trustee (the “Trustee”), pursuant
to the Investment Management Trust Agreement, dated as of November 23, 2020, by and between Acquiror and the Trustee filed as an exhibit to the SEC Reports of Acquiror as of the date of this Agreement (the “Trust Agreement”). Prior to
the Closing, none of the funds held in the Trust Account may be released except in accordance with the Trust Agreement, Acquiror Organizational Documents and Acquiror’s final prospectus, dated as of November 18, 2020 and filed with the SEC
(File No. 333-249497) on November 20, 2020 (the “IPO Prospectus”). Amounts in the Trust Account are invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as
amended (the “Investment Company Act”), with a maturity of 185 days of less, or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government
treasury obligations. Acquiror has performed all material obligations required to be performed by it to date under, and is not in material default, breach or delinquent in performance or any other respect (claimed or actual) in connection with,
the Trust Agreement, and no event has occurred which, with due notice or lapse of time or both, would constitute such a default or breach thereunder. The Trust Agreement is in full force and effect and is a legal, valid and binding obligation
of Acquiror and, to the knowledge of Acquiror, the Trustee, enforceable in accordance with its terms, subject to the Enforceability Exceptions. The Trust Agreement has not been breached, terminated, repudiated, rescinded, amended or
supplemented or modified, in any respect, and to the knowledge of Acquiror, no such termination, repudiation, rescission, amendment, supplement or modification is contemplated. There are no separate Contracts, side letters or other arrangements
(whether written or unwritten, express or implied) that would cause the description of the Trust Agreement in the SEC Reports filed or furnished by Acquiror to be inaccurate or that would entitle any Person (other than shareholders of Acquiror
holding Pre-Domestication Acquiror Ordinary Shares sold in Acquiror’s initial public offering who shall have elected to redeem their shares of Pre-Domestication Acquiror Ordinary Shares pursuant to the Acquiror Organizational Documents and the
underwriters of Acquiror’s initial public offering with respect to deferred underwriting commissions) to any portion of the proceeds in the Trust Account. As of the date hereof,
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assuming the accuracy of the representations and warranties of the Company Parties
contained herein and the compliance by the Company Parties with their obligations hereunder, no Acquiror Party has any reason to believe that any of the conditions to the use of funds in the Trust Account will not be satisfied or funds
available in the Trust Account will not be available to Acquiror on the Closing Date. There are no Actions pending with respect to the Trust Account. Since November 23, 2020, Acquiror has not released any money from the Trust Account (other
than as permitted by the Trust Agreement). As of the Effective Time, the obligations of Acquiror to dissolve or liquidate pursuant to the Acquiror Organizational Documents shall terminate, and, as of the Effective Time, Acquiror shall have no
obligation whatsoever pursuant to the Acquiror Organizational Documents to dissolve and liquidate the assets of Acquiror by reason of the consummation of the Transactions. Following the Effective Time, no shareholder of Acquiror shall be
entitled to receive any amount from the Trust Account except to the extent such shareholder shall have elected to tender its shares of Pre-Domestication Acquiror Ordinary Shares for redemption pursuant to the Acquiror Shareholder Redemption.
Section 5.07 Brokers’ Fees.
Except as set forth on Schedule 5.07, no broker, finder, investment banker or other Person is entitled to any brokerage fee, finders’ fee, underwriting fee, deferred underwriting fee, commission or other similar payment in connection
with the Transactions or the other transactions contemplated by the other Transaction Agreements based upon arrangements made by Acquiror or any of its Affiliates, including Sponsor.
(a) Acquiror has filed or furnished in a timely manner all required
registration statements, reports, schedules, forms, statements and other documents required to be filed or furnished by it with the SEC prior to the date of this Agreement (collectively, as they have been amended since the time of their filing
and including all exhibits thereto, the “SEC Reports”), and, as of the Closing, will have filed or furnished all other statements, reports, schedules, forms, statements and other documents required to be filed or furnished with the SEC
subsequent to the date of this Agreement (collectively, as they have been amended since the time of their filing and including all exhibits thereto, but excluding the Registration Statement, the “Additional SEC Reports”). None of the SEC
Reports, as of their respective dates (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) and none of the Additional SEC Reports as of their respective dates (or if amended or
superseded by a filing prior to the Closing Date, then on the date of such filing), contained (and in the case of the Additional SEC Reports, will contain) any untrue statement of a material fact or omitted (and in the case of the Additional
SEC Reports, will omit) to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made or will be made, as applicable, not misleading.
The audited financial statements and unaudited interim financial statements (including, in each case, the notes and schedules thereto) included in the SEC Reports and that will be included in the Additional SEC Reports complied (and in the case
of the Additional SEC Reports, will comply) as to form in all material respects with the published rules and regulations of the SEC with respect thereto, were prepared (and in the case of the Additional SEC Reports, will be prepared) in
accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly present
(and in the case of the Additional SEC Reports, will fairly present) (subject, in the case of the unaudited interim financial statements included therein, to normal year-end adjustments and the absence of complete footnotes) in all material
respects the financial position of Acquiror as of the respective dates thereof and the results of its operations and cash flows for the respective periods then ended. There is no liability, debt or obligation (absolute, accrued, contingent or
otherwise) of any of the Acquiror Parties, except for liabilities, debts and obligations: (i) provided for in, or otherwise reflected or reserved for in the financial statements and notes contained or incorporated by reference in the SEC
Reports; (ii) that have arisen since the date of the most recent balance sheet included in the financial statements and notes contained or incorporated by reference in the SEC Reports in the ordinary course of the operation of business of
Acquiror; (iii) incurred in connection with the Transactions; or (iv) that would not be material to the business of the Acquiror Parties, taken as a whole. No Acquiror Party has any material off-balance sheet arrangements that are not disclosed
in the SEC Reports.
(b) Acquiror has established and maintains disclosure controls and
procedures (as defined in Rule 13a-15 under the Exchange Act). Such disclosure controls and procedures are designed to ensure that
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material information relating to Acquiror is made known to Acquiror’s principal
executive officer and its principal financial officer. To the knowledge of Acquiror, such disclosure controls and procedures are effective in timely alerting Acquiror’s principal executive officer and principal financial officer to material
information required to be included in Acquiror’s financial statements included in Acquiror’s periodic reports required under the Exchange Act.
(c) There are no outstanding loans or other extensions of credit
made by Acquiror to any executive officer (as defined in Rule 3b-7 under the Exchange Act) or director of the Acquiror. Acquiror has not taken any action prohibited by Section 402 of the Sarbanes-Oxley Act.
(d) Acquiror has established and maintains systems of internal
accounting controls that are designed to provide reasonable assurance that (i) all transactions are executed in accordance with management’s authorization and (ii) all transactions are recorded as necessary to permit preparation of proper and
accurate financial statements in accordance with GAAP and to maintain accountability for Acquiror’s assets. Acquiror maintains and, for all periods covered by Acquiror’s financial statements included in the SEC Reports, has maintained books and
records in the ordinary course of business that are accurate and complete and reflect the revenues, expenses, assets and liabilities of Acquiror in all material respects.
(e) There is no (i) “significant deficiency” in the internal
controls over financial reporting of Acquiror, (ii) “material weakness” in the internal controls over financial reporting of Acquiror, (iii) fraud, whether or not material, that involves management or other employees of Acquiror who have a
significant role in the internal controls over financial reporting of Acquiror, or (iv) any claim or allegation regarding any of the foregoing.
(f) To the knowledge of Acquiror, as of the date hereof, there are
no outstanding SEC comments from the SEC with respect to the SEC Reports. To the knowledge of Acquiror, none of the SEC Reports filed on or prior to the date hereof is subject to ongoing SEC review or investigation as of the date hereof.
(a) Since its incorporation, Acquiror has not conducted any business
activities other than activities directed toward the accomplishment of a Business Combination or incidental thereto. Except as set forth in the Acquiror Organizational Documents, there is no agreement, commitment, or Governmental Order binding
upon Acquiror or to which Acquiror is a party which has or would reasonably be expected to have the effect of prohibiting or impairing any business practice of Acquiror or any acquisition of property by Acquiror or the conduct of business by
Acquiror as currently conducted or as contemplated to be conducted as of the Closing other than such effects, individually or in the aggregate, which would not reasonably be expected to have an Acquiror Material Adverse Effect. Each of ZF
Merger Sub, IDX Merger Sub and IDX Forward Merger Sub were formed solely for the purpose of engaging in the Transactions and the other transactions contemplated by the other Transaction Agreements, have not conducted any business prior to the
date hereof and have no assets, liabilities or obligations of any nature other than those incident to their respective formations and pursuant to this Agreement and any other Transaction Agreement to which such entities are a party, as
applicable. Acquiror owns, directly or indirectly, all of the issued and outstanding Equity Securities of each of L&F Holdings, ZF Merger Sub, IDX Merger Sub and IDX Forward Merger Sub.
(b) Acquiror does not own or have a right to acquire, directly or
indirectly, any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or other entity. Except for this Agreement and the Transactions and the other Transaction Agreements and the
transactions contemplated thereby, neither Acquiror nor any of its Subsidiaries has any interests, rights, obligations or liabilities with respect to, or is party to, bound by or has its assets or property subject to, in each case whether
directly or indirectly, any Contract or transaction which is, or could reasonably be interpreted as constituting, a Business Combination.
(c) Except for this Agreement and the other Transaction Agreements,
no Acquiror Party is and at no time has been, party to any Contract with any Person that would require payments by any Acquiror Party in excess of $100,000 in the aggregate with respect to any individual Contract or more than $250,000 in the
aggregate when taken together with all other Contracts.
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(d) As of the date hereof, there is no liability, debt or
obligation owed by Acquiror or its Subsidiaries, except for liabilities, debts or obligations (i) reflected or reserved for on Acquiror’s consolidated balance sheet as of September 30, 2021 or disclosed in the notes thereto, (ii) that have
arisen since the date of Acquiror’s consolidated balance sheet as of September 30, 2021 in the ordinary course of the operation of business of Acquiror, or (iii) arising under this Agreement or the performance by an Acquiror Party of its
obligations hereunder, including the Acquiror Transaction Expenses.
(a) All material Tax Returns required by Law to be filed by Acquiror
and its Subsidiaries have been duly filed with the appropriate Governmental Authority, and all such Tax Returns are true, correct and complete in all material respects.
(b) All material amounts of Taxes due and owing by Acquiror and its
Subsidiaries (whether or not reflected on any Tax Return) have been duly paid to the appropriate Governmental Authority. Since their respective formation dates, neither Acquiror nor its Subsidiaries has incurred any material Tax liability
outside the ordinary course of business that has not been duly paid to the appropriate Governmental Authority.
(c) Acquiror and each of its Subsidiaries has (i) withheld and
deducted all material amounts of Taxes required to have been withheld or deducted by it in connection with amounts paid or owed to any employee, independent contractor, creditor, member, or any other third party, (ii) duly and timely remitted
such amounts to the appropriate Governmental Authority, and (iii) complied in all material respects with applicable Laws with respect to Tax withholding, including all reporting and record keeping requirements.
(d) Neither Acquiror nor any of its Subsidiaries is engaged in any
material audit, administrative proceeding or judicial proceeding with respect to Taxes. Neither Acquiror nor any of its Subsidiaries is the subject of any dispute or claim with respect to a material amount of Taxes, other than disputes or
claims that have been resolved, and no such claims have been threatened in writing. All material deficiencies for Taxes asserted or assessed in writing against Acquiror or its Subsidiaries have been fully and timely (taking into account
applicable extensions) paid, settled or withdrawn. There are no outstanding agreements extending or waiving the statutory period of limitations applicable to any claim for, or the period for the collection or assessment or reassessment of,
material Taxes of Acquiror or its Subsidiaries, and no written request for any such waiver or extension is currently pending.
(e) Neither Acquiror nor any of its Subsidiaries has constituted
either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying for income tax-free treatment under Section 355 of the Code (or so much of Section 356 of the Code as relates to Section 355 of the Code).
(f) No Acquiror Party has been a party to any “listed transaction”
within the meaning of Treasury Regulations Section 1.6011-4(b)(2) (or any similar provision of state, local or foreign Law).
(g) No Acquiror Party will be required to include any material item
of income in, or exclude any material item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (A) change in, or use of an improper, method of accounting for a taxable
period (or portion thereof) ending on or prior to the Closing Date and made prior to the Closing; (B) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign Law)
entered into prior to the Closing; (C) installment sale or open transaction disposition made prior to the Closing; (D) intercompany transactions or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any
corresponding or similar provision of state, local or foreign Law) entered into or created, as applicable, prior to the Closing; or (E) prepaid amount or deferred revenue received prior to the Closing outside the ordinary course of business.
(h) There are no Liens with respect to Taxes on any of the equity
interests or assets of Acquiror or any of its Subsidiaries, other than Liens for Taxes not yet due and payable. Acquiror has not entered into any “closing agreement” or similar agreement or arrangement with a Governmental Authority relating to
Taxes.
(i) Neither Acquiror nor any of its Subsidiaries (i) has been a
member of an affiliated, combined, consolidated, unitary or other group for Tax purposes other than such a group for which Acquiror is the
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common parent, or (ii) has any material liability for or in respect of the Taxes of
any Person (other than Acquiror or any of its Subsidiaries) (A) as a result of being a member of an affiliated, combined, consolidated, unitary or other group for Tax purposes, including under Treasury Regulations Section 1.1502-6 (or any
similar or corresponding provision of state, local or foreign Law) or (B) as a transferee or successor, by Contract, assumption or operation of law, or otherwise (except, in each case, for liabilities pursuant to customary commercial contracts
entered into in the ordinary course of business and not primarily relating to Taxes).
(j) Neither Acquiror nor any of its Subsidiaries is a party to, or
bound by, or has any material obligation to any Governmental Authority or other Person under any Tax allocation, Tax sharing, Tax indemnification or similar agreement or arrangement (except, in each case, for liabilities pursuant to customary
commercial Contracts entered into in the ordinary course of business and not primarily relating to Taxes).
(k) Schedule 5.10(k) sets forth the classification of each
Acquiror Party for U.S. federal income Tax purposes.
(l) No Acquiror Party has applied for or received any relief from
Taxes under COVID-19 Measures, the Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster or any similar Law, including by claiming an employee retention credit or deferring any amount of employer or employee
payroll Taxes.
(m) Neither Acquiror nor any person related to Acquiror (as “related
person” is defined in Treasury Regulation Section 1.368-1(e)(4)) has any present intention to, directly or indirectly, (i) acquire interests of ZF or IDX for consideration other than the IDX Closing Cash Consideration, the IDX Closing Stock
Consideration or the ZF Closing Stock Consideration; (ii) redeem or otherwise acquire any IDX Closing Stock Consideration or ZF Closing Stock Consideration (including any such redemptions or acquisitions for which a plan or intention existed at
the time of the Mergers); or (iii) make or have paid on its behalf any extraordinary or special distributions on the IDX Closing Stock Consideration or the ZF Closing Stock Consideration (including any extraordinary or special dividends for
which a plan or intention existed at the time of the Mergers), in each case, that would reasonably be expected to result in any of the Mergers not qualifying as a “reorganization” under Code Section 368. Acquiror or another member of Acquiror’s
consolidated group have the present plan or intention to continue the “historic business” of IDX, ZF and their Subsidiaries or use a significant portion (at least 33-1/3 percent) of IDX and ZF’s “historic business assets” in a business, in each
case, such that the Mergers can satisfy the “continuity of business enterprise” requirement as set forth in Treasury Regulations Section 1.368-1(d). For purposes of the representations in the prior sentence, it shall be assumed that the
business that IDX and its Subsidiaries conduct as of the Closing constitutes the “historic business” of IDX and its Subsidiaries and the assets IDX and its Subsidiaries own as of the Closing constitute 100% of IDX and its Subsidiaries’
“historic business assets” and the business that ZF and its Subsidiaries conduct as of the Closing constitutes the “historic business” of ZF and its Subsidiaries and the assets ZF and its Subsidiaries own as of the Closing constitute 100% of ZF
and its Subsidiaries’ “historic business assets.”
(n) No Acquiror Party is or has ever been a resident for Tax
purposes in any jurisdiction other than the jurisdiction of its incorporation or formation, as applicable, and does not nor has ever had any branch, agency, permanent establishment or other taxable presence in any jurisdiction other than the
jurisdiction of its incorporation or formation, as applicable.
(a) As of the date of this Agreement and without taking into effect
the Investment, the Domestication and the Sponsor Holders Class B Conversion, the authorized share capital of Acquiror consists of US$55,100 divided into (i) 500,000,000 Pre-Domestication Acquiror Ordinary Shares, (ii) 50,000,000
Pre-Domestication Acquiror Class B Shares, and (iii) 1,000,000 preference shares, par value $0.0001 per share (“Acquiror Preference Shares”), of which (A) 17,250,000 shares of Pre-Domestication Acquiror Ordinary Shares are issued and
outstanding as of the date of this Agreement, (B) 4,312,500 shares of Pre-Domestication Acquiror Class B Shares are issued and outstanding as of the date of this Agreement, and (C) no shares of Acquiror Preference Shares are issued and
outstanding as of the date of this Agreement. All of the issued and outstanding shares of Pre-Domestication Acquiror Ordinary Shares and Pre-Domestication
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Acquiror Class B Shares (I) have been duly authorized and validly issued and are
fully paid and non-assessable, (II) were issued in compliance in all material respects with applicable Law, and (III) were not issued in breach or violation of any preemptive rights or Contract. As of the date hereof, Acquiror has issued
16,213,430 Pre-Domestication Acquiror Warrants that entitle the holder thereof to purchase Pre-Domestication Acquiror Ordinary Shares at an exercise price of $11.50 per share on the terms and conditions set forth in the applicable warrant
agreement.
(b) Except for this Agreement, the Pre-Domestication Acquiror
Warrants and the Subscription Agreements, or as set forth in Section 5.11(a), as of the date hereof, there are no Equity Securities of Acquiror authorized, reserved, issued or outstanding. Except as disclosed in the SEC Reports or the
Acquiror Organizational Documents, there are no outstanding contractual obligations of Acquiror to repurchase, redeem or otherwise acquire any securities or equity interests of Acquiror. There are no outstanding bonds, debentures, notes or
other Indebtedness of Acquiror having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matter for which Acquiror’s shareholders may vote. Except as disclosed in the SEC Reports, Acquiror
is not a party to any shareholders agreement, voting agreement or registration rights agreement relating to Pre-Domestication Acquiror Ordinary Shares, Pre-Domestication Acquiror Class B Shares, Acquiror Preference Shares, Acquiror Common Stock
or any other equity interests of Acquiror.
(c) Acquiror does not own any capital stock or any other equity
interests in any other Person (other than the other Acquiror Parties) or have any right, option, warrant, conversion right, stock appreciation right, redemption right, repurchase right, agreement, arrangement or commitment of any character
under which a Person is or may become obligated to issue or sell, or give any right to subscribe for or acquire, or in any way dispose of, any shares of the capital stock or other equity interests, or any securities or obligations exercisable
or exchangeable for or convertible into any shares of the capital stock or other equity interests, of such Person.
(d) The authorized capital stock of L&F Holdings consists of 100
units of limited liability company interests, of which 100 units are issued and outstanding as of the date of this Agreement. All of the issued and outstanding units of membership interests of L&F Holdings (i) are owned beneficially and of
record by Acquiror, (ii) have been duly authorized and validly issued and are fully paid and nonassessable, (iii) were issued in compliance in all material respects with the L&F Holdings certificate of formation and limited liability
company agreement and applicable Law, and (iv) were not issued in material breach or violation of any preemptive rights or Contract. There are (A) no subscriptions, calls, options, warrants, rights or other securities convertible into or
exchangeable or exercisable for units of membership interests or other equity securities of L&F Holdings, or any other Contracts to which L&F Holdings is a party or by which L&F Holdings is bound obligating Acquiror or L&F
Holdings to issue or sell any units of limited liability company interest of, other equity securities in, or debt securities of, L&F Holdings, and (B) no equity equivalents, unit appreciation rights, phantom unit ownership interests or
similar rights in L&F Holdings.
(e) The authorized capital stock of ZF Merger Sub consists of 100
shares of common stock, of which 100 shares are issued and outstanding as of the date of this Agreement. All of the issued and outstanding shares of common stock of ZF Merger Sub (i) are owned beneficially and of record by L&F Holdings,
(ii) have been duly authorized and validly issued and are fully paid and nonassessable, (iii) were issued in compliance in all material respects with the ZF Merger Sub Organizational Documents and applicable Law, and (iv) were not issued in
material breach or violation of any preemptive rights or Contract. There are (A) no subscriptions, calls, options, warrants, rights or other securities convertible into or exchangeable or exercisable for shares of common stock or other equity
securities of ZF Merger Sub, or any other Contracts to which ZF Merger Sub is a party or by which ZF Merger Sub is bound obligating L&F Holdings or ZF Merger Sub to issue or sell any shares of capital stock of, other equity securities in,
or debt securities of, ZF Merger Sub, and (B) no equity equivalents, stock appreciation rights, phantom stock ownership interests or similar rights in ZF Merger Sub.
(f) The authorized capital stock of IDX Merger Sub consists of 100
shares of common stock, of which 100 shares are issued and outstanding as of the date of this Agreement. All of the issued and outstanding shares of common stock of IDX Merger Sub (i) are owned beneficially and of record by L&F Holdings,
(ii) have been duly authorized and validly issued and are fully paid and nonassessable, (iii) were issued in compliance in all material respects with the IDX Merger Sub Organizational Documents and
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applicable Law, and (iv) were not issued in material breach or violation of any
preemptive rights or Contract. There are (A) no subscriptions, calls, options, warrants, rights or other securities convertible into or exchangeable or exercisable for shares of common stock or other equity securities of IDX Merger Sub, or any
other Contracts to which IDX Merger Sub is a party or by which IDX Merger Sub is bound obligating L&F Holdings or IDX Merger Sub to issue or sell any shares of capital stock of, other equity securities in, or debt securities of, IDX Merger
Sub, and (B) no equity equivalents, stock appreciation rights, phantom stock ownership interests or similar rights in IDX Merger Sub.
(g) The authorized capital stock of IDX Forward Merger Sub consists
of 100 units of limited liability company interests, of which 100 units are issued and outstanding as of the date of this Agreement. All of the issued and outstanding units of limited liability company interests of IDX Forward Merger Sub
(i) are owned beneficially and of record by L&F Holdings, (ii) have been duly authorized and validly issued and are fully paid and nonassessable, (iii) were issued in compliance in all material respects with the IDX Forward Merger Sub
certificate of formation and limited liability company agreement and applicable Law, and (iv) were not issued in material breach or violation of any preemptive rights or Contract. There are (A) no subscriptions, calls, options, warrants, rights
or other securities convertible into or exchangeable or exercisable for units of limited liability company interests or other equity securities of IDX Forward Merger Sub, or any other Contracts to which IDX Forward Merger Sub is a party or by
which IDX Forward Merger Sub is bound obligating L&F Holdings or IDX Forward Merger Sub to issue or sell any units of limited liability company interest of, other equity securities in, or debt securities of, IDX Forward Merger Sub, and (B)
no equity equivalents, unit appreciation rights, phantom unit ownership interests or similar rights in IDX Forward Merger Sub.
Section 5.12 Stock Market
Listing. The issued and outstanding units of Acquiror (the “Units”), each such unit comprised of one share of Pre-Domestication Acquiror Ordinary Shares and one-half of one Pre-Domestication Acquiror Warrant, are registered pursuant to
Section 12(b) of the Exchange Act and, as of the date of this Agreement, are listed for trading on the NYSE under the symbol “LNFA.U”. The issued and outstanding shares of Pre-Domestication Acquiror Ordinary Shares are registered pursuant to
Section 12(b) of the Exchange Act and, as of the date of this Agreement, are listed for trading on the NYSE under the symbol “LNFA”. The issued and outstanding Pre-Domestication Acquiror Warrants are registered pursuant to Section 12(b) of the
Exchange Act and, as of the date of this Agreement, are listed for trading on the NYSE under the symbol “LNFA WS”. As of the Closing, after giving effect to the Transactions, the Acquiror Common Stock and the Acquiror Warrants will be
registered pursuant to Section 12(b) of the Exchange Act and listed for trading on the NYSE or NASDAQ. Acquiror is in compliance in all material respects with the applicable NYSE corporate governance requirements for continued listing of the
Pre-Domestication Acquiror Ordinary Shares and Pre-Domestication Acquiror Warrants and, as of the Closing, Acquiror will be in compliance in all material respects with the applicable NASDAQ corporate governance requirements for continued
listing of the Acquiror Common Stock and the Acquiror Warrants. There is no Action pending or, to the knowledge of Acquiror, threatened against Acquiror by the NYSE or the SEC with respect to any intention by such entity to deregister the
Pre-Domestication Acquiror Ordinary Shares or Pre-Domestication Acquiror Warrants on the NYSE. None of Acquiror or its Affiliates has taken any action in an attempt to terminate the registration of the Pre-Domestication Acquiror Ordinary Shares
or Pre-Domestication Acquiror Warrants under the Exchange Act except as contemplated by this Agreement. Acquiror has not received any notice from the NYSE or the SEC regarding the revocation of such listing or otherwise regarding the delisting
of the Pre-Domestication Acquiror Ordinary Shares or Pre-Domestication Warrants from the NYSE or deregistering of the Pre-Domestication Acquiror Ordinary Shares or Pre-Domestication Warrants with the SEC. Notwithstanding anything in this
Agreement to the contrary, following the date of this Agreement, in the event the Pre-Domestication Acquiror Ordinary Shares and Pre-Domestication Acquiror Warrants are listed for trading on the NASDAQ, the foregoing references to the NYSE
included in this Section 5.12 shall be deemed to refer to NASDAQ.
Section 5.13 Investments.
Acquiror has delivered to the Company Parties true, correct and complete copies of (i) each of the fully executed Subscription Agreements entered into by Acquiror with the applicable Investors therein, pursuant to which (i) the PIPE Investors
have committed to purchase an aggregate of no less than 2,000,000 shares of Acquiror Common Stock for $10.00 per share for an aggregate amount of no less than the PIPE Investment Amount, (ii) the Convertible Notes Investors have committed to
purchase an aggregate principal amount of Convertible Notes of no less than the Convertible Notes Investment Amount, and (iii) the form of the Convertible Notes Indenture to be executed upon the closing of the Convertible Notes Investment. Each
of the
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Subscription Agreements are in full force and effect (assuming, with respect to each
Investor and the Company, that each such Subscription Agreement has been duly authorized, executed and delivered by each applicable Investor), and have not been withdrawn or terminated, or otherwise amended or modified, and no withdrawal,
termination, amendment or modification is contemplated by Acquiror. Each Subscription Agreement is and the Convertible Notes Indenture will be upon Closing (i) a legal, valid and binding obligation of Acquiror and, to the knowledge of Acquiror,
each Investor and the indenture trustee, as applicable and (ii) enforceable against Acquiror and, to the knowledge of Acquiror, each Investor and indenture trustee, as applicable, subject to the Enforceability Exceptions and neither the
execution or delivery by any party thereto, nor the performance of any party’s obligations under any such Subscription Agreement or the Convertible Notes Indenture violates or will violate any Laws. The Subscription Agreements provide that ZF
and IDX are a third-party beneficiaries thereof. There are no other agreements, side letters, or arrangements between Acquiror and any Investor relating to any Subscription Agreement or the purchase by such Investor of securities of Acquiror,
that could affect the obligation of the Investors to purchase the applicable portion of the Investment Amount set forth in the Subscription Agreements, and, as of the date hereof, Acquiror does not know of any facts or circumstances that may
reasonably be expected to result in any of the conditions set forth in any Subscription Agreement not being satisfied, or the Investment Amount not being available to Acquiror, on the Closing Date. No event has occurred that, with or without
notice, lapse of time or both, would constitute a default or breach on the part of Acquiror under any material term or condition of any Subscription Agreement and, as of the date hereof, Acquiror has no reason to believe that it will be unable
to satisfy on a timely basis any term or condition of closing to be satisfied by it contained in any Subscription Agreement. The Subscription Agreements contain all of the conditions precedent (other than the conditions contained in the other
agreements related to the Transactions) to the obligations of the Investors to purchase the applicable portion of the Investment Amount set forth in the Subscription Agreements on the terms therein. No fees, consideration or other discounts are
payable or have been agreed by Acquiror or any of its Affiliates (including, from and after the Closing, the Surviving Entities and their respective Subsidiaries) to any Investor in respect of its portion of the Investment Amounts, except as
set forth in the Subscription Agreements.
Section 5.14 Related Party
Transactions. Except as described in the SEC Reports, there are no Contracts between any Acquiror Party, on the one hand, and any director, officer, employee, stockholder, equityholder, warrant holder or Affiliate of such Acquiror Party.
No Affiliate, officer, director or senior management-level employee of any Acquiror Party, or, to the knowledge of Acquiror, any immediate family member of any officer, director or senior management-level employee of any Acquiror Party (a) owns
any material interest in any material asset or property used by Acquiror in the conduct of its business as currently conducted or (b) owes any material amount to, or is owed any material amount by, any of the Acquiror Parties (other than
ordinary course accrued compensation, employee benefits, and expense reimbursements).
Section 5.15 Information
Provided. None of the information relating to the Acquiror Parties or Sponsor supplied or to be supplied by any Acquiror Party or Sponsor, or by any other Person acting on behalf of any Acquiror Party or Sponsor, in writing specifically
for inclusion in the Registration Statement will, as of the time the Registration Statement becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, no Acquiror Party makes any representation or warranty with respect to: (a) statements made or incorporated by
reference therein based on information supplied by or on behalf of any Company Group Member for inclusion or incorporation by reference in the Registration Statement; or (b) any projections or forecasts included in the Registration Statement.
Section 5.16 Absence of
Changes. From and after September 30, 2021, (i) no Acquiror Material Adverse Effect shall have occurred and be continuing and (ii) neither Acquiror nor any of its Subsidiaries has taken any action between such date and the date of this
Agreement that would have required the consent of the Company Parties pursuant to Section 7.02 if such action had been taken after the date hereof (and where such consent could properly have been withheld in accordance with Section
7.02).
Section 5.17 Employees.
Other than any officers as described in the SEC Reports, the Acquiror Parties have never employed any employees or retained any contractors. The Acquiror Parties have never maintained, sponsored, contributed to or had any direct liability
under, and do not currently maintain, sponsor, contribute to or have any direct liability under, any employee benefit plan. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated by this
Agreement will (i) result in any
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payment (including severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any current or former director, officer, employee or individual consultant of the Acquiror Parties, or (ii) result in the acceleration of the time of payment or vesting of any such benefits (whether payable pursuant
to an employee benefit plan or otherwise). The transactions contemplated by this Agreement shall not be the direct or indirect cause of any amount paid or payable by the Acquiror Parties or any of their Affiliates being classified as an “excess
parachute payment” under Section 280G of the Code or the imposition of any additional Tax under Section 4999 or 409A(a)(1)(B) of the Code. There is no contract, agreement, plan or arrangement to which any Acquiror Party is a party which
requires payment by any party of a Tax gross-up or Tax reimbursement payment to any person, including under Section 4999 or 409A of the Code.
Section 5.18 Investment
Company Act. No Acquiror Party is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
Section 5.19 Acquiror Foreign
Person Status. Acquiror hereby represents that (a) it is not a “foreign person,” as defined in the DPA and (b) it will not permit any foreign person affiliated with Acquiror, whether affiliated as a limited partner or otherwise, to obtain
through Acquiror any of the following with respect to the Company Parties: (i) control (as defined in the DPA) of the Company Parties, including the power to determine, direct or decide any important matters for the Company Parties; (ii) access
to any material nonpublic technical information (as defined in the DPA) in the possession of the Company Parties (which shall not include financial information about the Company Parties), including access to any information not already in the
public domain that is necessary to design, fabricate, develop, test, produce, or manufacture products of the Company Parties, including processes, techniques, or methods; (iii) membership or observer rights on the Board of Directors of the
Company Parties or the right to nominate an individual to a position on the Board of Directors of the Company Parties; or (iv) any involvement (other than through voting of shares) in substantive decision-making of the Company Parties regarding
(x) the use, development, acquisition, safekeeping, or release of any critical technologies of the Company Parties (as defined in the DPA); (y) the use, development, acquisition, safekeeping, or release of sensitive personal data (as defined in
the DPA) of U.S. citizens maintained or collected by the Company Parties, or (z) the management, operation, manufacture, or supply of covered investment critical infrastructure (as defined in the DPA).
(a) The Acquiror Parties are, and since inception have been, in
compliance in all material respects with all applicable Laws and Governmental Orders. No Acquiror Party has received any written notice of any material violations of applicable Laws, Governmental Orders or material licenses, approvals,
consents, registrations, franchises or permits held by any Acquiror Parties.
(b) None of the Acquiror Parties, nor any of their respective
directors, officers, employees, nor to the knowledge of Acquiror, agents or other Persons acting on their behalf, have taken, directly or indirectly, any act in furtherance of an improper offer, payment, promise to pay, authorization,
ratification, solicitation, or acceptance of the payment, directly or indirectly, of any gift, money, payment or contribution to or from any Person to secure any improper advantage or to obtain or retain business, or that would otherwise cause
any Acquiror Party to be in material violation of Anti-Corruption Laws. To the knowledge of Acquiror, no Acquiror Party has been subjected to any investigation by a Governmental Authority for material violation of any applicable Anti-Corruption
Laws. No Acquiror Party has conducted or initiated any internal investigation or made a voluntary, directed, or involuntary disclosure to any Governmental Authority regarding any alleged act or omission arising under or relating to any material
noncompliance with any Anti-Corruption Law.
Section 5.21 Sponsor Support
Letter Agreement. Acquiror has delivered to the Company Parties a true, correct and complete copy of the Sponsor Support Letter Agreement. The Sponsor Support Letter Agreement is in full force and effect and has not been withdrawn or
terminated, or otherwise amended or modified, in any respect, and no withdrawal, termination, amendment or modification is contemplated by Acquiror. The Sponsor Support Letter Agreement is a legal, valid and binding obligation of Acquiror and,
to the knowledge of Acquiror, each other party thereto and neither the execution or delivery by any party thereto, nor the performance of any party’s obligations under, the Sponsor Support Letter Agreement violates any provision of, or results
in the
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breach of or default under, or requires any filing, registration or qualification
under, any applicable Law. No event has occurred that, with or without notice, lapse of time or both, would constitute a default or breach on the part of Acquiror under any material term or condition of the Sponsor Support Letter Agreement.
COVENANTS OF THE COMPANY PARTIES
Section 6.01 Conduct of
Business. From the date of this Agreement until the earlier of the Closing and the termination of this Agreement in accordance with its terms (the “Interim Period”), each Company Party shall, and shall cause its Subsidiaries to,
except as expressly required by this Agreement, as set forth on Schedule 6.01, as consented to in writing by Acquiror (which consent shall not be unreasonably conditioned, withheld or delayed), or as required by applicable Law
(including COVID-19 Measures), use its commercially reasonable efforts to (i) conduct and operate its business in the ordinary course of business in all material respects, and (ii) maintain the existing relations and goodwill of such Company
Party and its Subsidiaries with customers, suppliers, distributors and creditors of such Company Party and its Subsidiaries in all material respects. Without limiting the generality of the foregoing, except as required by this Agreement, as set
forth on Schedule 6.01, as consented to by Acquiror in writing (which consent shall not be unreasonably conditioned, withheld or delayed), or as required by applicable Law (including COVID-19 Measures), neither Company Party shall, and
each Company Party shall cause its Subsidiaries not to, during the Interim Period (provided that nothing set forth in this Agreement shall give Acquiror, directly or indirectly, the right to control or direct the operations of any
Company Party):
(a) change or amend its certificate of formation, limited liability
company agreement, certificate of incorporation, bylaws or other organizational documents (including, by merger, consolidation or otherwise);
(b) make, declare, set aside, establish a record date for or pay any
dividend or distribution, other than any dividends or distributions from any wholly-owned Subsidiary of such Company Party either to such Company Party or any other wholly-owned Subsidiaries of such Company Party;
(c) except for entries, modifications, amendments, waivers,
terminations or non-renewals in the ordinary course of business, enter into, materially and adversely modify, materially and adversely amend, waive any material right under, terminate or fail to renew, any ZF Material Contract, in the case of
ZF or any of its Subsidiaries, or IDX Material Contract, in the case of IDX or any of its Subsidiaries (including, for clarity, any Contract that, if existing on the date hereof, would have been a ZF Material Contract, in the case of ZF or any
of its Subsidiaries, or an IDX Material Contract, in the case of IDX or any of its Subsidiaries) or any Lease to which such Company Party or its Subsidiaries is a party or by which it is bound;
(d) (i) issue, deliver, sell, transfer, pledge or dispose of, or
place any Lien (other than a Permitted Lien) on, any Equity Securities of such Company Party or any of its Subsidiaries (other than Equity Securities issued upon exercise of a ZF Option, ZF Warrant, IDX Option or IDX Warrant or conversion of ZF
Preferred Stock or IDX Preferred Stock or conversion of any outstanding convertible debt) or (ii) issue or grant any options, warrants or other rights to purchase or obtain any Equity Securities of such Company Party or its Subsidiaries (except
in the ordinary course consistent with any applicable Company Party Benefit Plan);
(e) sell, assign, transfer, convey, lease, exclusively license,
abandon, allow to lapse or expire, subject to or grant any Lien (other than Permitted Liens) on, or otherwise dispose of, any material assets, rights or properties (including material Owned Intellectual Property) of such Company Party and its
Subsidiaries, other than (i) the expiration of Owned Intellectual Property in accordance with the applicable statutory term or abandonment of Owned Intellectual Property registrations or applications in the ordinary course of business and in
such Company Party’s exercise of its good faith business judgment, (ii) non-exclusive licenses of Owned Intellectual Property granted to customers, channel partners or technology partners in the ordinary course consistent with past practices,
(iii) the sale or provision of goods or services to customers in the ordinary course of business, or the sale, permission to lapse, abandonment, or other disposition of tangible assets or equipment deemed by such Company Party in its reasonable
business judgment to be obsolete or not worth the costs of maintaining or registering the item, or (iv) transactions among a Company Party and its wholly-owned Subsidiaries or among its wholly-owned Subsidiaries;
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(f) disclose to any Person any material Trade Secrets or any
source code constituting Owned Intellectual Property (in each case, other than to Acquiror or its Representatives, or pursuant to a written confidentiality agreement entered into in the ordinary course of business, or in connection with the
Transactions);
(g) (i) cancel or compromise any material claim or material
Indebtedness owed to such Company Party or any of its Subsidiaries, (ii) settle any pending or threatened Action, (A) if such settlement would require payment by such Company Party in an amount greater than $250,000, (B) to the extent such
settlement includes an agreement to accept or concede injunctive relief restricting a Company Party in a manner materially adverse to such Company Party, (C) to the extent such settlement involves a Governmental Authority or alleged criminal
wrongdoing, or (iii) agree to modify in any respect materially adverse to such Company Party and its Subsidiaries any confidentiality or similar Contract to which such Company Party or any of its Subsidiaries are a party;
(h) (i) make any grant or promise of any severance, retention or
termination payment or arrangement to any ZF Knowledge Party or IDX Knowledge Party, as applicable, or (ii) except in the ordinary course of business consistent with past practice or as required by the terms of any existing Company Party
Benefit Plans set forth on Schedule 4.14(a) and Schedule 4.15(a) and as in effect on the date hereof, (A) materially increase the compensation or benefits of any current or former Specified Employee, (B) make any change in the
key management structure of such Company Party or any of its Subsidiaries, including the hiring of any individuals who would be, upon such action, Specified Employees, or the termination (other than for “cause” or due to death or disability) of
Specified Employees, (C) take any action to accelerate any payments or benefits, or the vesting or funding of any payments or benefits, payable or that may become payable to any current or former Company Party Service Provider, or (D)
establish, adopt, enter into, amend or terminate in any material respect any material Company Party Benefit Plan or any plan, agreement, program, policy, trust, fund, Contract or other arrangement that would be a Company Party Benefit Plan if
it were in existence as of the date of this Agreement (other than an employment offer letter that does not contain severance and/or a transaction or retention payment);
(i) implement or announce any employee layoffs, furloughs,
reductions in force, or similar actions that implicates the WARN Act;
(j) (i) negotiate, modify, extend, or enter into any CBA or
(ii) recognize or certify any labor union, labor organization, works council, or group of employees as the bargaining representative for any Company Party Employee of such Company Party or any of its
Subsidiaries;
(k) waive or release any noncompetition, nonsolicitation,
nondisclosure, noninterference, nondisparagement, or other restrictive covenant obligation of any Company Party Service Provider or current or former employee or independent contractor;
(l) hire, engage, terminate (without cause), furlough, or
temporarily layoff any employee or independent contractor with annual compensation in excess of $250,000;
(m) directly or indirectly acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by purchasing all of or a substantial equity interest in, or by any other manner, any business or any corporation, partnership, limited liability company, joint venture, association or
other entity or Person or division thereof, in each case, that would be material to such Company Party and its Subsidiaries, taken as a whole, and other than in the ordinary course of business;
(n) make any loans or advance any money or other property to any
Person, except for (A) advances in the ordinary course of business to employees, officers or independent contractors of such Company Party for expenses not to exceed $100,000 individually or $500,000 in the aggregate, (B) prepayments and
deposits paid to suppliers of such Company Party or any of its Subsidiaries in the ordinary course of business, (C) trade credit extended to customers of such Company Party or any of its Subsidiaries in the ordinary course of business, and (D)
loans, advances or contributions among a Company Party and its wholly-owned Subsidiaries or among the wholly-owned Subsidiaries of a Company Party;
(o) redeem, purchase, repurchase or otherwise acquire, or offer to
redeem, purchase, repurchase or acquire, any Equity Securities of such Company Party or any of its Subsidiaries, except for (i) the acquisition by such Company Party or any of its Subsidiaries of any Equity Securities of such Company
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Party or its Subsidiaries in connection with the forfeiture or cancellation of such
interests and (ii) transactions between such Company Party and a wholly-owned Subsidiary of such Company Party or between wholly-owned Subsidiaries of such Company Party;
(p) adjust, split, combine, subdivide, recapitalize, reclassify or
otherwise effect any change in respect of any Equity Securities of such Company Party or any of its Subsidiaries, except for any such transaction by a wholly-owned Subsidiary of such Company Party that remains a wholly-owned Subsidiary of such
Company Party after consummation of such transaction;
(q) make any material change in accounting principles or methods of
accounting, other than as may be required by GAAP or in Regulation S-X of the Exchange Act or in connection with the Transactions, as agreed to by its independent public accountants;
(r) adopt or enter into a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of such Company Party or any of its Subsidiaries (other than the Transactions);
(s) make, change or revoke any Tax election in a manner inconsistent
with past practice, adopt, change or revoke any accounting method with respect to Taxes, file or amend any Tax Return in a manner inconsistent with past practice, prosecute, settle or compromise any Tax liability or any Action, audit or other
similar proceeding related to Taxes, except as required by Law, enter into any closing agreement with respect to any Tax, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitations period applicable to
any Tax claim or assessment, or enter into any Tax allocation, Tax sharing, Tax indemnification or similar agreement or arrangement (other than any customary commercial agreement entered into in the ordinary course of business and not primarily
relating to Taxes), in each case with respect to each item in this clause (s), if such action could reasonably be expected to have a material adverse impact (other than a de minimis adverse impact) on any Acquiror Party or such Company
Party and its Subsidiaries;
(t) (i) incur, create or assume any Indebtedness, (ii) modify the
terms of any Indebtedness, or (iii) assume, guarantee or endorse, or otherwise become responsible for, the obligations of any Person for Indebtedness, in each case, other than any (w) Indebtedness in replacement of existing Indebtedness for
borrowed money on terms substantially consistent with or more favorable to such Company Party or its applicable Subsidiary than the Indebtedness being replaced, (x) Indebtedness incurred in the ordinary course of business, the proceeds of which
are used solely with respect to operational aspects of such Company Party or its applicable Subsidiary and in an aggregate amount not to exceed $10,000,000, (y) Indebtedness incurred between such Company Party and any of its wholly-owned
Subsidiaries or between any of such wholly-owned Subsidiaries, or (z) guarantees of Indebtedness of a wholly-owned Subsidiary of such Company Party otherwise incurred in compliance with this Section 6.01(t);
(u) fail to maintain in full force and effect material insurance
policies covering such Company Party and its Subsidiaries and their respective properties, assets and businesses in a form and amount consistent with past practices in a manner materially detrimental to such Company Party and its Subsidiaries;
(v) enter into any Contract or amend in any material respect any
existing Contract with any ZF Pre-Closing Holders or IDX Pre-Closing Holders, as applicable, any Person that is an Affiliate of any ZF Pre-Closing Holders or IDX Pre-Closing Holders, as applicable, or an Affiliate of such Company Party or its
Subsidiaries (excluding any ordinary course payments of annual compensation, provision of benefits or reimbursement of expenses in respect of members or stockholders who are officers or directors of such Company Party or its Subsidiaries in
their capacity as an officer or director);
(w) amend, modify, extend, renew or terminate any material Lease or
enter into any new lease, sublease, license or other agreement for the use or occupancy of any real property;
(x) permit any “foreign person,” as defined in Section 721 of the
DPA, whether affiliated as a limited partner or otherwise, to obtain through that Company Party any of the following rights with respect to that Company Party, ZF, or Surviving IDX Entity as a result of that foreign person’s investment in the
Company Party, ZF, or Surviving IDX Entity: (i) access to any “material nonpublic technical information” (as defined in the DPA) in the possession of the entity; (ii) membership or observer rights on the Board of Directors or equivalent
governing body of the entity or the right to nominate an individual to a position on the Board of
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Directors or equivalent governing body of the entity; (iii) any involvement, other
than through the voting of shares, in the substantive decision making of the entity regarding (x) the use, development, acquisition, or release of any “critical technology” (as defined in the DPA), (y) the use, development, acquisition,
safekeeping, or release of “sensitive personal data” (as defined in the DPA) of U.S. citizens maintained or collected by the entity, or (z) the management, operation, manufacture, or supply of “covered investment critical infrastructure” (as
defined in the DPA); or (iv) “control” of the entity (as defined in the DPA); or
(y) enter into any Contract, or otherwise become obligated, to do
any action prohibited under Section 6.01(a) through (x).
Section 6.02 Inspection.
Subject to confidentiality obligations and similar restrictions that may be applicable to information furnished to a Company Party or any of its Subsidiaries by third parties that may be in a Company Party’s or any of its Subsidiaries’
possession from time to time, and except for any information which (a) relates to the negotiation of this Agreement, the Transactions, the other Transaction Agreements or the other transactions contemplated by the other Transaction Agreements,
(b) is prohibited from being disclosed by applicable Law, or (c) in the opinion of legal counsel of a Company Party would result in the loss of attorney-client privilege or other privilege from disclosure, to the extent permitted by applicable
Law (including COVID-19 Measures), (i) each Company Party shall, and shall cause its Subsidiaries to, afford to Acquiror and its Representatives, (ii) ZF shall, and shall cause its Subsidiaries to, afford to IDX and its Representatives, and
(iii) IDX shall, and shall cause its Subsidiaries to, afford to ZF and its Representatives, reasonable access during the Interim Period and with reasonable advance written notice, in such manner as to not interfere with the normal operation of
such Company Party and its Subsidiaries, to all of their properties, books, Contracts, commitments, Tax Returns, records and appropriate officers and employees of such Company Party and its Subsidiaries, and shall use its and their commercially
reasonably efforts to furnish such Representatives with all financial and operating data and other information concerning the affairs of such Company Party and its Subsidiaries that are in the possession of such Company Party or its
Subsidiaries, in each case, as Acquiror and its Representatives, IDX and its Representatives, or ZF and its Representatives, as applicable, may reasonably request solely for purposes of consummating the Transactions and the other transactions
contemplated by the other Transaction Agreements. The Parties shall use reasonable best efforts to make alternative arrangements for such disclosure where the restrictions in the preceding sentence apply. Any request pursuant to this Section
6.02 shall be made in a time and manner so as not to delay the Closing. All information obtained by Acquiror and its Representatives, IDX and its Representatives, or ZF and its Representatives, as applicable, under this Agreement shall be
subject to the Confidentiality Agreements prior to the Closing.
Section 6.03 No Claim Against
the Trust Account. Each Company Party, on behalf of itself and its respective Pre-Closing Holders and other Affiliates, represents and warrants that it has received copies of the IPO Prospectus and other SEC Reports, the Acquiror
Organizational Documents, and the Trust Agreement and understands that Acquiror established the Trust Account containing the proceeds of its initial public offering (the “IPO”) and the overallotment securities acquired by Acquiror’s
underwriters and from certain private placements occurring simultaneously with the IPO (including interest accrued from time to time thereon) for the benefit of Acquiror’s public shareholders (including overallotment shares acquired by
Acquiror’s underwriters, the “Public Shareholders”), and that, except as otherwise described in the IPO Prospectus, Acquiror may disburse monies from the Trust Account only: (a) to the Public Shareholders if they elect to redeem
their Acquiror shares in connection with the consummation of Acquiror’s initial Business Combination or in connection with an extension of Acquiror’s deadline to consummate a Business Combination; (b) to the Public Shareholders if Acquiror
fails to consummate a Business Combination within 18 months after the closing of the IPO, subject to extension by an amendment to the Acquiror Organizational Documents; (c) with respect to any interest earned on the amounts held in the Trust
Account, amounts necessary to pay for any franchise or income taxes, or (d) to Acquiror after or concurrently with the consummation of a Business Combination. Each Company Party, on behalf of itself and its respective Pre-Closing Holders and
other Affiliates, acknowledges and agrees that, notwithstanding anything to the contrary in this Agreement, no Company Party, nor any of its Pre-Closing Holders or Affiliates, do now or shall at any time hereafter have any right, title,
interest or claim of any kind in or to any monies in the Trust Account or distributions therefrom, or make any claim against the Trust Account (including any distributions therefrom), regardless of whether such claim arises as a result of, in
connection with or relating in any way to, this Agreement; provided, that (a) nothing herein shall serve to limit or prohibit any Company Party’s right to pursue a claim against the Acquiror Parties for (i) legal relief against monies
or other assets held outside the Trust Account or (ii) specific performance or other equitable relief in connection with the consummation of the
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Transactions (including a claim for the Acquiror Parties to specifically perform
their obligations under this Agreement and cause the disbursement of the balance of the cash remaining in the Trust Account (after giving effect to the Acquiror Shareholder Redemption) to the Company Parties in accordance with the terms of this
Agreement and the Trust Agreement) so long as such claim would not affect Acquiror’s ability to fulfill its obligation to effectuate the Acquiror Shareholder Redemption and (b) nothing herein shall serve to limit or prohibit any claims that any
Company Party may have in the future against Acquiror’s or any other Acquiror Party’s assets or funds that are not held in the Trust Account (including any funds that have been released from the Trust Account (except any such funds released in
order to effectuate the Acquiror Shareholder Redemption) and any assets that have been purchased or acquired with any such funds) (subject to the foregoing limitations set forth in sub-clauses (a) and (b), collectively, the “Released Claims”).
The Company Parties, on behalf of themselves and their respective Pre-Closing Holders and other Affiliates, (i) hereby irrevocably waive any Released Claims that the Company Parties, the Pre-Closing Holders and their respective Affiliates may
have against the Trust Account (including any distributions therefrom) now or in the future as a result of, or arising out of, any negotiations, contracts or agreements with Acquiror or its Representatives and will not seek recourse against the
Trust Account (including any distributions therefrom) for any reason whatsoever to the extent arising out of the Released Claims (including for an alleged breach of this Agreement or any other agreement with Acquiror or its Affiliates),
(ii) agree and acknowledge that such irrevocable waiver is material to this Agreement and the Transactions and specifically relied upon by Acquiror to induce Acquiror to enter into this Agreement, and (iii) intend and understand such waiver to
be valid, binding and enforceable against the Company Parties, the Pre-Closing Holders and their respective Affiliates under applicable Law. To the extent the Company Parties, the Pre-Closing Holders and their respective Affiliates commence any
Action based upon, in connection with, relating to or arising out of any matter relating to Acquiror or its Representatives, which Action seeks, in whole or in part, monetary relief against Acquiror or its Representatives, the Company Parties,
on behalf of themselves and their respective Pre-Closing Holders and other Affiliates, hereby acknowledge and agree that the Company Parties, the Pre-Closing Holders and their Affiliates’ sole remedy shall be against funds held outside of the
Trust Account and that such claim shall not permit such Persons (or any Person claiming on any of their behalves or in lieu of any of them) to have any claim against the Trust Account (including any distributions therefrom in accordance with
this Section 6.03) or any amounts contained therein. This Section 6.03 shall survive the termination of this Agreement for any reason.
(a) As of the date of this Agreement, (i) ZF has delivered to
Acquiror the audited consolidated balance sheets of ZF and its Subsidiaries as of January 31, 2021 and the related audited consolidated statements of comprehensive loss, redeemable convertible preferred stock and stockholders’ deficit and cash
flows for the years then ended, together with the auditor’s reports thereon, and (ii) IDX has delivered to Acquiror the audited consolidated balance sheets of IDX and its Subsidiaries as of December 31, 2020 and the related audited consolidated
statements of income, changes in stockholders’ deficit and cash flows for the years then ended, together with the auditor’s reports thereon. Each of ZF and IDX shall deliver to Acquiror any other audited or unaudited consolidated balance sheets
and, in the case of ZF, the related consolidated statements of comprehensive loss, redeemable convertible preferred stock and stockholders’ deficit and cash flows, and in the case of IDX, the related audited or unaudited consolidated statements
of income, changes in stockholders’ deficit and cash flows of such Company Party and its Subsidiaries as of and for a year-to-date period ended as of the end of any other different fiscal quarter (and as of and for the same period from the
previous fiscal year) or fiscal year, as applicable that is required to be included in the Registration Statement. All such financial statements, together with any audited or unaudited consolidated balance sheet and the related audited or
unaudited consolidated financial statements of ZF and IDX and their respective Subsidiaries as of and for a year-to-date period ended as of the end of a different fiscal quarter (and as of and for the same period from the previous fiscal year)
or fiscal year (and as of and for the prior fiscal quarter) that is required to be included in the Registration Statement (A) will fairly present in all material respects the financial position of such Company Party and its Subsidiaries as at
the date thereof, and the results of its operations, stockholders’ equity and cash flows for the respective periods then ended (subject, in the case of any interim financial statements, to normal year-end audit adjustments (none of which is
expected to be material) and the absence of footnotes), (B) will be prepared in conformity with GAAP applied on a consistent basis during the periods involved, (C) in the case of any audited financial statements, will be audited in accordance
with the standards of the PCAOB, and (D) will comply in all
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material respects with the applicable accounting requirements and with the
applicable rules and regulations of the SEC, the Exchange Act and the Securities Act in effect as of the respective dates thereof (including Regulation S-X or Regulation S-K, as applicable) for purposes of inclusion in the Registration
Statement. Each of ZF and IDX shall be available to, and such Company Party and its Subsidiaries shall use their reasonable best efforts to make their officers and employees available to, in each case upon reasonable advance notice, Acquiror
and its counsel in connection with (I) the drafting of the Registration Statement and (II) responding in a timely manner to comments on the Registration Statement from the SEC. Without limiting the generality of the foregoing, each of ZF and
IDX shall reasonably cooperate with Acquiror in connection with the preparation for inclusion in the Registration Statement of pro forma financial statements that comply with the requirements of Regulation S-X under the rules and regulations of
the SEC (as interpreted by the staff of the SEC).
(b) From and after the date on which the Registration Statement
becomes effective under the Securities Act, each of ZF and IDX will give Acquiror prompt written notice of any action taken or not taken by such Party or its Subsidiaries or of any development regarding such Party or its Subsidiaries, in any
such case which is or becomes known by such Company Party, that would cause the Registration Statement to contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in light of the
circumstances under which they were made, not misleading; provided, that if any such action shall be taken or fail to be taken or such development shall otherwise occur, Acquiror, ZF and IDX shall cooperate fully to cause an amendment
or supplement to be made promptly to the Registration Statement, such that the Registration Statement no longer contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in
light of the circumstances under which they were made, not misleading; provided, further, however, that no information received by Acquiror pursuant to this Section 6.04(b) shall operate as a waiver or otherwise affect
any representation, warranty or agreement given or made by the Company Party who disclosed such information, and no such information shall be deemed to change, supplement or amend the Schedules.
(a) ZF shall either (i) use reasonable best efforts to obtain and
provide to Acquiror and IDX a fully executed copy of an amendment to, or waiver of rights and remedies under, the ZF Orix LSA, permanently waiving in all respects any Default or Event of Default (each as defined in the ZF Orix LSA) then
existing and continuing (as well as any Default or Event of Default arising from the Transactions) or otherwise amending the ZF Orix LSA to cure, negate or prevent any such Default or Event of Default, in each case, in form and substance
reasonably satisfactory to Acquiror and IDX, by the Closing or (ii) obtain and provide to Acquiror and IDX a fully executed copy of customary pay-off letters related to the Indebtedness outstanding under the ZF Orix LSA, which shall be in form
and substance reasonably satisfactory to Acquiror and IDX and which pay-off letters shall contain a customary statement that all such Indebtedness (other than any inchoate obligations and ongoing banking service obligations), and all related
instruments evidencing such Indebtedness shall be terminated and all Liens (other than any cash collateral securing ongoing banking services) and guarantees in connection therewith securing such Indebtedness shall be released and terminated by
the Closing; provided, that at least five Business Days prior to Closing, ZF shall provide to Acquiror and IDX written notice of whether ZF reasonably expects to deliver either the amendment or waiver described in the foregoing clause
(i) or pay-off letters described in the foregoing clause (ii).
(b) ZF shall either (i) use reasonable best efforts to obtain and
provide to Acquiror and IDX a fully executed copy of either (i) an amendment to, or waiver of rights and remedies under, that certain Loan and Security Agreement, dated as of January 7, 2021, by and among ZF, as Borrower, the US ZF
Subsidiaries, as Guarantors, and Stifel Bank (as further amended, restated, or modified from time to time, the “ZF Stifel LSA”), permanently waiving in all respects any Event of Default (each as defined in the ZF Stifel LSA) then
existing and continuing (as well as any Event of Default arising from the Transactions) or otherwise amending the ZF Stifel LSA to cure, negate or prevent any such default or Event of Default, in each case, in form and substance reasonably
satisfactory to Acquiror and IDX, by the Closing or (ii) obtain and provide to Acquiror and IDX a fully executed copy of customary pay-off letters related to the Indebtedness outstanding under the ZF Stifel LSA, which shall be in form and
substance reasonably satisfactory to
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Acquiror and IDX and which pay-off letters shall contain a customary statement that
all such Indebtedness (other than any inchoate obligations and ongoing banking service obligations), and all related instruments evidencing such Indebtedness shall be terminated and all Liens (other than any cash collateral securing ongoing
banking services) and guarantees in connection therewith securing such Indebtedness shall be released and terminated, by the Closing; provided, that at least five Business Days prior to Closing, ZF shall provide to Acquiror and IDX
written notice of whether ZF reasonably expects to deliver either the amendment or waiver described in the foregoing clause (i) or pay-off letters described in the foregoing clause (ii).
(c) IDX shall obtain and provide to Acquiror and ZF fully executed
copies of customary pay off letters relating to the Indebtedness outstanding under (i) the Comerica Credit Facility and (ii) the IDX Convertible Promissory Notes (which pay-off letters shall be in form and substance reasonably satisfactory to
Acquiror and ZF and shall each contain a customary statement that all such Indebtedness (other than any inchoate indemnity obligations and ongoing banking services), and all related instruments evidencing such Indebtedness shall be terminated
and all Liens (other than any cash collateral securing ongoing banking services) and guarantees in connection therewith securing such Indebtedness shall be released and terminated) (the “IDX Debt Payoff Letters”), in each case, at least
two Business Days prior to Closing.
(d) Immediately prior to Closing, ZF’s and IDX’s Indebtedness shall
comply with the covenants under the Convertible Notes Indenture.
Section 6.07 Company Party
Approvals. Upon the terms set forth in this Agreement, each of ZF and IDX shall use reasonable best efforts to obtain, as soon as reasonably practicable, and in any event no later than 5:00 p.m. Eastern Time on the first (1st)
Business Day following the date of this Agreement, written consents effecting the Required ZF Stockholder Approval and Required IDX Stockholder Approval, as applicable (such written consents, the “ZF Written Consent” and “IDX Written
Consent,” as applicable, and together, the “Written Consents”). The Written Consents shall be irrevocable with respect to all shares owned of record by the Persons signing the Written Consents or as to which such Persons have,
directly or indirectly, the right to vote or direct the voting thereof. ZF has, through its board of directors, declared advisable and approved the Agreement and recommended to the ZF Pre-Closing Holders that they adopt this Agreement (the “ZF
Board Recommendation”) and ZF shall include the ZF Board Recommendation in its distribution to the ZF Pre-Closing Holders requested to execute the ZF Written Consent. IDX has, through its board of directors, declared advisable and
approved the Agreement and recommended to the IDX Pre-Closing Holders that they adopt this Agreement (the “IDX Board Recommendation”) and IDX shall include the IDX Board Recommendation in its distribution to the IDX Pre-Closing Holders
requested to execute the IDX Written Consent. Each of ZF and IDX shall use its reasonable best efforts to take all other actions necessary or advisable to secure the Required ZF Stockholder Approval or the Required IDX Stockholder Approval, as
applicable. Promptly following the receipt of the Required ZF Stockholder Approval and Required IDX Stockholder Approval, as applicable, via the applicable Written Consent, ZF and IDX, as the case may be, will prepare and deliver to the ZF
Pre-Closing Holders and IDX Pre-Closing Holders, as applicable, who have not executed and delivered the applicable Written Consent the notices required by Section 228(e) of the DGCL, along with such other information as is required thereunder
and pursuant to applicable Law. Promptly following the date upon which the Registration Statement becomes effective under the Securities Act, ZF and IDX, as the case may be, will prepare and deliver to the ZF Pre-Closing Holders and IDX
Pre-Closing Holders, as applicable, who have not executed and delivered the applicable Written Consent the notices required by Section 262 of the DGCL and include a solicitation of a waiver of any and all appraisal rights available under
Section 262 of the DGCL, along with such other information as is required thereunder and pursuant to applicable Law.
Section 6.08 No Acquiror
Common Stock Transactions. Each Company Party acknowledges and agrees that it is aware, and that its Representatives are aware or, upon receipt of any material nonpublic information, will be advised of the restrictions imposed by
Securities Laws on a Person possessing material nonpublic information about a publicly traded company. Each Company Party hereby agrees that, while it is in possession of such material nonpublic information, it shall not and it will cause its
Subsidiaries and direct its directors, officers and its and their respective controlled Affiliates not to purchase or sell any securities of Acquiror (other than engaging in the Transactions), communicate such information to any third party,
take any other action with respect to Acquiror in violation of such Laws, or cause or encourage any third party to do any of the foregoing.
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Section 6.09 GSA Schedule
Renewal. Considering that orders placed under the OPM BPA are issued off of the GS-23F-0037T GSA Schedule, IDX and its Subsidiaries will take commercially reasonable efforts to ensure that GSA will allow ITGS to renew or extend the
GS-23F-0037T GSA Schedule in 2022.
Section 6.10 IDX Employment
Arrangement Amendments. IDX shall terminate the employment of Thomas F. Kelly and Sanjay Uppal in accordance with, and shall pay the full change in control and termination benefits pursuant to, the arrangements disclosed on Schedule
4.15(h), as amended by the amendment each such employee has executed with ITGS concurrent with the execution of this Agreement (which benefits, for the avoidance of doubt, shall constitute IDX Transaction Expenses).
Section 6.11 Section 280G.
Prior to the Closing Date, IDX shall (a) secure from each Person who has a right to any payments and/or benefits as a result of or in connection with the transactions contemplated hereby that would be deemed to constitute “parachute payments”
(within the meaning of Section 280G of the Code and the regulations promulgated thereunder) a waiver of such Person’s rights to some or all of such payments and/or benefits (the “Waived 280G Benefits”) applicable to such Person, such
that all remaining payments and/or benefits applicable to such Person shall not be deemed to be “excess parachute payments” that would not be deductible under Section 280G of the Code, and (b) seek the approval of the stockholders of IDX who
are entitled to vote in a manner that complies with Section 280G(b)(5)(B) of the Code and Treasury Regulations § 1.280G-1, which shall include adequate written disclosure to all stockholders who are entitled to vote prior to such vote, of any
such Waived 280G Benefits. At least five Business Days prior to obtaining the Section 280G waivers, and prior to seeking such stockholder approval, IDX shall provide drafts of such waivers and such stockholder approval materials (including
related calculations) to Acquiror and ZF for their review and approval. Prior to the Closing, IDX shall deliver to Acquiror and ZF evidence that a vote of the stockholders of IDX who are entitled to vote was solicited in accordance with the
foregoing provisions of this Section 6.11 and that either (i) the requisite number of stockholder votes was obtained with respect to the Waived 280G Benefits (the “280G Approval”), or (ii) that the 280G Approval was not
obtained, and, as a consequence, the Waived 280G Benefits shall not be made or provided.
COVENANTS OF ACQUIROR
(a) From and after the Effective Time, Acquiror shall, and shall
cause the Surviving Entities to, indemnify and hold harmless each present and former director, manager and officer of Acquiror, each Company Party and each of their respective Subsidiaries against any costs or expenses (including reasonable
attorneys’ fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any Action, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or
prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent that such Company Party or its Subsidiaries would have been permitted under applicable Law and their respective certificate
of incorporation, bylaws or other organizational documents in effect on the date of this Agreement to indemnify (and advance expenses as incurred in defense of any Action, to the fullest extent permitted under applicable Law, to) such Person.
Without limiting the foregoing, Acquiror shall cause the Surviving Entities and each of their respective Subsidiaries to, (i) maintain for a period of not less than six years from the Effective Time provisions in its certificate of
incorporation, bylaws and other organizational documents concerning the indemnification and exculpation of, and advancement of expenses to, officers and directors/managers that are no less favorable to those Persons than the provisions of such
certificates of incorporation, bylaws and other organizational documents as of the date of this Agreement and (ii) not amend, repeal or otherwise modify such provisions for a period of not less than six years from the Effective Time in any
respect that would adversely affect the rights of those Persons thereunder, in each case, except as required by Law.
(b) Each of Acquiror and each Company Party shall or shall cause one
or more of its Subsidiaries to purchase, at or prior to the Closing, and Acquiror shall or shall cause one or more of its Subsidiaries to maintain in effect for a period of six years from the Effective Time, directors’ and officers’ liability
insurance covering those Persons who are currently covered by Acquiror’s or such Company Party’s or any of its Subsidiaries’, as applicable, directors’ and officers’ liability insurance policies (true, correct and complete copies of which have
been heretofore made available to each other Party or its agents or representatives) on terms not less favorable than the terms of such current insurance coverage, except that in
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no event shall Acquiror or its Subsidiaries be required to pay an aggregate premium
for such insurance in excess of 300% of the annual premium payable in the aggregate by the Acquiror or the Company Parties and their Subsidiaries, as applicable, for such insurance policy for the year ended December 31, 2020; provided,
however, that (i) each of Acquiror and each Company Party may cause coverage to be extended under the current directors’ and officers’ liability insurance by obtaining a six-year “tail” policy containing terms not materially less
favorable than the terms of such current insurance coverage with respect to claims existing or occurring at or prior to the Effective Time (the “D&O Tail”) and (ii) if any claim is asserted or made within such six-year period, any
insurance required to be maintained under this Section 7.01 shall be continued in respect of such claim until the final disposition thereof.
(c) Notwithstanding anything contained in this Agreement to the
contrary, this Section 7.01 shall survive the consummation of the Mergers indefinitely and shall be binding, jointly and severally, on Acquiror, the Surviving Entities and all successors and assigns of Acquiror and the Surviving
Entities. If Acquiror or the Surviving Entities or any of their respective successors or assigns consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or
merger or transfers or conveys all or substantially all of its properties and assets to any Person, then, and in each such case, proper provision shall be made so that the successors and assigns of Acquiror or the Surviving Entities, as the
case may be, shall succeed to the obligations set forth in this Section 7.01.
(a) During the Interim Period, Acquiror shall, and shall cause its
Subsidiaries to, except as expressly required by this Agreement, as set forth on Schedule 7.02, as consented to in writing by the Company Parties (which consent shall not be unreasonably conditioned, withheld or delayed), or as required
by applicable Law (including COVID-19 Measures), use its commercially reasonable efforts to conduct and operate its business in the ordinary course of business in all material respects. Without limiting the generality of the foregoing, except
as required by this Agreement, as set forth on Schedule 7.02, as consented to by the Company Parties in writing (which consent shall not be unreasonably conditioned, withheld or delayed), or as required by applicable Law (including
COVID-19 Measures), Acquiror shall not, and shall cause its Subsidiaries not to, during the Interim Period (provided that nothing set forth in this Agreement shall (i) give ZF or IDX, directly or indirectly, the right to control or direct the
operations of any Acquiror Party and (ii) prohibit or otherwise restrict the ability of any Acquiror Party from using the funds held by Acquiror outside the Trust Account to pay any Acquiror expenses):
(i) change, modify or amend the Trust Agreement, the Acquiror
Organizational Documents or the organizational documents of any of Acquiror’s Subsidiaries;
(ii) (A) declare, set aside or pay any dividends on, or make any
other distribution in respect of any outstanding Equity Securities of Acquiror or any of Acquiror’s Subsidiaries, (B) split, combine or reclassify any Equity Securities of Acquiror or any of Acquiror’s Subsidiaries, or (C) other than in
connection with the Acquiror Shareholder Redemption or as otherwise required by Acquiror’s Organizational Documents in order to consummate the Transactions, repurchase, redeem or otherwise acquire, or offer to repurchase, redeem or otherwise
acquire, any Equity Securities of Acquiror or any of Acquiror’s Subsidiaries;
(iii) make, change or revoke any Tax election in a manner
inconsistent with past practice, adopt, change or revoke any accounting method with respect to Taxes, file or amend any Tax Return in a manner inconsistent with past practice, prosecute, settle or compromise any Tax liability or any Action,
audit or other similar proceeding related to any amount of Taxes, enter into any closing agreement with respect to any Tax, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitations period applicable
to any Tax claim or assessment, or enter into any Tax allocation, Tax sharing, Tax indemnification or similar agreement or arrangement (other than any customary commercial agreement entered into in the ordinary course of business and not
primarily relating to Taxes), in each case with respect to each item in this clause (iii), if such action could reasonably be expected to have an adverse impact (other than a de minimis adverse impact) on Acquiror or a Company Group;
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(iv) enter into, renew or amend, any transaction or Contract with
an Affiliate of Acquiror (including, for the avoidance of doubt, (A) the Sponsor and (B) any Person in which the Sponsor has a direct or indirect legal, contractual or beneficial ownership interest of 5% or greater);
(v) settle any pending or threatened Action, (A) if such settlement
would require payment by Acquiror or any of its Subsidiaries in an amount greater than $250,000, (B) to the extent such settlement includes an agreement to accept or concede injunctive relief, (C) to the extent such settlement involves a
Governmental Authority or alleged criminal wrongdoing;
(vi) incur or assume any Indebtedness or guarantee any Indebtedness
of another Person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of another Person, other than (A) Sponsor Working Capital Loans and (B) any indebtedness incurred among Acquiror and its
Subsidiaries;
(vii) (A) offer, issue, deliver, grant or sell, or authorize or
propose to offer, issue, deliver, grant or sell, any Equity Securities other than (w) issuance of Pre-Domestication Acquiror Ordinary Shares in connection with the exercise of any Pre-Domestication Acquiror Warrants outstanding on the date
hereof, (x) issuance of Acquiror Common Stock at not less than $10 per share in connection with the transactions contemplated by the PIPE Subscription Agreements, (y) issuance of Convertible Notes at a conversion price of not less than $11.50
per share in connection with the transactions contemplated by the Convertible Notes Subscription Agreements or (z) issuance of Acquiror Common Stock in connection with the Sponsor Holders Class B Conversion, or (B) amend, modify or waive any of
the terms or rights set forth in, any Pre-Domestication Acquiror Warrant or the applicable warrant agreement, including any amendment, modification or reduction of the warrant price set forth therein;
(viii) directly or indirectly acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by purchasing all of or a substantial equity interest in, or by any other manner, any business or any corporation, partnership, limited liability company, joint venture,
association or other entity or Person or division thereof;
(ix) make any loans, advances or capital contributions to, or
investments in, any other Person (including to any of its officers, directors, agents or consultants);
(x) adopt or enter into a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of Acquiror or any of its Subsidiaries (other than the Transactions);
(xi) enter into any new line of business outside of the business
currently conducted by Acquiror and its Subsidiaries as of the date of this Agreement;
(xii) make any material change in accounting principles or methods
of accounting, other than as may be required by GAAP;
(xiii) permit any “foreign person,” as defined in Section 721 of the
DPA, whether affiliated as a limited partner or otherwise, to obtain through Acquiror any of the following rights with respect to Acquiror, ZF, or Surviving IDX Entity as a result of that foreign person’s investment in Acquiror, ZF, or
Surviving IDX Entity: (i) access to any “material nonpublic technical information” (as defined in the DPA) in the possession of the entity; (ii) membership or observer rights on the Board of Directors or equivalent governing body of the entity
or the right to nominate an individual to a position on the Board of Directors or equivalent governing body of the entity; (iii) any involvement, other than through the voting of shares, in the substantive decision making of the entity
regarding (x) the use, development, acquisition, or release of any “critical technology” (as defined in the DPA), (y) the use, development, acquisition, safekeeping, or release of “sensitive personal data” (as defined in the DPA) of U.S.
citizens maintained or collected by the entity, or (z) the management, operation, manufacture, or supply of “covered investment critical infrastructure” (as defined in the DPA); or (iv) “control” of the entity (as defined in the DPA); or
(xiv) enter into any Contract, or otherwise become obligated, to do
any action prohibited under this Section 7.02(a).
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(b) During the Interim Period, Acquiror shall use its
commercially reasonable efforts to, and shall cause its Subsidiaries to use their commercially reasonable efforts to, comply with, and continue performing under, as applicable, material Contracts to which Acquiror or its Subsidiaries may be a
party.
Section 7.03 Inspection.
Subject to confidentiality obligations and similar restrictions that may be applicable to information furnished to Acquiror or its Subsidiaries by third parties that may be in Acquiror’s or its Subsidiaries’ possession from time to time, and
except for any information which in the opinion of legal counsel of Acquiror would result in the loss of attorney-client privilege or other privilege from disclosure, to the extent permitted by applicable Law (including COVID-19 Measures),
Acquiror shall afford to ZF and IDX, and their respective Affiliates and their respective Representatives reasonable access during the Interim Period and with reasonable advance notice, to their respective properties, books, Contracts,
commitments, Tax Returns, records and appropriate officers and employees of Acquiror and its Subsidiaries, and shall furnish such Representatives with all financial and operating data and other information concerning the affairs of Acquiror
that are in the possession of Acquiror, in each case as ZF, IDX and their respective Representatives may reasonably request solely for purposes of consummating the Transactions. The Parties shall use reasonable best efforts to make alternative
arrangements for such disclosure where the restrictions in the preceding sentence apply. All information obtained by ZF, IDX and their respective Affiliates and their respective Representatives under this Agreement shall be subject to the
Confidentiality Agreements prior to the Closing.
Section 7.04 Section 16
Matters. Prior to the Effective Time, Acquiror shall take all commercially reasonable steps as may be required (to the extent permitted under applicable Law) to cause any acquisition or disposition of the Pre-Domestication Acquiror
Ordinary Shares, Pre-Domestication Acquiror Class B Shares or Acquiror Common Stock that occurs or is deemed to occur by reason of or pursuant to the Transactions by each individual who is or will be subject to the reporting requirements of
Section 16(a) of the Exchange Act with respect to Acquiror to be exempt under Rule 16b-3 promulgated under the Exchange Act, including adopting resolutions and taking other steps in accordance with the No-Action Letter, dated as of January 12,
1999, issued by the SEC regarding such matters.
Section 7.05 Post-Closing
Directors and Officers. Subject to the terms of the Acquiror Organizational Documents, the Acquiror Charter and the Acquiror Bylaws, Acquiror shall take all such action within its power as may be necessary or appropriate such that
immediately following the Effective Time:
(a) the Board of Directors of Acquiror shall include:
(i) James C. Foster from ZF as Chairman;
(ii) four director nominees that are existing board members of ZF to
be designated by ZF pursuant to written notice to be delivered to Acquiror and IDX as soon as reasonably practicable following the date of this Agreement, each of whom shall be reasonably acceptable to Acquiror and IDX;
(iii) Thomas F. Kelly from IDX (who shall be assigned to a class of
directors that shall not be up for re-election until one year or more after the Closing Date);
(iv) one director nominee that is an existing board member of IDX to
be designated by IDX pursuant to written notice to be delivered to ZF and Acquiror as soon as reasonably practicable following the date of this Agreement, who shall be reasonably acceptable to ZF and Acquiror;
(v) one independent director nominee to be designated by Sponsor
pursuant to written notice to be delivered to ZF and IDX as soon as reasonably practicable following the date of this Agreement, who shall be reasonably acceptable to ZF and IDX and shall be “independent” pursuant to the rules of the SEC and
NYSE or NASDAQ, as applicable (who shall be assigned to a class of directors that shall not be up for re-election until two years or more after the Closing Date); and
(vi) such other director nominees to be designated by ZF and IDX
pursuant to written notice to Acquiror following the date of this Agreement; and
(b) the officers of Acquiror shall be as set forth on Schedule
7.05(b), who shall serve in such capacity in accordance with the terms of the Acquiror Charter and the Acquiror Bylaws following the Effective Time.
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Section 7.06 Incentive
Equity Plan. Prior to the Closing Date, Acquiror shall adopt, subject to approval of the shareholders of Acquiror: (a) its 2022 Incentive Equity Plan, in the form attached hereto as Exhibit H, providing for the issuance of the
number of shares of Acquiror Common Stock set forth therein, with such changes as may be agreed to in writing by Acquiror, ZF and IDX prior to obtaining approval of the Acquiror Shareholders (the “Incentive Equity Plan”); and (b) its
2022 Employee Stock Purchase Plan, in the form attached hereto as Exhibit I, providing for the issuance of the number of shares of Acquiror Common Stock set forth therein, with such changes as may be agreed to in writing by Acquiror, ZF
and IDX prior to obtaining approval of the Acquiror Shareholders (the “ESPP”), in each case to be effective as of the Closing or as otherwise set forth in the applicable plan document. Within two Business Days following the expiration of
the 60 day period following the date Acquiror has filed current Form 10 information with the SEC reflecting its status as an entity that is not a shell company, Acquiror shall file an effective registration statement on Form S-8 (or other
applicable form) with respect to the Acquiror Common Stock issuable under the Incentive Equity Plan and the ESPP, and Acquiror shall use reasonable best efforts to maintain the effectiveness of such registration statement(s) (and maintain the
current status of the prospectus or prospectuses contained therein) for so long as awards granted pursuant to the Incentive Equity Plan and ESPP remain outstanding.
(a) Prior to the consummation of the Transactions, and subject to
the Supermajority Acquiror Shareholder Approval, Acquiror shall continue and domesticate to the State of Delaware and become a Delaware corporation in accordance with Section 388 of the DGCL and Part XII of the Companies Act by (i) filing a
certificate of corporate domestication with respect to the Domestication and the Acquiror Charter with the Secretary of State of the State of Delaware, (ii) completing, making and procuring all those filings required to be made with the Cayman
Islands Registrar of Companies in connection with the Domestication and (iii) obtaining a certificate of de-registration from the Cayman Islands Registrar of Companies. In connection with the Domestication, Acquiror shall cause to be adopted as
Acquiror’s initial certificate of incorporation the Acquiror Charter. Following the consummation of the Domestication and prior to the Closing, Acquiror shall cause to be adopted the Acquiror Bylaws. Acquiror shall effect the Domestication in
such a way that the representations and warranties of the Acquiror Parties set forth in Article V remain true and correct, in compliance with all applicable Laws and in a matter so as to properly effectuate the purposes of this
Agreement.
(b) In accordance with applicable Law, the Domestication shall
provide that at the effective time of the Domestication, by virtue of the Domestication, and without any action on the part of any Acquiror Shareholder, (i) each then issued and outstanding share of Pre-Domestication Acquiror Ordinary Shares
shall convert automatically, on a one-for-one basis, into a share of Acquiror Common Stock (as part of its domestication as a corporation incorporated in the State of Delaware); (ii) each then issued and outstanding share of Pre-Domestication
Acquiror Class B Shares shall convert automatically, on a one-for-one basis, into a share of Acquiror Common Stock (as part of its domestication as a corporation incorporated in the State of Delaware); (iii) each then issued and outstanding
Pre-Domestication Acquiror Warrant shall convert automatically into an Acquiror Warrant, pursuant to the Warrant Agreement; and (iv) Acquiror’s name shall be changed to “ZeroFox Holdings, Inc.” or such other name as determined by ZF and IDX in
their discretion prior to obtaining approval of the shareholders of Acquiror and set forth in the Acquiror Charter.
Section 7.08 Subscriptions.
Unless otherwise approved in writing by ZF and IDX (which approval shall not be unreasonably withheld, conditioned or delayed), and except for any of the following actions that would not (i) increase conditionality or impose any new obligation
on ZF, IDX or Acquiror, (ii) reduce the Investment Amount or the subscription amount under any Subscription Agreement or (iii) reduce or impair the rights of Acquiror under any Subscription Agreement or the Convertible Notes Indenture, Acquiror
shall not (other than changes that are solely ministerial or otherwise immaterial and do not affect any economic or any other material term of a Subscription Agreement) permit any amendment or modification to be made to, any waiver (in whole or
in part) of, or provide consent to modify (including consent to terminate), any provision or remedy under, or any replacements of, any of the Subscription Agreements or the Convertible Notes Indenture, in each case, other than any assignment or
transfer contemplated therein or expressly permitted thereby (without any further amendment, modification or waiver to such assignment or transfer provision); provided, that, in the case of any such assignment or transfer, the initial
party to such Subscription Agreement remains bound by its obligations with respect thereto in the event that the transferee or assignee, as applicable, does not comply with its
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obligations to consummate the purchase of Acquiror Common Stock or Convertible Notes
contemplated thereby. Subject to the immediately preceding sentence and in the event that all conditions in the Subscription Agreements have been satisfied, Acquiror shall use its reasonable best efforts to take, or to cause to be taken, all
actions required or necessary to consummate the transactions contemplated by the Subscription Agreements on the terms described therein and in the Convertible Notes Indenture, including using its reasonable best efforts to enforce its rights
under the Subscription Agreements to cause the Investors to pay to Acquiror the applicable purchase price under each Subscription Agreement in accordance with its terms. Without limiting the generality of the foregoing, Acquiror shall give ZF
and IDX prompt written notice (email being sufficient): (a) of any requested amendment to any Subscription Agreement or the Convertible Notes Indenture; (b) of any breach or default to the knowledge of Acquiror (or any event or circumstance
that, to the knowledge of Acquiror, with or without notice, lapse of time or both, would give rise to any breach or default) by any party to any Subscription Agreement; (c) of the receipt of any written notice or other written communication
from any party to a Subscription Agreement with respect to any actual or claimed expiration, lapse, withdrawal, breach, default, termination or repudiation by any party to any Subscription Agreement or any provision thereof; and (d) if Acquiror
does not expect to receive all or any portion of the applicable purchase price under any Subscription Agreement in accordance with its terms.
Section 7.09 Acquiror Public
Filings. From the date hereof through the Effective Time, Acquiror will keep current and timely file all reports required to be filed or furnished with the SEC and otherwise comply in all material respects with its reporting obligations
under applicable Laws.
Section 7.10 Listing.
From the date hereof until the Effective Time, Acquiror shall use its reasonable best efforts to ensure that Acquiror remains listed as a public company on the NYSE or NASDAQ, as applicable. Notwithstanding the foregoing, in connection with the
initial filing of the Registration Statement with the SEC pursuant to Section 8.02(a), Acquiror will take such action as necessary to delist the Units, the Pre-Domestication Acquiror Ordinary Shares and Pre-Domestication Acquiror
Warrants from the NYSE in connection with the Closing, and shall prepare and submit to NASDAQ a listing application, in accordance with NASDAQ rules, covering the Pre-Domestication Acquiror Ordinary Shares and Pre-Domestication Acquiror
Warrants and shall take all actions necessary to obtain approval for the listing of the Pre-Domestication Acquiror Ordinary Shares and Pre-Domestication Acquiror Warrants effective upon the delisting from the NYSE. Acquiror shall use its
reasonable best efforts to cause the Acquiror Common Stock to be issued in connection with the Transactions or otherwise reserved for issuance to be approved for listing on NASDAQ, subject to official notice of issuance, on or prior to the
Closing Date. Prior to filing any document in connection with the foregoing, Acquiror shall give the Company Parties a reasonable opportunity to review and comment on any proposed filings and incorporate such reasonable comments thereto.
(a) Comparability. For a period of 12 months following the
Closing Date (or, if earlier, until the date of termination of employment of the relevant Continuing Employee), Acquiror shall cause ZF and Surviving IDX Entity to provide each of its respective employees as of immediately prior to the Closing
who remain so employed immediately following the Closing (each, a “Continuing Employee”) with an annual base salary or base wages (as applicable) and incentive compensation opportunities (excluding any equity or equity-based, change in
control or retention incentive compensation) that are no less than the annual base salary or base wages (as applicable) and target incentive compensation opportunities (excluding any equity or equity-based, change in control or retention
incentive compensation), respectively, provided to such Continuing Employee immediately prior to the Closing Date. As soon as practicable following the Closing Date, Acquiror shall cause ZF and Surviving IDX Entity to provide Continuing
Employees with employee benefits that are, on a benefit by benefit basis, no less favorable to the Continuing Employees than the more favorable of the benefit (of such type) provided by ZF and the benefit (of such type) provided by IDX
immediately prior to the date hereof under the Company Party Benefit Plans set forth on Schedule 4.14(a) and Schedule 4.15(a), in all cases, excluding equity or equity-based, defined benefit pension, post-employment welfare,
change in control or retention incentive compensation and nonqualified deferred compensation benefits, which such comparable employee benefits shall be provided to Continuing Employees for a period ending 12 months after enrollment therein (or,
if earlier, until the date of termination
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of employment of the relevant Continuing Employee). In recognition that subjective
judgment may be involved in determining whether one benefit is more favorable to employees than another, Acquiror, ZF and IDX shall work together in good faith prior to the Closing Date to determine which benefit (of each type) is more
favorable to employees.
(b) Service Credit. From and after the Closing, Acquiror
shall cause ZF and Surviving IDX Entity to give or cause to be given to each Continuing Employee credit for purposes of eligibility to participate, vesting of employer 401(k) plan contributions, level of severance and vacation/paid time off
(and for any other purposes as may be required under applicable Law), but not for benefit accrual purposes under any defined benefit pension plan or any purpose under any equity-based plan or arrangement, under each employee benefit plan,
program or arrangement established or maintained by Acquiror under which Continuing Employees are eligible to participate on or after the Closing (“New Plan”) to the same extent and for the same purpose as such service with the
applicable Company Party or any predecessor thereof was credited on or prior to the Closing under the corresponding Company Party Benefit Plan; provided, however, that such credit need not be provided to the extent that such
credit would result in any duplication of compensation or benefits for the same period of service.
(c) Pre-Existing Conditions/Copayment Credit. With respect to
each New Plan that is a group health benefit plan in which any Continuing Employee or eligible spouse or dependent thereof is eligible to participate on or after the Closing and in the plan year in which the Closing occurs, Acquiror shall use
commercially reasonable efforts to (i) waive, or cause its Subsidiaries or insurance carrier to waive, all limitations as to preexisting conditions, actively-at-work requirements, exclusions and waiting periods, if any, with respect to
participation and coverage requirements applicable to each Continuing Employee or eligible spouse or dependent thereof, and any other similar restrictions that would prevent immediate or full participation by such Continuing Employee or
eligible spouse or dependent thereof, under such New Plan, to the same extent satisfied or waived under a comparable Company Party Benefit Plan in which such Continuing Employee participated in such plan year, and (ii) for the plan year in
which the Closing occurs, provide or cause its Subsidiaries to provide credit to each Continuing Employee or eligible spouse or dependent thereof for any co-payments, deductibles, out-of-pocket expenses and for any lifetime maximums paid by
such Continuing Employee or eligible spouse or dependent thereof under the comparable Company Party Benefit Plan during the portion of the plan year ending on the Closing Date to the same extent and for the same purpose as credited under such
comparable Company Party Benefit Plan as if such amounts had been paid under such New Plan.
(d) 401(k) Plan. ZF and IDX shall cooperate in good faith to
mutually determine, no later than 10 days before the Closing Date, whether any 401(k) plans maintained by ZF or any of its Subsidiaries or by IDX or any of its Subsidiaries shall be terminated effective as of the day immediately preceding the
Closing Date (the “Plan Termination Date”). Following any such mutual determination to terminate such a 401(k) plan (the “Terminating 401(k) Plan”), ZF, IDX, or one of their Subsidiaries, as applicable, shall (i) cause written
resolutions of the applicable board of directors (or similar governing body) to be adopted to terminate the Terminating 401(k) Plan and to fully vest all participants under the Terminating 401(k) Plan, such termination and vesting to be
effective no later than the Plan Termination Date and (ii) make all employee and employer contributions to the Terminating 401(k) Plan on behalf of all participants under such plan for all periods of service prior to the Plan Termination Date,
including such contributions that would have been made on behalf of such employees had the transactions contemplated hereby not occurred (regardless of any service or end-of-year employment requirements) but prorated for the portion of the plan
year that ends on the Plan Termination Date. ZF or IDX, as applicable, shall cause the sponsor of the Terminating 401(k) Plan to provide the other party with an advance copy of such proposed resolutions (and any related documents) and a
reasonable opportunity to comment thereon prior to its adoption or execution. ZF and IDX shall cooperate and take all such other actions as are reasonably necessary in furtherance of terminating the Terminating 401(k) Plan and causing
participants in the Terminating 401(k) Plan to become participants in the appropriate remaining 401(k) plan of ZF, IDX or one of their Subsidiaries, including causing such replacement plan to accept rollovers of account balances (in cash but
including notes associated with outstanding plan loans) from the Terminating 401(k) Plan at the participant’s election.
(e) Limitations. The Parties acknowledge and agree that all
provisions contained in this Section 7.11 are included for their sole benefit, and that nothing contained herein, express or implied, (i) is intended to
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confer on any other Person any third-party beneficiary or other rights, remedies or
benefits (including any right to continued employment for any period, to any particular term or condition of employment or to continued receipt of any specific employee benefit), or (ii) shall constitute an establishment, amendment to or any
other modification of any New Plan, Company Party Benefit Plan or other benefit or compensation plan, policy, program, agreement or arrangement, or shall limit the right of Acquiror or any of its Affiliates to amend, terminate or otherwise
modify any New Plan, Company Party Benefit Plan or other benefit or compensation plan, policy, program, agreement or arrangement following the Closing Date. Notwithstanding anything to the contrary in Section 7.11, Acquiror’s
obligations under Section 7.11 shall not (A) apply to any individual who is furloughed, temporarily laid off, or suffers a termination of employment or reduction in hours or benefits at any time because of, in whole or in part,
COVID-19-related circumstances, or (B) limit Acquiror’s right, in its sole discretion, to furlough, temporarily layoff, terminate the employment of, or reduce the hours or benefits of, any employee because of, in whole or in part,
COVID-19-related circumstances (in which case, for the avoidance of doubt, Acquiror shall have no obligations under Section 7.11, including in respect of providing any severance or termination benefits).
JOINT COVENANTS
(a) Subject to the terms and conditions herein, each of the Parties
shall use their respective reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary or advisable to consummate and make effective as promptly as reasonably practicable
the Domestication and the Transactions contemplated by this Agreement (including (i) the satisfaction of the closing conditions set forth in Article IX and (ii) using reasonable best efforts to obtain the Investments on the terms and
subject to the conditions set forth in the Subscription Agreements). Without limiting the generality of the foregoing, each of the Parties shall use reasonable best efforts to obtain, file with or deliver to, as applicable, any Consents of any
Governmental Authorities or other Persons necessary to consummate the Domestication, the Transactions and the other transactions contemplated by the Transaction Agreements. Each Party shall (A) make all required filings pursuant to the HSR Act
with respect to the Transactions promptly (and in any event within 10 Business Days) following the date of this Agreement and (B) respond as promptly as reasonably practicable to any requests by any Governmental Authority for additional
information and documentary material that may be requested pursuant to the HSR Act. Acquiror shall promptly inform the Company Parties of any communication between any Acquiror Party, on the one hand, and any Governmental Authority, on the
other hand, and each Company Party shall promptly inform Acquiror and the other Company Party of any communication between any Company Group Member, on the one hand, and any Governmental Authority, on the other hand, in either case, regarding
the Domestication, any of the Transactions, any other Transaction Agreement or any of the other transactions contemplated thereby. Without limiting the foregoing, (x) the Parties agree to request early termination of all waiting periods
applicable to the Transactions under the HSR Act, and (y) each Party and its respective Affiliates shall not extend any waiting period, review period or comparable period under the HSR Act or enter into any agreement with any Governmental
Authority not to consummate the Domestication or any of the Transactions, except with the prior written consent of the other Parties. The Acquiror will pay all filing fees in connection with the HSR Act, and will pay any and all similar filing
fees regarding regulatory or Governmental Authority approval in connection with the Domestication and the Transactions, including, but not limited to filing of the Registration Statement, when due and such fees shall be deemed 100% Acquiror
Transaction Expenses. Notwithstanding anything to the contrary in this Agreement, nothing in this Section 8.01 or any other provision of this Agreement obligates any Party or any of its Affiliates to agree to (i) sell, license or
otherwise dispose of, or hold separate and agree to sell, license or otherwise dispose of, any entities or assets of either Company Party or any of their respective Subsidiaries or any entity or asset of such Party or any of its Affiliates or
any other Person or (ii) terminate, amend or assign any existing relationships and contractual rights or obligations. No Party shall agree to any of the measures in the foregoing sentence with respect to any other Party or any of its
Affiliates, except with each of the other Parties’ prior written consent. During the Interim Period, the Acquiror Parties, on the one hand, and the Company Parties, on the other hand, shall give counsel for ZF and IDX (in the case of any
Acquiror Party) or Acquiror and the other Company Party (in the case of the Company Parties), a reasonable opportunity to review in advance, and consider in good faith the views of the other in connection with, any proposed
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written communication to any Governmental Authority relating to the Transactions or
the Transaction Agreements. Each of the Parties agrees not to participate in any substantive meeting or discussion, either in person or by telephone, with any Governmental Authority in connection with the Transactions unless it consults with,
in the case of Acquiror, ZF and IDX, or, in the case of either Company Party, Acquiror and the other Company Party, in advance and, to the extent not prohibited by such Governmental Authority, gives, in the case of Acquiror, ZF and IDX, or, in
the case of either Company Party, Acquiror and the other Company Party, the opportunity to attend and participate in such meeting or discussion.
(b) In furtherance of, and without limiting the foregoing, the
Parties shall use reasonable best efforts to take the actions specified on Schedule 8.01(b).
(c) Notwithstanding anything to the contrary in the Agreement,
(i) if this Section 8.01 conflicts with any other covenant or agreement in this Agreement that is intended to specifically address any subject matter, then such other covenant or agreement shall govern and control solely to the extent
of such conflict and (ii) in no event shall the Acquiror Parties or Company Parties be obligated to bear any expense or pay any fee or grant any concession in connection with obtaining any consents, authorizations or approvals pursuant to the
terms of any Contract to which either Company Party or its Subsidiaries is a party.
(d) During the Interim Period, Acquiror and the Company Parties
shall each notify the other Parties in writing promptly after learning of any shareholder demands (including without limitation stockholder demands for appraisal pursuant to Section 262 of the DGCL) or other shareholder or stockholder
proceedings (including derivative claims) relating to this Agreement, any other Transaction Agreements or any matters relating thereto (collectively, the “Transaction Litigation”) commenced against, in the case of Acquiror, any of the
Acquiror Parties or any of their respective Representatives (in their capacity as a representative of an Acquiror Party) or, in the case of the Company Parties, any member of the applicable Company Group or any of their respective
Representatives (in their capacity as a representative of a member of the Company Group). Acquiror and the Company Parties shall each (i) keep the other Parties reasonably informed regarding any Transaction Litigation, (ii) give the other
Parties the opportunity to, at their own cost and expense, participate in the defense, settlement and compromise of any such Transaction Litigation and reasonably cooperate with the other Parties in connection with the defense, settlement and
compromise of any such Transaction Litigation (subject to a customary joint defense agreement), (iii) consider in good faith the other Parties’ advice with respect to any such Transaction Litigation, and (iv) reasonably cooperate with each
other; provided, however, that in no event shall (x) Acquiror or any of its respective Representatives settle or compromise any Transaction Litigation without the prior written consent of the Company Parties (not to be
unreasonably withheld, conditioned or delayed), or (y) any Company Party or any of its Representatives settle or compromise any Transaction Litigation without the prior written consent of Acquiror and the other Company Party (not to be
unreasonably withheld, conditioned or delayed).
(a) Registration Statement; Proxy Statement/Prospectus.
(i) As promptly as reasonably practicable following the execution
and delivery of this Agreement, Acquiror shall, in accordance with this Section 8.02(a), and each of ZF and IDX will reasonably cooperate (including causing each of their Subsidiaries and Representatives to reasonably cooperate) with
Acquiror, and provide to Acquiror all information regarding such Party, its Affiliates and its business that is necessary therefor, to prepare and file with the SEC, in preliminary form, a registration statement on Form S-4 or other applicable
form (the “Registration Statement”) to be filed by Acquiror with the SEC pursuant to which shares of Acquiror Common Stock issuable in the Mergers to holders of ZF Common Stock, ZF Restricted Shares, IDX Capital Stock, ZF Warrants and
IDX Warrants, other than holders executing the Written Consents, and pursuant to which shares of Acquiror Common Stock and Acquiror Warrants to be issued in connection with the Domestication, will be registered with the SEC, which shall include
a proxy statement in connection with the Transactions (the “Proxy Statement/Prospectus”) to be sent to the shareholders of Acquiror in advance of the Special Meeting, for the purpose of, among other things (i) providing Acquiror’s
shareholders with the opportunity to redeem Pre-Domestication Acquiror Ordinary Shares by tendering such shares for redemption not later than two Business Days prior to the originally scheduled date of the Special
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Meeting (the “Acquiror Shareholder Redemption”) and (ii) soliciting proxies
or votes from holders of Pre-Domestication Acquiror Ordinary Shares to vote at the Special Meeting, as adjourned or postponed, in favor of the Acquiror Shareholder Matters. Without the prior written consent of ZF and IDX, the Acquiror
Shareholder Matters shall be the only matters (other than procedural matters) which Acquiror shall propose to be acted on by the Acquiror’s shareholders at the Special Meeting, as adjourned or postponed. Each of Acquiror, ZF and IDX shall use
its reasonable best efforts to cause the Registration Statement to comply with the rules and regulations promulgated by the SEC, to have the Registration Statement declared effective under the Securities Act as promptly as practicable after
such filing and to keep the Registration Statement effective as long as is necessary to consummate the Transactions. Promptly after the Registration Statement is declared effective under the Securities Act, Acquiror will cause the Proxy
Statement/Prospectus to be mailed to shareholders of Acquiror.
(ii) Prior to filing with the SEC, Acquiror will make available to
ZF and IDX and their respective counsel drafts of the Registration Statement and any other documents to be filed with the SEC, both preliminary and final, and any amendment or supplement to the Registration Statement or such other document and
will provide ZF and IDX and their respective counsel with a reasonable opportunity to comment on such drafts and shall consider such comments in good faith. Acquiror shall not file any such documents with the SEC without the prior consent of ZF
and IDX (such consent not to be unreasonably withheld, conditioned or delayed). Acquiror will advise ZF and IDX promptly after it receives notice thereof, of: (A) the time when the Registration Statement has been filed; (B) the filing of any
supplement or amendment to the Registration Statement; (C) any request by the SEC for amendment of the Registration Statement; (D) any comments from the SEC relating to the Registration Statement and responses thereto; (E) requests by the SEC
for additional information; and (F) the issuance of any stop order or the suspension of the qualification of the Acquiror Common Stock for offering or sale in any jurisdiction or of the initiation or written threat of any proceeding for any
such purpose. Acquiror shall respond to any SEC comments on the Registration Statement as promptly as practicable and shall use its reasonable best efforts to have the Registration Statement declared effective by the SEC under the Securities
Act as promptly as practicable; provided, that prior to responding to any requests or comments from the SEC, Acquiror will make available to ZF and IDX and their respective counsel drafts of any such response and provide ZF and IDX and
their respective counsel with a reasonable opportunity to comment on such drafts.
(iii) If, at any time prior to the Special Meeting, there shall be
discovered any information that should be set forth in an amendment or supplement to the Registration Statement so that the Registration Statement would not include any misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, Acquiror shall promptly file an amendment or supplement to the Registration Statement containing such information. Each of ZF
and IDX will provide to Acquiror and the other Company Party all information regarding such Party, its Affiliates and its business that is necessary for any filing contemplated by the immediately preceding sentence. If, at any time prior to the
Closing, ZF or IDX discovers any information, event or circumstance relating to such Party, its business or any of its Affiliates, officers, directors or employees that should be set forth in an amendment or a supplement to the Registration
Statement so that the Registration Statement would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not
misleading, then such Party shall promptly inform Acquiror and the other Company Party of such information, event or circumstance and provide to Acquiror and the other Company Party all information necessary to correct any such deficiencies.
(iv) Acquiror shall make all necessary filings with respect to the
Transactions under the Securities Act, the Exchange Act and applicable “blue sky” laws, and any rules and regulations thereunder. Each of ZF and IDX agrees to promptly provide Acquiror with all information concerning the business, management,
operations and financial condition of such Party and its Subsidiaries, in each case, reasonably requested by Acquiror for inclusion in the Proxy Statement/Prospectus. Each of Acquiror, ZF and IDX agrees to furnish to the other Parties all
information concerning itself, its Subsidiaries, officers, directors, managers, stockholders, and other equityholders and information regarding such other matters as may be reasonably necessary or advisable or as may be reasonably
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requested in connection with the Proxy Statement/Prospectus or any other statement,
filing, notice or application made by or on behalf of Acquiror, ZF, IDX, or their respective Affiliates to any regulatory authority (including the NYSE and NASDAQ) in connection with the Transactions.
(v) If, in connection with the preparation and filing of the
Registration Statement or Proxy Statement/Prospectus, the SEC requests or requires that tax opinions be prepared and submitted in connection therewith, Acquiror and the Company Parties (together with any applicable officers or Affiliates) shall
deliver to Kirkland & Ellis, Venable LLP and Wilson Sonsini Goodrich & Rosati, P.C., respectively, customary Tax representation letters reasonably satisfactory to their respective counsel, dated and executed as of the date the
Registration Statement shall have been declared effective by the SEC and such other date(s) as determined reasonably necessary by such counsel in connection with the preparation and filing of the Registration Statement and Proxy
Statement/Prospectus, and, if required, Kirkland & Ellis LLP shall furnish an opinion, subject to customary assumptions and limitations, to the effect that the Domestication should be treated as a “reorganization” within the meaning of
Section 368(a)(1)(F) of the Code and, if required, Venable LLP and/or Wilson Sonsini Goodrich & Rosati, P.C. shall furnish an opinion or opinions to their respective clients, subject to customary assumptions and limitations, to the effect
that the Intended Income Tax Treatment should apply to the Mergers applicable to their respective clients. The Parties and their Affiliates (including officers) shall use commercially reasonable efforts and reasonably cooperate with one another
in connection with the issuance to any other Party of any such tax opinion.
(b) Special Meeting. Acquiror will take, in accordance with
applicable Law, NYSE or NASDAQ rules, as applicable, and the Acquiror Organizational Documents, all action necessary to duly convene and hold an extraordinary general meeting of its shareholders (the “Special Meeting”) as promptly as
reasonably practicable after the Registration Statement is declared effective (and will establish a record date for, give notice of and commence the mailing of the Proxy Statement/Prospectus to the shareholders of Acquiror as promptly as
practicable after the effective date of the Registration Statement), to (i) consider and vote upon the approval of the Acquiror Shareholder Matters and to cause such vote to be taken and (ii) provide shareholders of Acquiror with the
opportunity to elect to effect an Acquiror Shareholder Redemption. Acquiror may only elect to postpone or adjourn such meeting if (x) a postponement or adjournment is required by Law, (y) as of the time for which the Special Meeting is
originally scheduled (as set forth in the Proxy Statement/Prospectus) there are insufficient shares of Pre-Domestication Acquiror Ordinary Shares and Pre-Domestication Acquiror Class B Shares represented (either in person or by proxy) and
voting to approve the Acquiror Shareholder Matters or to constitute a quorum necessary to conduct the business of the Special Meeting, or (z) Acquiror determines the payments for the Acquiror Shareholder Redemption could reasonably be expected
to cause the conditions in Section 9.01(g) to not be satisfied at the Closing. Acquiror shall, following the effective date of the Registration Statement, use its reasonable best efforts to solicit from its shareholders proxies in favor
of the Acquiror Shareholder Matters and shall include in the Proxy Statement/Prospectus the Acquiror Board Recommendation. The Acquiror Board shall not (and no committee or subgroup thereof shall) change, withdraw, withhold, qualify or modify,
or publicly propose to change, withdraw, withhold, qualify or modify, the Acquiror Board Recommendation; provided, that the Parties shall cooperate with Acquiror in good faith to make any public filings or disclosures as may be
necessary pursuant to applicable Law. Acquiror shall keep ZF and IDX reasonably informed regarding all matters relating to the Acquiror Shareholder Matters and the Special Meeting, including by promptly furnishing any voting or proxy
solicitation reports received by Acquiror in respect of such matters and similar updates regarding any redemptions. Notwithstanding anything in this Agreement to the contrary, nothing in this Agreement shall limit the right of Acquiror to make
communications to its shareholders that it has determined are required to comply with Law or its fiduciary duties.
(c) Notwithstanding anything in this Agreement to the contrary, if
the Registration Statement and Proxy Statement/Prospectus is not mailed prior to April 25, 2022, then unless otherwise agreed by the Parties, Acquiror shall use reasonable best efforts to take steps to amend the Acquiror’s Organizational
Documents and the Trust Agreement, in each case, to extend the time period for Acquiror to consummate a business combination from May 23, 2022 to August 24, 2022 (the “Extension Proposal”), including by preparing and filing with the SEC
a proxy statement (as such filing is amended or supplemented, the “Extension Proxy Statement”), for the purpose of seeking shareholder approval of the Extension Proposal. Acquiror shall comply in all material respects with all applicable
Laws, any applicable rules and regulations
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of NYSE or NASDAQ, as applicable, Acquiror’s Organizational Documents and this
Agreement in the preparation, filing and distribution of the Extension Proxy Statement, if any, any solicitation of proxies thereunder, the holding of a meeting of Acquiror Shareholders to consider and vote on the Extension Proposal (the “Acquiror
Extension Shareholder Meeting”) and the Redemption related thereto. Section 8.02 shall apply mutatis mutandis to the Extension Proxy Statement, Extension Proposal, Acquiror Extension
Approval and Acquiror Extension Shareholder Meeting, including with respect to the actions to be taken by the Acquiror Board.
Section 8.03 Exclusivity.
During the Interim Period, neither Company Party shall take, nor shall such Company Party permit any of its Affiliates or Representatives to take, whether directly or indirectly, (i) any action to solicit, initiate or engage in discussions or
negotiations with, or enter into any agreement with, or encourage, or provide information to, any Person (other than Acquiror or any of its Affiliates or Representatives) concerning any merger or similar business combination transaction or sale
of substantially all of the assets involving such Company Party and its Subsidiaries, taken as a whole (other than immaterial assets or assets sold in the ordinary course of business), or any other transaction that would prohibit or delay the
Transactions (each such acquisition transaction, but excluding the Transactions, an “Acquisition Transaction”); provided, that the execution, delivery and performance of this Agreement and the other Transaction Agreements and the
consummation of the Transactions, shall not be deemed a violation of this Section 8.03 or (ii) any action in connection with a public offering of any Equity Securities of such Company Party or any of its Subsidiaries (or any Affiliate
or successor of such Company Party or any of its Subsidiaries). Each Company Party shall, and shall cause its Affiliates and Representatives to, immediately cease any and all existing discussions or negotiations with any Person conducted prior
to the date hereof with respect to, or which is reasonably likely to give rise to or result in, an Acquisition Transaction.
(b) During the Interim Period, Acquiror shall not take, nor shall it
permit any of its Affiliates or Representatives to take, whether directly or indirectly, any action to solicit, initiate, continue or engage in discussions or negotiations with, or enter into any agreement with, or encourage, respond, provide
information to or commence due diligence with respect to, any Person (other than the Company Parties, their respective stockholders or any of their respective Affiliates or Representatives), concerning, relating to or which is intended or is
reasonably likely to give rise to or result in, any offer, inquiry, proposal or indication of interest, written or oral relating to any Business Combination involving Acquiror (an “Alternate Business Combination Proposal”) other than
with the Company Parties, their stockholders and their respective Affiliates and Representatives; provided, that the execution, delivery and performance of this Agreement and the other Transaction Agreements and the consummation of the
Transactions shall not be deemed a violation of this Section 8.03(b). Acquiror shall, and shall cause its Affiliates and Representatives to, immediately cease any and all existing discussions or negotiations with any Person conducted
prior to the date hereof with respect to, or which is reasonably likely to give rise to or result in, an Alternate Business Combination Proposal.
(a) Intended Income Tax Treatment.
(i) For U.S. federal income tax purposes (and for purposes of any
applicable state or local income tax that follows the U.S. federal income tax treatment), each of the Parties intends that the Mergers (along with other relevant transactions) will qualify for the Intended Income Tax Treatment. The Parties will
prepare and file all Tax Returns consistent with the foregoing provisions of this Section 8.04(a)(i) and will not take any inconsistent position on any Tax Return or during the course of any Action, audit, or other similar proceeding
with respect to Taxes, except as otherwise required by a determination within the meaning of Section 1313(a) of the Code (or any similar or corresponding provision of state or local Law); provided, if a Party delivers a Tax Treatment
Notification (as defined below) and the Parties are unable to or otherwise do not take actions or steps pursuant to the final sentence of this Section 8.04(a)(i) to make it so that they reasonably believe that the applicable
transactions covered by the Tax Treatment Notification qualify for the Intended Income Tax Treatment, then this sentence shall not apply to such transactions. Each Party shall use commercially reasonable efforts to promptly notify the other
Parties in writing if, before the Closing Date, such Party knows or has reason to believe that one or more of the Mergers or the Domestication may not qualify for the Intended Income Tax Treatment. Notwithstanding anything to the contrary
herein, but subject to the
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provisos at the end of this sentence, if before the Closing Date, any Party
reasonably determines that the Mergers or the Domestication are not likely to qualify for the Intended Income Tax Treatment and notifies the other Parties in writing accordingly (any such notification to the other Parties, a “Tax Treatment
Notification”), the Parties shall cooperate in good faith to take the steps that they jointly and reasonably determine to be necessary to increase by an amount that will be meaningful the likelihood that the transactions will qualify for
the Intended Income Tax Treatment; provided, no Party shall be required to take any step or action pursuant to this sentence if such step or action would reasonably be expected to result in a material cost (including a material Tax) to
such Party, its Affiliates, another Party or any direct or indirect owners of Acquiror except, with respect to any such cost, if some or all of the direct or indirect owners of the Company Parties or any other Person (but not, for the avoidance
of doubt, directly or indirectly, including by way of distribution of cash or property, any Party, such that no Party economically bears any such cost) holds harmless the affected Party, its Affiliates and any direct or indirect owners of
Acquiror for any such costs; provided, further, no action or step shall be taken pursuant to this sentence without the consent of each Party (which may be withheld in a Party’s reasonable discretion) if any such action or step would delay or
otherwise jeopardize the Closing.
(ii) No Party shall take or cause to be taken any action, or fail to
take or cause to be taken any action, which action or failure to act would reasonably be expected to prevent the Mergers or the Domestication from qualifying for the Intended Income Tax Treatment. The Parties acknowledge that as of the date
hereof they are unaware of any facts that could reasonably prevent the Mergers or the Domestication contemplated by this Agreement from qualifying for the Intended Income Tax Treatment.
(iii) The Acquiror Parties and the Company Parties hereby adopt this
Agreement as a “plan of reorganization” within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3(a).
(b) Transfer Taxes. All transfer, stamp, documentary, sales,
use, registration, value-added and other similar Taxes (including all applicable real estate transfer Taxes) incurred in connection with this Agreement and the Transactions (“Transfer Taxes”) will be borne and paid by Acquiror. Unless
otherwise determined by Acquiror in its reasonable discretion, the Parties shall use commercially reasonable efforts to obtain any certificate or other document from any Governmental Authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Transfer Tax that could be imposed in connection with the Transactions.
(c) Tax Sharing Agreements. Any Tax-sharing agreements or
similar agreements with respect to or involving IDX and/or its Subsidiaries or ZF and/or its Subsidiaries shall be terminated as of the Closing Date and shall have no further effect for any taxable year (whether the current year, a future year,
or a past year).
(d) Cooperation. The Parties shall use commercially
reasonable efforts to cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns pursuant to this Section 8.04 and any other claim, proposed adjustment, assessment, audit,
examination or other administrative or court proceeding with respect to Taxes (each a “Tax Proceeding”). Such cooperation shall include furnishing or making available during normal business hours of records, personnel (as reasonably
required), books of account, powers of attorney or other materials necessary or helpful for the preparation of such Tax Returns or management of any Tax Proceedings with respect to Taxes. The Parties shall retain all Tax Returns, schedules and
work papers, records, and other documents relating to Tax matters until the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate.
(a) Acquiror acknowledges that the information being provided to it
in connection with this Agreement and the consummation of the Transactions is subject to the terms of the Confidentiality Agreements, the terms of which are incorporated herein by reference. The Confidentiality Agreements shall survive the
execution and delivery of this Agreement and shall apply to all information furnished thereunder or hereunder and any other activities contemplated thereby. Each Company Party acknowledges that, in connection with the Investments, Acquiror
shall be entitled to disclose, pursuant to the Exchange Act, any information contained in any presentation to the Investors, which information may include Confidential Information (as defined in the ZF Confidentiality Agreement and the IDX
Confidentiality Agreement, as applicable).
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(b) Subject to Section 8.05(c), none of the Parties nor
any of their respective Representatives shall issue any press releases or make any public announcements with respect to this Agreement or the Transactions without the prior written consent of the other Parties, prior to the Closing; provided,
however, that each Party may make any such announcement or other communication (i) if such announcement or other communication is required by applicable Law or the rules of any stock exchange, in which case the disclosing Party shall, to
the extent permitted by applicable Law, first allow (A) ZF, if the disclosing party is Acquiror or IDX, (B) IDX, if the disclosing party is Acquiror or ZF, or (C) Acquiror, if the disclosing party is ZF or IDX (prior to the Closing), to review
such announcement or communication and have the opportunity to comment thereon and the disclosing Party shall consider such comments in good faith, (ii) to the extent such announcements or other communications contain only information
previously disclosed in a public statement, press release or other communication previously approved in accordance with this Section 8.05(b), and (iii) to Governmental Authorities in connection with any Consents required to be obtained
under this Agreement or in connection with the Transactions. Notwithstanding anything to the contrary in this Section 8.05(b), or otherwise in this Agreement, the Parties agree that the Sponsor, Acquiror and their respective
Representatives may provide general information about the subject matter of this Agreement and the Transactions to any direct or indirect current or prospective investor (including in connection with the Investments) or in connection with
normal fund raising or related marketing or informational or reporting activities, in each case, so long as such recipients are obligated to keep such information confidential.
(c) The initial press release concerning this Agreement and the
Transactions shall be a joint press release in the form agreed by ZF, IDX and Acquiror prior to the execution of this Agreement and such initial press release (the “Signing Press Release”) shall be released as promptly as practicable
after the execution of this Agreement (but in any event within four Business Days thereafter). Promptly after the execution of this Agreement (but in any event within four Business Days thereafter), Acquiror shall file a current report on Form
8-K (the “Signing Filing”) with the Signing Press Release and a description of this Agreement as required by Securities Laws, which ZF and IDX shall have the opportunity to review and comment upon prior to filing and Acquiror shall
consider such comments in good faith. ZF, IDX, Acquiror and the Sponsor shall mutually agree upon (such agreement not to be unreasonably withheld, conditioned or delayed by any of them) and, as promptly as practicable after the Closing (but in
any event within four Business Days thereafter), issue a press release announcing the consummation of the Transactions (the “Closing Press Release”). Promptly after the Closing (but in any event within four Business Days after the
Closing), Acquiror shall file a current report on Form 8-K (the “Closing Filing”) with the Closing Press Release and a description of the Closing as required by Securities Laws, which ZF and IDX shall have the opportunity to review and
comment upon prior to filing and Acquiror shall consider such comments in good faith. In connection with the preparation of the Signing Press Release, the Signing Filing, the Closing Press Release and the Closing Filing, each Party shall, upon
written request by any other Party, furnish such other Party with all information concerning itself, its directors, officers and equityholders, and such other matters as may be reasonably necessary for such press release or filing.
Section 8.06 Post-Closing
Cooperation; Further Assurances. Following the Closing, each Party shall, on the request of any other Party, execute such further documents, and perform such further acts, as may be reasonably necessary or appropriate to give full effect
to the allocation of rights, benefits, obligations and liabilities contemplated by this Agreement and the Transactions.
Section 8.07 Qualification as
an Emerging Growth Company. Acquiror shall, at all times during the period from the date hereof until the Closing: (a) take all actions necessary to continue to qualify as an “emerging growth company” within the meaning of the Jumpstart
Our Business Startups Act of 2012 (“JOBS Act”) and (b) not take any action that would cause Acquiror to not qualify as an “emerging growth company” within the meaning of the JOBS Act.
Section 8.08 A&R
Registration Rights Agreement. At the Closing, (a) Acquiror shall deliver to ZF and IDX a copy of the A&R Registration Rights Agreement duly executed by Acquiror and Sponsor, (b) ZF shall deliver, or cause to be delivered, to Acquiror
and IDX a copy of the A&R Registration Rights Agreement duly executed by the ZF Pre-Closing Holders set forth on Schedule 8.08, and (c) IDX shall deliver, or cause to be delivered, to Acquiror and ZF a copy of the A&R
Registration Rights Agreement duly executed by the IDX Pre-Closing Holders set forth on Schedule 8.08.
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CONDITIONS TO OBLIGATIONS
Section 9.01 Conditions to
Obligations of All Parties. The obligations of Acquiror, ZF, and IDX, to consummate, or cause to be consummated, the Transactions are subject to the satisfaction of the following conditions, any one or more of which may be waived (if
legally permitted) in writing by the Party or Parties for whose benefit such condition exists:
(a) HSR Approval. All applicable waiting periods (and any
extensions thereof) under the HSR Act in respect of the Transactions shall have expired or been terminated.
(b) No Prohibition. There shall not be in force any Law or
Governmental Order by any Governmental Authority of competent jurisdiction and having jurisdiction over the Parties with respect to Domestication or the Transactions enjoining, prohibiting, or making illegal the consummation of the
Domestication or any of the Transactions.
(c) Stockholder and Shareholder Approval. Each of the
Required Acquiror Shareholder Approval, the Required ZF Stockholder Approval and the Required IDX Stockholder Approval shall have been obtained.
(d) Investments. The Investments (and the funding of the
Investment Amount) shall have been consummated or will be consummated substantially concurrently with the Closing in accordance with the terms of the applicable Subscription Agreements.
(e) Registration Statement. The Registration Statement shall
have become effective in accordance with the provisions of the Securities Act, no stop order shall have been issued by the SEC that remains in effect with respect to the Registration Statement, and no proceeding seeking such a stop order shall
have been threatened or initiated by the SEC that remains pending.
(f) NYSE or NASDAQ. The shares of Acquiror Common Stock to be
issued in connection with the Mergers shall have been approved for listing on the NYSE or NASDAQ, subject only to official notice of issuance thereof and the requirement to have a sufficient number of round lot holders, and, immediately
following the Effective Time, Acquiror shall, after giving effect to the Acquiror Shareholder Redemption, satisfy any applicable initial and continuing listing requirements of NYSE or NASDAQ, and Acquiror shall not have received any notice of
non-compliance therewith that has not been cured prior to, or would not be curable at or immediately following, the Effective Time.
(g) Available Closing Acquiror Cash and Tangible Net Assets.
After giving effect to the Transactions, (i) the Available Closing Acquiror Cash shall not be less than $170,000,000, and the Acquiror shall have made arrangements for the Available Closing Acquiror Cash held in the Trust Account to be released
from the Trust Account at the Effective Time, and (ii) the Acquiror shall have at least $5,000,001 in tangible net assets (as determined in accordance with Rule 3a51-1(g)(1) under the Exchange Act).
Section 9.02 Additional
Conditions to Obligations of Acquiror Parties. The obligations of the Acquiror Parties to consummate, or cause to be consummated, the Transactions are subject to the satisfaction of the following additional conditions, any one or more of
which may be waived in writing by Acquiror:
(a) Representations and Warranties.
(i) Each of the representations and warranties of ZF and IDX
contained in Section 4.01 (Corporate Organization of the Company Parties), Section 4.02 (Subsidiaries), Section 4.03 (Due Authorization), Section 4.06 (Current Capitalization) (other than the penultimate sentence
of Sections 4.06(a) and 4.06(d)), Section 4.07 (Capitalization of Subsidiaries), clause (ii) of Section 4.25 (ZF Absence of Changes), clause (ii) of Section 4.26 (IDX Absence of Changes) and Section
4.27 (Brokers’ Fees) (collectively, the “Company Group Specified Representations”) shall be true and correct (without giving any effect to any limitation as to “materiality” or “Company Material Adverse Effect” or any similar
limitation set forth therein) in all material respects as of the date of this Agreement and as of the Closing Date as though then made (except to the extent such representations and warranties expressly relate to an earlier date, which in such
case, shall be true and correct in all material respects on and as of such earlier date). For purposes of determining whether a representation
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or warranty is true and correct in “all material respects” pursuant to this Section
9.02(a)(i), only effects on the combined Company Group as a whole (including each of (x) ZF and its direct and indirect Subsidiaries and (y) IDX and its direct and indirect Subsidiaries) shall be considered.
(ii) The representations and warranties contained in clause (i) of Section
4.25 (ZF Absence of Changes) and clause (i) of Section 4.26 (IDX Absence of Changes) shall be true and correct in all respects as of the Closing Date.
(iii) Each of the representations and warranties contained in Article
IV (other than the Company Group Specified Representations and the representations and warranties contained in clauses (i) of Section 4.25 and Section 4.26) shall be true and correct (without giving any effect to any
limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein) as of the date of this Agreement and as of the Closing Date as though then made (except to the extent such representations and
warranties expressly relate to an earlier date, which in such case, shall be true and correct on and as of such earlier date), except, in either case, where the failure of such representations and warranties to be so true and correct,
individually or in the aggregate, has not had, and would not reasonably be expected to have, a Company Material Adverse Effect.
(b) Agreements and Covenants. The covenants and agreements of
ZF and IDX in this Agreement to be performed as of or prior to the Closing shall have been performed in all material respects; provided, that for purposes of this Section 9.02(b), a covenant or agreement of ZF or IDX shall only
be deemed to have not been performed if ZF or IDX, respectively, has materially breached such covenant or agreement and failed to cure within 20 days after written notice of such breach has been delivered to ZF or IDX (or if earlier, the
Termination Date). For purposes of determining whether any covenant or agreement of ZF or IDX, respectively, has been performed in all material respects, only effects on the combined Company Group as a whole (including each of (i) ZF and its
direct and indirect Subsidiaries and (ii) IDX and its direct and indirect Subsidiaries) shall be considered.
(c) Officer’s Certificate. Each of ZF and IDX shall have
delivered to Acquiror a certificate signed by its respective officer, dated as of the Closing Date, certifying that, to the knowledge and belief of such officer, the conditions specified in Section 9.02(a) and Section 9.02(b)
with respect to ZF and IDX, as applicable, have been fulfilled.
(d) FIRPTA Certificate. Each of ZF and IDX shall provide a
properly executed statement pursuant to Treasury Regulations Sections 1.897-2(h) and 1.1445-2(c)(3) dated no more than 30 days prior to the Closing Date and signed by an officer of ZF and IDX, as applicable, certifying that interests in ZF or
IDX, as applicable, do not constitute “United States real property interests” under Section 897(c) of the Code, together with the notice to the IRS in accordance with the provisions of Treasury Regulations Section 1.897-2(h)(2), in each case,
substantially in the forms set forth in Exhibit J or Exhibit K, as applicable.
(e) No Company Material Adverse Effect. Since the date of
this Agreement, there shall not have occurred any Company Material Adverse Effect that is continuing.
Section 9.03 Additional
Conditions to the Obligations of ZF. The obligation of ZF to consummate, or cause to be consummated, the Transactions is subject to the satisfaction of the following additional conditions, any one or more of which may be waived in writing
by ZF:
(a) Representations and Warranties.
(i) Each of the representations and warranties of the Acquiror
Parties contained in Section 5.01 (Corporate Organization), Section 5.02 (Due Authorization), Section 5.06 (Trust Account), Section 5.07 (Brokers’ Fees), Section 5.11 (Capitalization), Section 5.14
(Related Party Transactions), and clause (ii) of Section 5.16 (Absence of Changes) (collectively, the “Acquiror Specified Representations”) shall be true and correct (without giving any effect to any limitation as to
“materiality” or any similar limitation set forth therein) in all material respects as of the date of this Agreement and as of the Closing Date as if made on such date (except to the extent such representations and warranties expressly relate
to an earlier date, which in such case, shall be true and correct in all material respects on and as of such earlier date).
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(ii) The representations and warranties of the Acquiror Parties
contained in clause (i) of Section 5.16 (Absence of Changes) shall be true and correct in all respects as of the Closing Date.
(iii) Each of the representations and warranties of the Acquiror
Parties contained in Article V (other than the Acquiror Specified Representations and the representations and warranties contained in clause (i) of Section 5.16 (Absence of Changes)) shall be true and correct (without giving any
effect to any limitation as to “materiality” or “Acquiror Material Adverse Effect” or any similar limitation set forth therein) as of the date of this Agreement and as of the Closing Date as though then made (except to the extent such
representations and warranties expressly relate to an earlier date, which in such case, shall be true and correct on and as of such earlier date), except, in either case, where the failure of such representations and warranties to be so true
and correct, individually or in the aggregate, has not had, and would not reasonably be expected to have, an Acquiror Material Adverse Effect.
(iv) Each of the Company Group Specified Representations made by IDX
shall be true and correct (without giving any effect to any limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein) in all material respects as of the date of this Agreement and as of the
Closing Date as though then made (except to the extent such representations and warranties expressly relate to an earlier date, which in such case, shall be true and correct in all material respects on and as of such earlier date).
(v) The representations and warranties contained in clause (i) of Section
4.26 (IDX Absence of Changes) shall be true and correct in all respects as of the Closing Date.
(vi) Each of the representations and warranties contained in Article
IV made by IDX (other than the Company Group Specified Representations made by IDX and the representations and warranties contained in clause (i) of Section 4.26) shall be true and correct (without giving any effect to any
limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein) as of the date of this Agreement and as of the Closing Date as though then made (except to the extent such representations and
warranties expressly relate to an earlier date, which in such case, shall be true and correct on and as of such earlier date), except, in either case, where the failure of such representations and warranties to be so true and correct,
individually or in the aggregate, has not had, and would not reasonably be expected to have, a Company Material Adverse Effect.
(b) Agreements and Covenants. The covenants and agreements of
the Acquiror Parties and IDX in this Agreement to be performed as of or prior to the Closing shall have been performed in all material respects; provided, that for purposes of this Section 9.03(b) a covenant or agreement of the
Acquiror Parties or IDX shall only be deemed to have not been performed if the Acquiror Parties have or IDX has, as applicable, materially breached such covenant or agreement and failed to cure within 20 days after written notice of such breach
has been delivered to Acquiror or IDX, as applicable (or if earlier, the Termination Date).
(c) Officer’s Certificate. Each of Acquiror and IDX shall
have delivered to ZF a certificate signed by its respective officer, dated as of the Closing Date, certifying that, to the knowledge and belief of such officer, the conditions specified in Section 9.03(a) and Section 9.03(b)
with respect to the Acquiror Parties or IDX, as applicable, have been fulfilled.
(d) Domestication. The Domestication shall have been
completed as provided in Section 7.07 and a time-stamped copy of the certificates issued by the Secretary of State of the State of Delaware in relation thereto shall have been delivered to ZF.
(e) Material Adverse Effect. No Acquiror Material Adverse
Effect or IDX Material Adverse Effect shall have occurred and be continuing between the date of this Agreement and the Effective Time.
Section 9.04 Additional
Conditions to the Obligations of IDX. The obligation of IDX to consummate, or cause to be consummated, the Transactions is subject to the satisfaction of the following additional conditions, any one or more of which may be waived in
writing by IDX:
(a) Representations and Warranties.
(i) Each of the Acquiror Specified Representations shall be true and
correct (without giving any effect to any limitation as to “materiality” or any similar limitation set forth therein) in all material
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respects as of the date of this Agreement and as of the Closing Date as if made on
such date (except to the extent such representations and warranties expressly relate to an earlier date, which in such case, shall be true and correct in all material respects on and as of such earlier date).
(ii) The representations and warranties of the Acquiror Parties
contained in clause (i) of Section 5.16 (Absence of Changes) shall be true and correct in all respects as of the Closing Date.
(iii) Each of the representations and warranties of the Acquiror
Parties contained in Article V (other than the Acquiror Specified Representations and the representations and warranties contained in clause (i) of Section 5.16 (Absence of Changes)) shall be true and correct (without giving any
effect to any limitation as to “materiality” or “Acquiror Material Adverse Effect” or any similar limitation set forth therein) as of the date of this Agreement and as of the Closing Date as though then made (except to the extent such
representations and warranties expressly relate to an earlier date, which in such case, shall be true and correct on and as of such earlier date), except, in either case, where the failure of such representations and warranties to be so true
and correct, individually or in the aggregate, has not had, and would not reasonably be expected to have, an Acquiror Material Adverse Effect.
(iv) Each of the Company Group Specified Representations made by ZF
shall be true and correct (without giving any effect to any limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein) in all material respects as of the date of this Agreement and as of the
Closing Date as though then made (except to the extent such representations and warranties expressly relate to an earlier date, which in such case, shall be true and correct in all material respects on and as of such earlier date).
(v) The representations and warranties contained in clause (i) of Section
4.25 (ZF Absence of Changes) shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date.
(vi) Each of the representations and warranties contained in Article
IV made by ZF (other than the Company Group Specified Representations made by ZF and the representations and warranties contained in clause (i) of Section 4.25) shall be true and correct (without giving any effect to any
limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein) as of the date of this Agreement and as of the Closing Date as though then made (except to the extent such representations and
warranties expressly relate to an earlier date, which in such case, shall be true and correct on and as of such earlier date), except, in either case, where the failure of such representations and warranties to be so true and correct,
individually or in the aggregate, has not had, and would not reasonably be expected to have, a Company Material Adverse Effect.
(b) Agreements and Covenants. The covenants and agreements of
the Acquiror Parties and ZF in this Agreement to be performed as of or prior to the Closing shall have been performed in all material respects; provided, that for purposes of this Section 9.03(b) a covenant or agreement of the
Acquiror Parties or ZF shall only be deemed to have not been performed if the Acquiror Parties have or ZF has, as applicable, materially breached such covenant or agreement and failed to cure within 20 days after written notice of such breach
has been delivered to Acquiror or ZF, as applicable (or if earlier, the Termination Date).
(c) Officer’s Certificate. Each of Acquiror and ZF shall have
delivered to IDX a certificate signed by its respective officer, dated as of the Closing Date, certifying that, to the knowledge and belief of such officer, the conditions specified in Section 9.03(a) and Section 9.03(b) with
respect to the Acquiror Parties or ZF, as applicable, have been fulfilled.
(d) Domestication. The Domestication shall have been
completed as provided in Section 7.07 and a time-stamped copy of the certificates issued by the Secretary of State of the State of Delaware in relation thereto shall have been delivered to IDX.
(e) Material Adverse Effect. No Acquiror Material Adverse
Effect or ZF Material Adverse Effect shall have occurred and be continuing between the date of this Agreement and the Effective Time.
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TERMINATION/EFFECTIVENESS
Section 10.01 Termination.
This Agreement may be validly terminated and the Transactions may be abandoned at any time prior to the Closing only as follows:
(a) by mutual written agreement of Acquiror, ZF and IDX;
(b) by Acquiror, ZF or IDX, if there shall be in effect any (i) Law
in any jurisdiction of competent authority or (ii) Governmental Order issued, promulgated, made, rendered or entered into by any court or other tribunal of competent jurisdiction, that, in the case of each of clauses (i) and (ii),
permanently restrains, enjoins, makes illegal or otherwise prohibits the consummation of the Domestication or any of the Mergers and in the case of any such Governmental Order, such Governmental Order shall have become final and non-appealable,
except that the right to terminate this Agreement pursuant to this Section 10.01(b) will not be available to any Party that has failed to use its reasonable best efforts to resist, appeal, obtain consent pursuant to, resolve or lift, as
applicable, such final and non-appealable order;
(c) by Acquiror, ZF or IDX, if the Effective Time has not occurred
by 11:59 p.m., Eastern Time, on May 23, 2022 if the Acquiror Shareholders have not approved an Extension Proposal or, if the Acquiror Shareholders have approved an Extension Proposal, on August 23, 2022 (such date, as applicable, the “Termination
Date”); provided that the right to terminate this Agreement pursuant to this Section 10.01(c) will not be available to any Party whose breach of any provision of this Agreement primarily causes or results in the failure of
the Mergers to be consummated by such times;
(d) by Acquiror, ZF or IDX, if Acquiror fails to obtain the Required
Acquiror Shareholder Approval upon vote taken thereon at the Special Meeting (or at a meeting of its shareholders following any adjournment or postponement thereof); provided that the right to terminate this Agreement under this Section
10.01(d) shall not be available to Acquiror if, at the time of such termination, Acquiror is in material breach of Section 8.02;
(e) by Acquiror or IDX, if ZF has breached or failed to perform any
of its (i) representations or warranties or (ii) covenants or other agreements contained in this Agreement, which breach or failure to perform (A) would result in the failure of a condition set forth in Section 9.02(a) or Section
9.02(b), in the case of Acquiror, or in Section 9.04(a) or Section 9.04(b), in the case of IDX, to be satisfied and (B) is not capable of being cured by the Termination Date or, if capable of being cured by the Termination
Date, is not cured by ZF before the earlier of (I) the fifth Business Day immediately prior to the Termination Date and (II) the 30th day following receipt of written notice from Acquiror or IDX of such breach or failure to perform; provided,
that Acquiror and IDX, as applicable, shall not have the right to terminate this Agreement pursuant to this Section 10.01(e) if it is then in material breach of any representations, warranties, covenants or other agreements contained in
this Agreement that would result in the failure of a condition set forth in Section 9.03(a) or Section 9.03(b) to be satisfied;
(f) by ZF or IDX, if any Acquiror Party has breached or failed to
perform any of its respective representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform (A) would result in the failure of a condition set forth in Section 9.03(a) or Section 9.03(b),
in the case of ZF, or Section 9.04(a) or Section 9.04(b), in the case of IDX, to be satisfied and (B) is not capable of being cured by the by the Termination Date or, if capable of being cured by the Termination Date, is
not cured by such Acquiror Party, as applicable, before the earlier of (I) the fifth Business Day immediately prior to the Termination Date and (II) the 30th day following receipt of written notice from ZF or IDX of such breach or failure to
perform; provided, that ZF and IDX, as applicable, shall not have the right to terminate this Agreement pursuant to this Section 10.01(f) if it is then in material breach of any representations, warranties, covenants or other
agreements contained in this Agreement that would result in the failure of a condition set forth in Section 9.02(a) or Section 9.02(b) to be satisfied.
(g) by Acquiror or ZF, if IDX has breached or failed to perform any
of its (i) representations or warranties or (ii) covenants or other agreements contained in this Agreement, which breach or failure to perform (A) would result in the failure of a condition set forth in Section 9.02(a), Section
9.02(b), in the case of Acquiror, or in Section 9.03(a) or Section 9.03(b), in the case of ZF, to be satisfied and (B) is not capable of being cured by the Termination Date or, if capable of being cured by the Termination
Date, is not cured by IDX before the earlier of (I) the fifth Business Day immediately prior to the Termination Date and
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(II) the 30th day following receipt of written notice from Acquiror or ZF of such
breach or failure to perform; provided, that Acquiror and ZF, as applicable, shall not have the right to terminate this Agreement pursuant to this Section 10.01(g) if it is then in material breach of any representations,
warranties, covenants or other agreements contained in this Agreement that would result in the failure of a condition set forth in Section 9.04(a) or Section 9.04(b) to be satisfied.
(h) by written notice from Acquiror or IDX if the ZF Written Consent
shall not have been obtained and delivered to Acquiror and IDX on or prior to 5:00 p.m. Eastern Time on the first (1st) Business Day following the date of this Agreement; provided, however, that the termination rights
under this Section 10.01(h) shall expire and neither Acquiror nor IDX shall be entitled to terminate this Agreement pursuant to this Section 10.01(h) if the Required ZF Stockholder Approval has been obtained and delivered to
Acquiror and IDX prior to the time that this Agreement is terminated pursuant to this Section 10.01(h);
(i) by written notice from Acquiror or ZF if the IDX Written Consent
shall not have been obtained and delivered to Acquiror and ZF on or prior to 5:00 p.m. Eastern Time on the first (1st) Business Day following the date of this Agreement; provided, however, that the termination rights
under this Section 10.01(i) shall expire and neither Acquiror nor ZF shall be entitled to terminate this Agreement pursuant to this Section 10.01(i) if the Required IDX Stockholder Approval has been obtained and
delivered to Acquiror and ZF prior to the time that this Agreement is terminated pursuant to this Section 10.01(i); or
(j) by written notice from ZF or IDX to Acquiror, at any time prior
to obtaining the Acquiror Shareholder Approval, if the Acquiror Board shall have failed to include the Acquiror Board Recommendation in the Proxy Statement/Prospectus; provided, that ZF’s and IDX’s right to terminate this Agreement
shall expire at the end of the 10th Business Day following the date on which ZF and IDX first had the right to terminate this Agreement pursuant to such event.
Section 10.02 Effect of
Termination. Except as otherwise set forth in this Section 10.02, if this Agreement terminates pursuant to Section 10.01, this Agreement shall forthwith become void and have no effect, without any liability on the part of
any Party or its respective Affiliates, officers, directors, employees or stockholders, other than liability of any Party for any Fraud or any willful and knowing material breach of this Agreement by such Party occurring prior to such
termination. The provisions of Section 6.03 (No Claim Against the Trust Account), Section 8.05 (Confidentiality; Publicity), this Section 10.02 (Effect of Termination) and Article XI (collectively, the “Surviving
Provisions”) and the Confidentiality Agreements, and any other Section or Article of this Agreement referenced in the Surviving Provisions which are required to survive in order to give appropriate effect to the Surviving Provisions,
shall in each case survive any termination of this Agreement.
MISCELLANEOUS
Section 11.01 Waiver. At
any time and from time to time prior to the Effective Time, Acquiror, ZF and IDX may, to the extent legally allowed and except as otherwise set forth herein, (a) extend the time for the performance of any of the obligations or other acts of
another Party, as applicable, (b) waive any inaccuracies in the representations and warranties of another Party contained herein or in any document delivered pursuant hereto, and (c) subject to the requirements of applicable Law, waive
compliance by another Party with any of the agreements or conditions contained herein applicable to such Party (it being understood that each Acquiror Party shall be deemed a single Party for purposes of this Section 11.01). Any
agreement on the part of Acquiror, ZF or IDX to any such extension or waiver will be valid only if set forth in an instrument in writing signed by such Party. Any delay in exercising any right pursuant to this Agreement will not constitute a
waiver of such right.
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Section 11.02 Notices.
All notices and other communications among the Parties shall be in writing and shall be deemed to have been duly given (i) when delivered in person, (ii) when delivered after posting in the United States mail having been sent registered or
certified mail return receipt requested, postage prepaid, (iii) when delivered by FedEx or other nationally recognized overnight delivery service or (iv) when e-mailed during normal business hours (and otherwise as of the immediately following
Business Day), addressed as follows:
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or to such other address or addresses as the Parties may from time to
time designate in writing. Without limiting the foregoing, any Party may give any notice, request, instruction, demand, document or other communication hereunder using any other means (including personal delivery, expedited courier, messenger
service, ordinary mail or electronic mail), but no such notice, request, instruction, demand, document or other communication shall be deemed to have been duly given unless and until it actually is received by the Party for whom it is intended.
Section 11.03 Assignment.
No Party shall assign this Agreement or any part hereof without the prior written consent of the other Parties. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective
permitted successors and assigns. Any attempted assignment in violation of the terms of this Section 11.03 shall be null and void, ab initio.
Section 11.04 Rights of
Third Parties. Nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give any Person, other than the Parties, any right or remedies under or by reason of this Agreement; provided, however,
that notwithstanding the foregoing (a) if the Closing occurs, the present and former officers and directors of ZF, IDX and Acquiror (and their successors, heirs and representatives) are intended third-party beneficiaries of, and may enforce, Section
7.01, (b) the past, present and future directors, officers, employees, incorporators, members, partners, stockholders, Affiliates, agents, attorneys, advisors and representatives of the Parties, and any Affiliate of any of the foregoing
(and their successors, heirs and representatives), are intended third-party beneficiaries of, and may enforce, Section 11.14 and (c) the ZF Pre-Closing Holders and IDX Pre-Closing Holders listed on Schedule 8.08 are intended
third party beneficiaries of, and may enforce, Section 8.08.
Section 11.05 Expenses.
Except as otherwise provided herein, each Party shall bear its own expenses incurred in connection with this Agreement and the Transactions whether or not such transactions shall be consummated, including all fees of its legal counsel,
financial advisers and accountants; provided, that if the Closing occurs, the Acquiror shall bear and pay at or promptly after Closing all Acquiror Transaction Expenses, all ZF Transaction Expenses and all IDX Transaction Expenses.
Section 11.06 Governing Law.
This Agreement, and all claims or causes of action based upon, arising out of, or related to this Agreement or the Transactions, shall, to the greatest extent permitted by Law, be governed by, and construed in accordance with, the internal
substantive Laws of the State of Delaware applicable to contracts entered into and to be performed solely within such state, without giving effect to principles or rules of conflict of laws to the extent such principles or rules would require
or permit the application of Laws of another jurisdiction; provided, that, the Domestication and the Required Transaction Proposals shall be effected in accordance with the Companies Act and, in the case of the Domestication, the DGCL,
in each case without giving effect to principles or rules of conflict of laws to the extent such principles or rules would require or permit the application of Laws of another jurisdiction.
Section 11.07 Captions;
Counterparts. The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement. This Agreement 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.
Section 11.08 Schedules and
Exhibits. The Schedules and Exhibits referenced herein are a part of this Agreement as if fully set forth herein. All references herein to Schedules and Exhibits shall be deemed references to such parts of this Agreement, unless the
context shall otherwise require. Any disclosure made by a Party in the Schedules with reference to any section or schedule of this Agreement shall be deemed to be a disclosure with respect to all other sections or schedules to which such
disclosure may apply solely to the extent the relevance of such disclosure is reasonably apparent on the face of the disclosure in such Schedule. Certain information set
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forth in the Schedules is included solely for informational purposes. The disclosure
of any information shall not be deemed to constitute an acknowledgement that such information is required to be disclosed in connection with the representations and warranties made in this Agreement, nor shall such information be deemed to
establish a standard of materiality.
Section 11.09 Entire
Agreement. This Agreement (together with the Schedules and Exhibits to this Agreement), the other Transaction Agreements (together with the Schedules and Exhibits thereto), the Mutual Non-Disclosure Agreement, by and between ZF and ITGS,
dated as of February 25, 2021 (as amended, modified or supplemented from time to time, the “IDX Confidentiality Agreement”), and the Mutual Non-Disclosure Agreement, by and between Stifel, Nicolaus & Company, Incorporated (on behalf
of IDX and ZF) and Acquiror, dated as of May 27, 2021 (as amended, modified or supplemented from time to time, the “ZF Confidentiality Agreement,” together with the IDX Confidentiality Agreement, the “Confidentiality
Agreements”), constitute the entire agreement among the Parties relating to the Transactions and supersede any other agreements, whether written or oral, that may have been made or entered into by or among any of the Parties or any of
their respective Subsidiaries relating to the Transactions. No representations, warranties, covenants, understandings, agreements, oral or otherwise, relating to the Transactions exist between the Parties except as expressly set forth or
referenced in this Agreement and the Confidentiality Agreements.
Section 11.10 Amendments.
This Agreement may be amended or modified in whole or in part, only by a duly authorized agreement in writing executed by each of the Parties in the same manner as this Agreement and which makes reference to this Agreement at any time prior to
the Effective Time, whether before or after the Required ZF Stockholder Approval or the Required IDX Stockholder Approval has been obtained; provided, however, that after the Required ZF Stockholder Approval or the Required IDX Stockholder
Approval has been obtained, no amendment shall be made that pursuant to applicable Law requires further approval or adoption by the shareholders of Acquiror or the stockholders of ZF or IDX, as applicable, without such further approval or
adoption. The approval of this Agreement by the stockholders or shareholders of any of the Parties shall not restrict the ability of the board of directors (or other body performing similar functions) of any of the Parties to terminate this
Agreement in accordance with Section 10.01 or to cause such Party to enter into an amendment to this Agreement pursuant to this Section 11.10.
Section 11.11 Severability.
If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. The Parties further agree that if any provision contained
herein is, to any extent, held invalid or unenforceable in any respect under the Laws governing this Agreement, they shall take any actions necessary to render the remaining provisions of this Agreement valid and enforceable to the fullest
extent permitted by Law and, to the extent necessary, shall amend or otherwise modify this Agreement to replace any provision contained herein that is held invalid or unenforceable with a valid and enforceable provision giving effect to the
intent of the Parties.
Section 11.12 Jurisdiction;
WAIVER OF TRIAL BY JURY. Any Action based upon, arising out of or related to this Agreement or the Transactions shall be brought exclusively in Court of Chancery of the State of Delaware (the “Court of Chancery”) and any state
appellate court therefrom (or, if the Court of Chancery declines to accept jurisdiction over a particular matter, any state or federal court located in the State of Delaware), and each of the Parties irrevocably submits to the exclusive
jurisdiction of each such court in any such Action, waives any objection it may now or hereafter have to personal jurisdiction, venue or to convenience of forum, agrees that all claims in respect of the Action shall be heard and determined only
in any such courts, and agrees not to bring any Action arising out of or relating to this Agreement or the Transactions in any other court; provided that the courts of the Cayman Islands shall have jurisdiction over the Domestication to
the extent required by the Companies Act. Nothing herein contained shall be deemed to affect the right of any Party to serve process in any manner permitted by Law or to commence legal proceedings or otherwise proceed against any other Party in
any other jurisdiction, in each case, to enforce judgments obtained in any Action brought pursuant to this Section 11.12. EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION BASED UPON, ARISING
OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS.
Section 11.13 Enforcement.
The Parties agree that irreparable damage for which monetary damages, even if available, would not be an adequate remedy, would occur if the Parties do not perform their obligations under the provisions of this Agreement (including failing to
take such actions as are required of them hereunder to consummate this Agreement) in accordance with its specified terms or otherwise breach such provisions. The
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Parties acknowledge and agree that (a) Acquiror, ZF and IDX shall be entitled to an
injunction, specific performance, or other equitable relief, to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof and thereof, without proof of damages, prior to the valid termination of this
Agreement in accordance with Section 10.01, this being in addition to any other remedy to which they are entitled under this Agreement, and (b) the right of specific enforcement is an integral part of the Transactions and without that
right, none of the Parties would have entered into this Agreement. Each Party agrees that it will not oppose the granting of specific performance and other equitable relief on the basis that the other Parties have an adequate remedy at Law or
that an award of specific performance is not an appropriate remedy for any reason at Law or equity. The Parties acknowledge and agree that none of Acquiror, ZF nor IDX, in seeking an injunction to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in accordance with this Section 11.13, shall be required to provide any bond or other security in connection with any such injunction.
Section 11.14 Non-Recourse.
This Agreement may only be enforced against, and any claim or cause of action based upon, arising out of, or related to this Agreement or the Transactions may only be brought against, the entities that are expressly named as Parties and then
only with respect to the specific obligations set forth herein with respect to such Party. Except to the extent a named party (and then only to the extent of the specific obligations undertaken by such Party in this Agreement) and to the
fullest extent permitted by Law, (a) no past, present or future director, officer, employee, sponsor, incorporator, member, partner, stockholder, Affiliate, agent, attorney, advisor or representative or Affiliate of any Party and (b) no past,
present or future director, officer, employee, sponsor, incorporator, member, partner, stockholder, Affiliate, agent, attorney, advisor or representative or Affiliate of any of the foregoing shall have any liability (whether in contract, tort,
equity or otherwise) for any one or more of the representations, warranties, covenants, agreements or other obligations or liabilities of any one or more of the Acquiror Parties or Company Parties under this Agreement of or for any claim based
on, arising out of, or related to this Agreement or the Transactions.
Section 11.15 Nonsurvival of
Representations, Warranties and Covenants. None of the representations, warranties, covenants, obligations or other agreements in this Agreement or in any certificate, statement or instrument delivered pursuant to this Agreement,
including any rights arising out of any breach of such representations, warranties, covenants, obligations, agreements and other provisions, shall survive the Closing and shall terminate and expire upon the occurrence of the Effective Time (and
there shall be no liability after the Closing in respect thereof), except for (a) those covenants and agreements contained herein that by their terms apply in whole or in part at or after the Closing and then only with respect to any breaches
occurring at or after the Closing and (b) this Article XI.
Section 11.16 Acknowledgements.
Each of the Parties acknowledges and agrees (on its own behalf and on behalf of its respective controlled Affiliates and its and their respective Representatives) that (a) it has conducted its own independent investigation of the financial
condition, results of operations, assets, liabilities, properties and projected operations of the other Parties (and their respective Subsidiaries) and has been afforded satisfactory access to the books and records, facilities and personnel of
the other Parties (and their respective Subsidiaries) for purposes of conducting such investigation; (b) the representations and warranties in Article IV constitute the sole and exclusive representations and warranties of the Company
Parties in connection with the Transactions; (c) the representations and warranties in Article V constitute the sole and exclusive representations and warranties of the Acquiror Parties; (d) except for the representations and warranties
in Article IV by the Company Parties and the representations and warranties in Article V by the Acquiror Parties, none of the Parties or any other Person makes, or has made, any other express or implied representation or
warranty with respect to any Party (or any Party’s Subsidiaries), including any implied warranty or representation as to condition, merchantability, suitability or fitness for a particular purpose or trade as to any of the assets of the such
Party or its Subsidiaries or the Transactions and all other representations and warranties of any kind or nature expressed or implied (including (i) regarding the completeness or accuracy of, or any omission to state or to disclose, any
information, including in the estimates, projections or forecasts or any other information, document or material provided to or made available to any Party or their respective Affiliates or Representatives in certain “data rooms,” management
presentations or in any other form in expectation of the Transactions, including meetings, calls or correspondence with management of any Party (or any Party’s Subsidiaries), and (ii) any relating to the future or historical business, condition
(financial or otherwise), results of operations, prospects, assets or liabilities of any Party (or its Subsidiaries), or the quality, quantity or condition of any Party’s or its Subsidiaries’ assets) are specifically disclaimed by all Parties
and their respective Subsidiaries and all other Persons (including the
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Representatives and Affiliates of any Party or its Subsidiaries); and (e) each Party
and its respective Affiliates are not relying on any representations and warranties in connection with the Transactions except the representations and warranties in Article IV by the Company Parties and the representations and
warranties in Article V by the Acquiror Parties. The foregoing does not limit any rights of any Party pursuant to any other Transaction Agreement against any other Party pursuant to such Transaction Agreement to which it is a party or
an express third-party beneficiary thereof. Nothing in this Section 11.16 shall relieve any Party of liability in the case of Fraud or willful misconduct committed by such Party.
[Signature pages follow.]
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IN WITNESS WHEREOF, the Parties have hereunto caused this Business Combination Agreement to be duly executed as of the date hereof.
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L&F ACQUISITION CORP.
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By:
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/s/ Adam Gerchen
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Name:
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Adam Gerchen
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Title:
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Chief Executive Officer
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L&F ACQUISITION HOLDINGS, LLC
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By:
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/s/ Adam Gerchen
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Name:
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Adam Gerchen
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Title:
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Chief Executive Officer
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ZF MERGER SUB, INC.
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By:
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/s/ Adam Gerchen
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Name:
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Adam Gerchen
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Title:
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Chief Executive Officer
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IDX MERGER SUB, INC.
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By:
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/s/ Adam Gerchen
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Name:
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Adam Gerchen
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Title:
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Chief Executive Officer
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IDX FORWARD MERGER SUB, LLC
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By:
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/s/ Adam Gerchen
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Name:
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Adam Gerchen
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Title:
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Chief Executive Officer
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ZEROFOX, INC.
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By:
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/s/ James C. Foster
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Name:
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James C. Foster
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Title:
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Chief Executive Officer and President
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ID EXPERTS HOLDINGS, INC.
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By:
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/s/ Thomas F. Kelly
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Name:
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Thomas F. Kelly
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Title:
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Chief Executive Officer
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Signature Page to Business Combination Agreement
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CERTIFICATE OF INCORPORATION
OF
ZEROFOX HOLDINGS, INC.
I, the undersigned, for the purposes of incorporating and organizing
a corporation under the General Corporation Law of the State of Delaware (the “DGCL”), do execute this Certificate of Incorporation and do hereby certify as follows:
ARTICLE I
The name of the corporation is ZeroFox Holdings, Inc. (hereinafter
called the “Corporation”).
ARTICLE II
The address of the Corporation’s registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware, 19801. The name of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL. The Corporation is incorporated in connection with the domestication of L&F Acquisition Corp., a Cayman Islands exempted
company (“LNFA”) to a Delaware corporation, and this Certificate of Incorporation is filed simultaneously with a Certificate of Corporate Domestication of LNFA (the “Certificate
of Domestication”).
ARTICLE IV
Section 1. 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 stock that the Corporation shall have authority to issue is 1,100,000,000 shares, of which 1,000,000,000 shares are Common Stock,
$0.0001 par value per share (the “Common Stock”), and 100,000,000 shares are Preferred Stock, $0.0001 par value per share (the “Preferred Stock”).
Section 2. Upon the filing of the Certificate of Domestication
and this Certificate of Incorporation (the “Effective Time”), which shall occur prior to the closing (the “Closing Date”) of the transactions contemplated by that
certain Business Combination Agreement, entered into as of December 17, 2021, by and among LNFA, L&F Acquisition Holdings, LLC, a Delaware limited liability company, ZF Merger Sub, Inc., a Delaware corporation, IDX Merger Sub, Inc., a
Delaware corporation, IDX Forward Merger Sub, LLC, a Delaware limited liability company, ZeroFox, Inc., a Delaware corporation, and ID Experts Holdings, Inc., a Delaware corporation, each Class A ordinary share, $0.0001 par value per share, and
each Class B ordinary share, $0.0001 par value per share, of LNFA issued and outstanding immediately prior to the Effective Time, shall automatically be converted, on a one-for-one basis, into one fully paid and non-assessable share of Common
Stock, without any further action required on the part of LNFA, the Corporation or any holder of ordinary shares of LNFA or capital stock of the Corporation. The powers, preferences and rights of, and the qualifications, limitations and
restrictions upon, each class or series of stock shall be determined in accordance with, or as set forth hereafter in, this Article IV.
Section 3. Each share of Common Stock outstanding as of the
applicable record date shall entitle the holder thereof to one vote on any matter submitted to a vote of the stockholders.
Section 4. The Preferred Stock may be issued from time to time
in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors of the Corporation (the “Board of Directors”) (authority to do so being hereby
expressly vested in the Board of Directors). The Board of Directors is further authorized, subject to limitations prescribed by law, to fix by resolution or resolutions the designations, powers, preferences and rights, and the qualifications,
limitations or restrictions
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thereof, of any series of Preferred Stock, including, without limitation, authority
to fix by resolution or resolutions the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and liquidation preferences of any such
series, and the number of shares constituting any such series and the designation thereof, or any of the foregoing. The Board of Directors is further authorized to increase or decrease the number of shares of any series, subject to applicable
law and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof stated in this Certificate of Incorporation or the resolution of the Board of Directors originally fixing the number of shares of such
series. Except as may be otherwise specified by the terms of any series of Preferred Stock, if the number of shares of any series of Preferred Stock is so decreased, then the Corporation shall take all such steps as are necessary to cause the
shares constituting such decrease to resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.
Section 5. Except as otherwise required by law or provided in
this Certificate of Incorporation, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock) that
relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by
law or pursuant to this Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock) or the DGCL.
Section 6. The number of authorized shares of Preferred Stock
or Common 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 power of all the then-outstanding shares of capital stock of the
Corporation entitled to vote thereon, without a separate vote of the holders of the class or classes the number of authorized shares of which are being increased or decreased, unless a vote of any holders of one or more series of Preferred
Stock is required pursuant to the terms of this Certificate of Incorporation (including any certificate of designation relating to any series of Preferred Stock), irrespective of the provisions of Section 242(b)(2) of the DGCL.
ARTICLE V
Section 1. Subject to the rights of holders of Preferred
Stock, the number of directors that constitutes the entire Board of Directors of the Corporation shall be fixed only by resolution of the Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board. For the
purposes of this Certificate of Incorporation, the term “Whole Board” shall mean the total number of authorized directorships whether or not there exist any vacancies or other unfilled seats in previously
authorized directorships. At each annual meeting of stockholders, directors of the Corporation shall be elected to hold office until the expiration of the term for which they are elected and until their successors have been duly elected and
qualified or until their earlier resignation or removal.
Section 2. The directors of the Corporation (other than any
who may be elected by holders of Preferred Stock as provided for or fixed in this Certificate of Incorporation (including any certificate of designation relating to any series of Preferred Stock) (the “Preferred
Stock Directors”)) shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. At the first annual meeting of stockholders following the Closing Date, the term of
office of the Class I directors shall expire and Class I directors shall be elected for a term of three years. At the second annual meeting of stockholders following the Closing Date, the term of office of the Class II directors shall expire
and Class II directors shall be elected for a term of three years. At the third annual meeting of stockholders following the Closing Date, the term of office of the Class III directors shall expire and Class III directors shall be elected for a
term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a term of three years to succeed the directors of the class whose terms expire at such annual meeting.
ARTICLE VI
Section 1. Subject to the rights of holders of Preferred
Stock, any director or the entire Board of Directors may be removed from office at any time, but only for cause, and only by the affirmative vote of the holders of a majority of the issued and outstanding capital stock of the Corporation
entitled to vote in the election of directors, voting together as a single class.
Section 2. Except as otherwise provided for or fixed by or
pursuant to the provisions of ARTICLE IV hereof in relation to the rights of the holders of Preferred Stock to elect directors under specified circumstances,
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newly created directorships resulting from any increase in the number of directors,
created in accordance with the Bylaws of the Corporation, and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled only by the affirmative vote of a majority of the
directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director, and not by the stockholders. A person so elected by the Board of Directors to fill a vacancy or newly created directorship
shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified, or until such 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.
Section 3. During any period when the holders of one or more
series of Preferred Stock have the separate right to elect Preferred Stock Directors and upon commencement and for the duration of the period during which such right continues: (a) the then otherwise total authorized number of directors of the
Corporation shall automatically be increased by such number of directors that the holders of any series of Preferred Stock have a right to elect, and the holders of such Preferred Stock shall be entitled to elect the additional directors so
provided for or fixed pursuant to said provisions; and (b) each Preferred Stock Director shall serve until such Preferred Stock Director’s successor shall have been duly elected and qualified, or until such director’s right to hold such office
terminates pursuant to said provisions, whichever occurs earlier, subject to his or her earlier death, disqualification, resignation or removal. Except as otherwise provided for or fixed pursuant to the provisions of this Certificate of
Incorporation (including any certificate of designation relating to any series of Preferred Stock), whenever the holders of one or more series of Preferred Stock having a separate right to elect additional directors cease to have or are
otherwise divested of such right pursuant to said provisions, the terms of office of all Preferred Stock 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 Preferred Stock Director shall cease to be qualified as a director and shall cease to be a director) and the total authorized number of
directors of the Corporation shall be automatically reduced accordingly.
ARTICLE VII
Section 1. The Corporation is to have perpetual existence.
Section 2. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
Section 3. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to adopt, alter, amend or repeal the Bylaws of the Corporation. The affirmative vote of at least a majority of the Whole Board shall be required in order for the Board of
Directors to adopt, alter, amend or repeal the Bylaws of the Corporation. The Bylaws of the Corporation may also be adopted, altered, amended or repealed by the stockholders of the Corporation. No Bylaw hereafter legally adopted, altered,
amended or repealed shall invalidate any prior act of the directors or officers of the Corporation that would have been valid if such Bylaw had not been adopted, altered, amended or repealed.
Section 4. The election of directors need not be by written
ballot unless the Bylaws of the Corporation shall so provide.
Section 5. No stockholder will be permitted to cumulate votes
at any election of directors.
ARTICLE VIII
Section 1. Subject to the rights of holders of Preferred Stock
as provided for or fixed in this Certificate of Incorporation (including any certificate of designation relating to any series of Preferred Stock), any action required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent by such stockholders.
Section 2. Subject to the rights of holders of Preferred Stock
as provided for or fixed in this Certificate of Incorporation (including any certificate of designation relating to any series of Preferred Stock), special meetings
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of stockholders of the Corporation may be called only by the Chairperson of the Board
of Directors, the Chief Executive Officer, the President or the Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board, but a special meeting may not be called by any other person or persons and any power of
stockholders to call a special meeting of stockholders is specifically denied. Only such business shall be considered at a special meeting of stockholders as shall have been stated in the notice for such meeting. Any such special meeting so
called may be postponed, rescheduled or cancelled by the Board of Directors.
Section 3. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner and to the extent provided in the Bylaws of the Corporation.
ARTICLE IX
Section 1. To the fullest extent permitted by the DGCL as the
same exists or as may hereafter be amended from time to time, 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 DGCL is
amended 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, as so
amended.
Section 2. The Corporation shall have the power to indemnify,
to the fullest extent permitted by applicable law, any director, officer, employee or agent of the Corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she 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, including service with respect to employee benefit plans, against expenses (including attorneys’
fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any such Proceeding.
Section 3. Neither any amendment, repeal nor elimination of
any Section of this ARTICLE IX, nor the adoption of any provision of this Certificate of Incorporation or the Bylaws of the Corporation inconsistent with this ARTICLE IX, shall eliminate or reduce the effect of this ARTICLE
IX in respect of any act or omission which occurred prior to such amendment, repeal, elimination or adoption of an inconsistent provision.
ARTICLE X
Section 1. Meetings of stockholders may be held within or
outside of the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept (subject to any provision of applicable law) outside of the State of Delaware at such place or places or in such manner or
manners as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
Section 2. Unless the Corporation consents in writing to the
selection of an alternative forum (an “Alternative Forum Consent”), the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (a)
any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of a duty (including any fiduciary duty) owed by any current or former director, officer, stockholder, employee or agent of the
Corporation to the Corporation or the Corporation’s stockholders, (c) any action asserting a claim against the Corporation or any current or former director, officer, stockholder, employee or agent of the Corporation arising out of or relating
to any provision of the DGCL or the Certificate of Incorporation or Bylaws of the Corporation (each, as in effect from time to time) or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (d) any
action asserting a claim against the Corporation or any current or former director, officer, stockholder, employee or agent of the Corporation governed by the internal affairs doctrine of the State of Delaware; provided, however, that, in the event that the Court of Chancery of the State of Delaware lacks subject matter jurisdiction over any such action or proceeding, the sole and exclusive
forum for such action or proceeding shall be another state or federal court located within the State of Delaware, in each such case, unless the Court of Chancery (or such other state or federal court located within the State of Delaware, as
applicable) has dismissed a prior action by the same plaintiff asserting the same claims because such court lacked personal jurisdiction over an indispensable party named as a defendant therein. Unless the Corporation gives an Alternative Forum
Consent, the federal
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district courts of the United States of America shall, to the fullest extent
permitted by law, be the sole and exclusive forum for the resolution of any complaint against any person (including, but not limited to, any underwriters or auditors retained by the Corporation) in connection with any offering of the
Corporation’s securities, asserting a cause of action arising under the Securities Act of 1933, as amended. This Section 2 of ARTICLE X does not apply to claims arising under the Securities Exchange Act of 1934, as amended. The
existence of any prior Alternative Forum Consent shall not act as a waiver of the Corporation’s ongoing consent right as set forth above in this Section 2 of ARTICLE X with respect to any current or future actions or claims. Any person
or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 2 of ARTICLE X.
ARTICLE XI
Section 1. The Corporation reserves the right to amend or
repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however, that notwithstanding any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote, the Board of
Directors acting pursuant to a resolution adopted by a majority of the Whole Board and the affirmative vote of the holders of at least two-thirds of the voting power of the then outstanding voting securities of the Corporation entitled to vote
thereon, voting together as a single class, shall be required for the amendment, repeal or modification of the provisions of Section 4 of ARTICLE IV, ARTICLE V, Section 1 of ARTICLE VI, Section 2 of ARTICLE
VI, Section 5 of ARTICLE VII, ARTICLE VIII, ARTICLE IX, Section 2 of ARTICLE X, this ARTICLE XI or ARTICLE XII of this Certificate of Incorporation.
Section 2. If any provision or provisions of this Certificate
of Incorporation shall be held by a court of competent jurisdiction to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (a) the validity, legality and enforceability of such provisions in any other
circumstance and of the remaining provisions of this Certificate of Incorporation (including, without limitation, each portion of any paragraph of this 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 the court will replace such invalid, illegal or
unenforceable provision with a valid and enforceable provision that most accurately reflects the Corporation’s intent in order to achieve, to the maximum extent possible, the same economic, business and other purposes of the invalid, illegal or
unenforceable provision and (b) to the fullest extent permitted by applicable law, the provisions of this Certificate of Incorporation (including, without limitation, each such portion of any paragraph of this 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.
ARTICLE XII
Section 1. In recognition and anticipation that members of the
Board of Directors who are not employees or officers of the Corporation (“Non-Employee Directors”) and their respective Affiliates and Affiliated Entities (each, as defined below) may now engage and may
continue to engage in the same or similar activities or related lines of business as those in which the Corporation, directly or indirectly, may engage and/or other business activities that overlap with or compete with those in which the
Corporation, directly or indirectly, may engage, the provisions of this Article XII are set forth to regulate and define the conduct of certain affairs of the Corporation with respect to certain classes or categories of business
opportunities as they may involve any of the Non-Employee Directors or their respective Affiliates and the powers, rights, duties and liabilities of the Corporation and its directors, officers and stockholders in connection therewith. To the
fullest extent permitted by applicable law, no Non-Employee Director or his or her Affiliates or Affiliated Entities (the Persons (as defined below) above being referred to, collectively, as “Identified Persons”
and, individually, as an “Identified Person”) shall have any duty to refrain from directly or indirectly (a) engaging in the same or similar business activities or lines of business in which the
Corporation or any of its Affiliates has historically engaged, now engages or proposes to engage at any time or (b) otherwise competing with the Corporation or any of its Affiliates, and no Identified Person shall be liable to the Corporation
or its stockholders or to any Affiliate of the Corporation for breach of any fiduciary duty solely by reason of the fact that such Identified Person engages in
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any such activities. To the fullest extent permitted by applicable law, the
Corporation hereby, pursuant to Section 122(17) of the DGCL renounces any interest or expectancy in, or right to be offered an opportunity to participate in, any business opportunity which may be a corporate opportunity for an Identified Person
and the Corporation or any of its Affiliates, except as provided in this Article XII. Subject to Section 2 of this Article XII, in the event that any Identified Person acquires knowledge of a potential transaction
or other business opportunity which may be a corporate opportunity for itself, herself or himself and the Corporation or any of its Affiliates, such Identified Person shall, to the fullest extent permitted by applicable law, have no duty to
communicate or offer such transaction or other business opportunity to the Corporation or any of its Affiliates and, to the fullest extent permitted by applicable law, shall not be liable to the Corporation or its stockholders or to any
Affiliate of the Corporation for breach of any fiduciary duty as a director or officer of the Corporation solely by reason of the fact that such Identified Person pursues or acquires such corporate opportunity for itself, herself or himself, or
offers or directs such corporate opportunity to another Person or does not communicate information regarding such corporate opportunity to the Corporation.
Section 2. Subject to Section 3 of this Article XII,
the Corporation does not renounce its interest in any corporate opportunity offered to any Non-Employee Director if such opportunity is expressly offered or presented to such person solely in his or her capacity as a director of the
Corporation, and the provisions of Section 1 of this Article XII shall not apply to any such corporate opportunity.
Section 3. In addition to and notwithstanding the foregoing
provisions of this Article XII, a corporate opportunity shall not be deemed to be a potential corporate opportunity for the Corporation if it is a business opportunity that (a) the Corporation is neither financially or legally able, nor
contractually permitted to undertake, (b) from its nature, is not in the line of the Corporation’s business or is of no practical advantage to the Corporation, or (c) is one in which the Corporation has no interest or reasonable expectancy.
Section 4. For purposes of this Article XII, (a) “Affiliate” shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another Person; (b) “Affiliated Entity” shall mean (i) any Person of which a Non-Employee Director serves as an officer, director, employee, agent or other representative (other than the Corporation and any entity that is controlled by the
Corporation), (ii) any direct or indirect partner, stockholder, member, manager or other representative of such Person or (iii) any person controlling, controlled by or under common control with any of the foregoing, including any investment
fund or vehicle under common management; and (c) “Person” shall mean any individual, corporation, general or limited partnership, limited liability company, joint venture, trust, association or any other
entity.
Section 5. To the fullest extent permitted by applicable law,
any Person purchasing or otherwise acquiring or holding any interest in any shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article XII. Neither the
alteration, amendment, addition to or repeal of this Article XII, nor the adoption of any provision of this Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) inconsistent
with this Article XII, shall eliminate or reduce the effect of this Article XII in respect of any business opportunity first identified or any other matter occurring, or any cause of action, suit or claim that, but for this Article
XII, would accrue or arise, prior to such alteration, amendment, addition, repeal or adoption. This Article XII shall not limit any protections or defenses available to, or indemnification or advancement rights of, any director or
officer of the Corporation under this Certificate of Incorporation, the Bylaws of the Corporation, any indemnification agreement between such Person and the Corporation or any of its subsidiaries, or applicable law.
ARTICLE XIII
The incorporator of the Corporation is Adam Gerchen, whose mailing
address is 150 North Riverside Plaza, Suite 5200, Chicago, Illinois 60606.
[SIGNATURE PAGE FOLLOWS]
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I, the undersigned, being the Incorporator, hereby acknowledge
that the foregoing Certificate of Incorporation is his act and deed on , 2022.
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Adam Gerchen, Incorporator
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ARTICLE I - CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of ZeroFox Holdings, Inc. (the “Corporation”) shall be fixed in the Corporation’s certificate of incorporation, as the same may be amended from time to time (the “certificate of incorporation”).
1.2 OTHER OFFICES
The Corporation may at any time establish other offices.
ARTICLE II - MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at a place, if any, within or
outside the State of Delaware, determined by the board of directors of the Corporation (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 (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 of Directors shall designate the date and time of the
annual meeting of stockholders. At the annual meeting, directors shall be elected and any other proper business, brought in accordance with Section 2.4 of these bylaws, may be transacted. The Board of Directors may cancel, postpone or
reschedule any previously scheduled annual meeting at any time, before or after the notice for such meeting has been sent to the stockholders.
2.3 SPECIAL MEETING
(a) A special meeting of the stockholders may be called at any time
only by (i) the Board of Directors, (ii) the chairperson of the Board of Directors, (iii) the chief executive officer or (iv) the president, but a special meeting may not be called by any other person or persons and any power of stockholders to
call a special meeting of stockholders is specifically denied. The Board of Directors may cancel, postpone or reschedule any previously scheduled special meeting at any time, before or after the notice for such meeting has been sent to the
stockholders.
(b) The notice of a special meeting shall include the purpose for
which the meeting is called. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting by or at the direction of the Board of Directors, the chairperson of the Board of Directors,
the chief executive officer or the president. Nothing contained in this Section 2.3(b) 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 ADVANCE NOTICE PROCEDURES
(a) Annual Meetings of
Stockholders.
(i) Nominations of persons for election to the Board of Directors
or the proposal of other business to be transacted by the stockholders at an annual meeting of stockholders may be made only (A) pursuant to the Corporation’s notice of meeting (or any supplement thereto); (B) by or at the direction of the
Board of Directors; (C) as may be provided in the certificate of designation for any class or series of preferred stock; or (D) by any stockholder of the Corporation who (1) is a stockholder of record at the time of giving of the notice
contemplated by Section 2.4(a)(ii); (2) is a stockholder of record on the record date for the determination of stockholders entitled to notice of the annual meeting; (3) is a stockholder of record on the record date for the
determination of stockholders entitled to vote at the annual meeting; (4) is a stockholder of record at the time of the annual meeting; and (5) complies with the procedures set forth in this Section 2.4(a).
(ii) For nominations or other business to be properly brought before
an annual meeting of stockholders by a stockholder pursuant to clause (D) of Section 2.4(a)(i), the stockholder must have given timely notice in writing to the secretary and any such proposed business (other than a
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nomination) must constitute a proper matter for stockholder action. To be timely, a
stockholder’s notice must be received by the secretary at the principal executive offices of the Corporation no earlier than 8:00 a.m., local time, on the 150th day and no later than 5:00 p.m., local time, on the 120th day prior to the first
anniversary of the date of the proxy statement (as defined in this Section 2.4(a)(ii)) for the preceding year’s annual meeting of stockholders (which anniversary date shall, for purposes of the Corporation’s first annual meeting after
its shares of stock are first publicly traded, be deemed to be April 15, 2023). However, if no annual meeting of stockholders was held in the preceding year, or if the date of the applicable annual meeting is more than 30 days before or more
than 60 days after the first anniversary of the preceding year’s annual meeting, then to be timely such notice must be received by the secretary at the principal executive offices of the Corporation no earlier than 8:00 a.m., local time, on the
120th day prior to the day of the annual meeting and no later than the later of (A) 5:00 p.m., local time, on the 90th day before the meeting or (B) 5:00 p.m., local time, on the 10th day following the day on which public announcement of the
date of the annual meeting was first made by the Corporation. In no event will the adjournment, rescheduling or postponement of any annual meeting, or any announcement thereof, commence a new time period (or extend any time period) for the
giving of a stockholder’s notice as described above. The number of nominees a stockholder may nominate for election at the annual meeting (or in the case of a stockholder giving the notice on behalf of a beneficial owner, the number of nominees
a stockholder may nominate for election at the annual meeting on behalf of such beneficial owner) shall not exceed the number of directors to be elected at such annual meeting. Notwithstanding anything in the second sentence of this Section
2.4(a)(ii) to the contrary, if the number of directors to be elected to the Board of Directors at the annual meeting is increased after the time period for which nominations would otherwise be due under this Section 2.4(a)(ii) and there is no
public announcement naming the nominees for the additional directorships at least 10 days before the last day that a stockholder may deliver a notice of nomination pursuant to the foregoing provisions, then a stockholder’s notice required by
this Section 2.4(a)(ii) will also be considered timely, but only with respect to nominees for any new positions created by such increase, if it is received by the secretary at the principal executive offices of the Corporation no later
than 5:00 p.m., local time, on the 10th day following the day on which such public announcement is first made. “Public announcement” means disclosure in a press release reported by a national news service
or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934 (as amended and inclusive of rules and regulations thereunder, the “1934 Act”). “The date of the proxy statement” means “the date of the company’s proxy statement released to shareholders” as used in Rule 14a-8(e) promulgated under the
1934 Act, as interpreted by the Securities and Exchange Commission from time to time.
(iii) A stockholder’s notice to the secretary must set forth:
(A) as to each person whom the stockholder proposes to nominate for
election as a director:
(1) such person’s name, age, business address, residence address and
principal occupation or employment; the class, series and number of shares of stock of the Corporation that are held of record or are beneficially owned by such person and a description of any Derivative Instruments (defined below) held or
beneficially owned thereby or of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit of
share price changes for, or to increase or decrease the voting power of such person; and all information relating to such person that is required to be disclosed in solicitations of proxies for the contested election of directors, or is
otherwise required, in each case pursuant to Section 14 of the 1934 Act;
(2) such person’s written consent to being named in the proxy
statement and related materials of the Corporation and the proxy statement and related materials of such stockholder as a nominee of the stockholder and to serving as a director of the Corporation if elected;
(3) a reasonably detailed description of any direct or indirect
compensatory, payment, indemnification or other financial agreement, arrangement or understanding that such person
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has, or has had within the past three years, with any person or entity other than
the Corporation (including the amount of any payment or payments received or receivable thereunder), in each case in connection with candidacy or service as a director of the Corporation (a “Third-Party
Compensation Arrangement”); and
(4) a description of any other material relationships between such
person and such person’s respective affiliates and associates, or others acting in concert with them, on the one hand, and such stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made, and their
respective affiliates and associates, or others acting in concert with them, on the other hand;
(B) as to any other business that the stockholder proposes to bring
before the annual meeting:
(1) a brief description of the business desired to be brought
before the annual meeting;
(2) the text of the proposal or business (including the text of any
resolutions proposed for consideration and, if applicable, the text of any proposed amendment to these bylaws or the Corporation’s certificate of incorporation);
(3) the reasons for conducting such business at the annual
meeting;
(4) any material interest in such business of such stockholder
giving the notice and the beneficial owner, if any, on whose behalf the proposal is made, and their respective affiliates and associates, or others acting in concert with them; and
(5) a description of all agreements, arrangements and understandings
between such stockholder and the beneficial owner, if any, on whose behalf the proposal is made, and their respective affiliates or associates or others acting in concert with them, and any other person or persons (including their names) in
connection with the proposal of such business by such stockholder; and
(C) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made:
(1) the name and address of such stockholder (as they appear on the
Corporation’s books), of such beneficial owner and of their respective affiliates or associates or others acting in concert with them;
(2) for each class or series, the number of shares of stock of the
Corporation that are, directly or indirectly, held of record or are beneficially owned by such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them;
(3) a description of any agreement, arrangement or understanding
between such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them, and any other person or persons (including, in each case, their names) in connection with the proposal of such
nomination or other business;
(4) a description of any agreement, arrangement or understanding
(including, regardless of the form of settlement, any derivative, long or short positions, profit interests, forwards, futures, swaps, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions and
borrowed or loaned shares) that has been entered into by or on behalf of such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them, with respect to the Corporation’s securities
(any of the foregoing, a “Derivative Instrument”), or any other agreement, arrangement or understanding that has been made the effect or intent of which is to create or mitigate loss to, manage risk or
benefit of share price changes for or increase or decrease the voting power of such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them, with respect to the Corporation’s
securities;
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(5) any rights to dividends on the Corporation’s securities owned
beneficially by such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them, that are separated or separable from the underlying security;
(6) any proportionate interest in the Corporation’s securities or
Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them, is a general partner
or, directly or indirectly, beneficially owns an interest in a general partner of such general or limited partnership;
(7) any performance-related fees (other than an asset-based fee)
that such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with, them is entitled to based on any increase or decrease in the value of the Corporation’s securities or Derivative
Instruments, including, without limitation, any such interests held by members of the immediate family of such persons sharing the same household;
(8) any significant equity interests or any Derivative Instruments
in any principal competitor of the Corporation that are held by such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them;
(9) any direct or indirect interest of such stockholder, such
beneficial owner or their respective affiliates or associates or others acting in concert with them, in any contract with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (in each case, including
any employment agreement, collective bargaining agreement or consulting agreement);
(10) a representation and undertaking that the stockholder is a
holder of record of stock of the Corporation as of the date of submission of the stockholder’s notice and intends to appear in person or by proxy at the meeting to bring such nomination or other business before the meeting;
(11) a representation and undertaking that such stockholder or any
such beneficial owner intends, or is part of a group that intends, to (x) deliver a proxy statement or form of proxy to holders of at least the percentage of the voting power of the Corporation’s then-outstanding stock required to approve or
adopt the proposal or to elect each such nominee; or (y) otherwise solicit proxies or votes from stockholders in support of such proposal or nomination;
(12) any other information relating to such stockholder, such
beneficial owner, or their respective affiliates or associates or others acting in concert with them, or director nominee or proposed business that, in each case, would be required to be disclosed in a proxy statement or other filing required
to be made in connection with the solicitation of proxies in support of such nominee (in a contested election of directors) or proposal pursuant to Section 14 of the 1934 Act; and
(13) such other information relating to any proposed item of
business as the Corporation may reasonably require to determine whether such proposed item of business is a proper matter for stockholder action.
(iv) In addition to the requirements of this Section 2.4,
to be timely, a stockholder’s notice (and any additional information submitted to the Corporation in connection therewith) must further be updated and supplemented (A) if necessary, so that the information provided or required to be provided in
such notice is true and correct as of the record date(s) for determining the stockholders entitled to notice of, and 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 (B) to provide any additional information that the Corporation may reasonably request. Such update and supplement or additional information, if applicable, must be received by the secretary at the principal executive offices of the
Corporation, in the case of a request for additional information, promptly following a request therefor, which response must be delivered not later than such reasonable time as is specified in any such request from the Corporation or, in the
case of any other update or supplement of any information, not later than five
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business days after the record date(s) for the meeting (in the case of any update
and supplement required to be made as of the record date(s)), 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). The
failure to timely provide such update, supplement or additional information shall result in the nomination or proposal no longer being eligible for consideration at the meeting.
(b) Special Meetings of
Stockholders. Special meetings of stockholders may be called only in accordance with the certificate of incorporation and Section 2.3(a) of these bylaws. Only such business will be conducted at a special meeting of stockholders as has
been brought before the special meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation’s notice of meeting (1) by or at the direction of the Board of Directors or any committee thereof or (2) provided that the Board of Directors has determined that directors shall be elected at such meeting by any
stockholder who (i) is a stockholder of record at the time of giving of the notice contemplated by this Section 2.4(b); (ii) is a stockholder of record on the record date for the determination of stockholders entitled to notice of the
special meeting; (iii) is a stockholder of record on the record date for the determination of stockholders entitled to vote at the special meeting; (iv) is a stockholder of record at the time of the special meeting; and (v) complies with the
procedures set forth in this Section 2.4(b). The number of nominees a stockholder may nominate for election at the special meeting (or in the case of a stockholder giving the notice on behalf of a beneficial owner, the number of
nominees a stockholder may nominate for election at the special meeting on behalf of such beneficial owner) shall not exceed the number of directors to be elected at such special meeting. For nominations to be properly brought by a stockholder
before a special meeting pursuant to this Section 2.4(b), the stockholder’s notice must be received by the secretary at the principal executive offices of the Corporation no earlier than 8:00 a.m., local time, on the 120th day prior to
the day of the special meeting and no later than 5:00 p.m., local time, on the later of the 90th day prior to the day of the special meeting or the 10th day following the day on which public announcement of the date of the special meeting at
which directors are to be elected was first made by the Corporation. In no event will any adjournment, rescheduling or postponement of a special meeting or the announcement thereof commence a new time period (or extend any time period) for the
giving of a stockholder’s notice. A stockholder’s notice to the secretary must comply with the applicable notice requirements of Section 2.4(a)(iii).
(c) Other Requirements.
(i) To be eligible to be a nominee by any stockholder for election
as a director of the Corporation, the proposed nominee must provide to the secretary, in accordance with the applicable time periods prescribed for delivery of notice under Section 2.4(a)(ii) or Section 2.4(b), as applicable:
(A) a signed and completed written questionnaire (in the form
provided by the secretary at the written request of the nominating stockholder, which form will be provided by the secretary within 10 days of receiving such request);
(B) a written representation and undertaking that, such nominee is
not, and will not become, a party to any voting agreement, arrangement, commitment, assurance or understanding with any person or entity as to how such nominee, if elected as a director, will vote on any issue (a “Voting Commitment”) that has not been disclosed to the Corporation or any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s
fiduciary duties under applicable law;
(C) a written representation and undertaking that, unless previously
disclosed to the Corporation, such nominee is not, and will not become, a party to any Third-Party Compensation Arrangement;
(D) a written representation and undertaking that, if elected as a
director, such nominee would be in compliance, and will continue to comply, with the Corporation’s corporate governance guidelines as disclosed on the Corporation’s website, as amended from time to time; and
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(E) a written representation and undertaking that such nominee,
if elected, intends to serve a full term on the Board of Directors.
(ii) At the request of the Board of Directors, any person nominated
by the Board of Directors for election as a director must furnish to the secretary the information that is required to be set forth in a stockholder’s notice of nomination that pertains to such nominee.
(iii) No person will be eligible to be nominated by a stockholder
for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.4. No business proposed by a stockholder will be conducted at a stockholder meeting except in accordance with
this Section 2.4.
(iv) The chairperson of the applicable meeting of stockholders
will, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws or that business was not properly brought before the meeting. If the chairperson of the
meeting should so determine, then the chairperson of the meeting will so declare to the meeting and the defective nomination will be disregarded or such business will not be transacted, as the case may be.
(v) Notwithstanding anything to the contrary in this Section
2.4, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear in person at the meeting to present a nomination or other proposed business, such nomination will be disregarded
or such proposed business will not be transacted, as the case may be, notwithstanding that proxies in respect of such nomination or business may have been received by the Corporation and counted for purposes of determining a quorum. For
purposes of this Section 2.4, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, director, manager or partner of such stockholder or must be 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, and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or
electronic transmission, at the meeting.
(vi) Without limiting this Section 2.4, a stockholder must
also comply with all applicable requirements of the 1934 Act with respect to the matters set forth in this Section 2.4, it being understood that (A) any references in these bylaws to the 1934 Act are not intended to, and will not, limit
any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Section 2.4; and (B) compliance with clause (D) of Section 2.4(a)(i) and with Section 2.4(b) are the
exclusive means for a stockholder to make nominations or submit other business (other than as provided in Section 2.4(c)(vii)).
(vii) Notwithstanding anything to the contrary in this Section
2.4, the notice requirements set forth in these bylaws with respect to the proposal of any business pursuant to this Section 2.4 will be deemed to be satisfied by a stockholder if (A) such stockholder has submitted a proposal to
the Corporation in compliance with Rule 14a-8 under the 1934 Act; and (B) such stockholder’s proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for the meeting of stockholders. Subject
to Rule 14a-8 and other applicable rules and regulations under the 1934 Act, nothing in these bylaws will be construed to permit any stockholder, or give any stockholder the right, to include or have disseminated or described in the
Corporation’s proxy statement any nomination of a director or any other business proposal.
2.5 NOTICE OF STOCKHOLDERS’ MEETINGS
Whenever stockholders are required or permitted to take any action at
a meeting, a notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, 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 meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided
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in the DGCL, the certificate of incorporation or these bylaws, the notice of any
meeting of stockholders shall be given 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.
2.6 QUORUM
The holders of a majority of the voting power of the capital stock of
the Corporation issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. Where a separate vote by a
class or series or classes or series is required, the holders of a majority of the voting power of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter, except as otherwise provided by law, the certificate of incorporation or these bylaws.
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) the stockholders so present (by the affirmative vote of the holders of a majority in voting power of the capital stock of the Corporation which are present in person or
represented by proxy and entitled to vote thereon) shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting in accordance with Section 2.7, until a quorum is present or represented.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, 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 the 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 stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall
fix a new record date for notice of such adjourned meeting in accordance with Section 213(a) of the DGCL and Section 2.11 of these bylaws, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at
such adjourned meeting as of the record date fixed for notice of such adjourned meeting.
2.8 ORGANIZATION; CONDUCT OF BUSINESS
The chairperson of any meeting of stockholders shall be designated by
the Board of Directors; in the absence of such designation, the chairperson of the Board of Directors, if any, or the chief executive officer (in the absence of the chairperson of the Board of Directors) or the president (in the absence of the
chairperson of the Board of Directors and the chief executive officer), or in their absence any other executive officer of the Corporation, shall serve as chairperson of the stockholder meeting. 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 chairperson of the meeting. The Board of Directors 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 of Directors, the chairperson of the 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 and to do all such acts as, in the judgment of such chairperson, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairperson of 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; (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 chairperson of 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 chairperson at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to
the meeting that a matter or business was not properly brought before the meeting and if such chairperson should so determine, such chairperson shall so declare to the meeting and any such matter or
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business not properly brought before the meeting shall not be transacted or
considered. Unless and to the extent determined by the Board of Directors or the chairperson of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and
other voting agreements) of the DGCL.
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 as of the applicable record date.
Unless a different or minimum vote is required by applicable law, the
certificate of incorporation, these bylaws, the rules or regulations of the stock exchange on which the Corporation’s securities are listed, or any law or regulation applicable to the Corporation or its securities, in which case such different
or minimum vote shall be the applicable vote on the matter, in all matters other than the election of directors, the affirmative vote of the holders of a majority of the voting power of the shares present in person or represented by proxy at
the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise required by law, the certificate of incorporation or these bylaws, directors shall be elected by a plurality of the votes cast.
Where a separate vote by a class or series or classes or series is required, in all matters other than the election of directors, the affirmative vote of the holders of a majority of the voting power of the outstanding shares of such class or
series or classes or series present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of such class or series or classes or series, unless a different or minimum vote is required by
applicable law, the certificate of incorporation, these bylaws, the rules or regulations of the stock exchange on which the Corporation’s securities are listed, or any law or regulation applicable to the Corporation or its securities, in which
case such different or minimum vote shall be the applicable vote on the matter.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Subject to the rights of holders of preferred stock of the
Corporation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent by such
stockholders.
2.11 RECORD DATES
In order that the Corporation may determine the stockholders entitled
to notice of any meeting of stockholders or any adjournment thereof, 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 shall not be more than 60 nor less than 10 days before the date of such meeting. If the Board of Directors 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 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 making such determination.
If no record date is fixed by the Board of Directors, 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.
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
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 with the provisions of Section 213 of the DGCL and this Section 2.11 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 of any rights or the stockholders 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
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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 of Directors adopts the resolution relating thereto.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders, or to
take corporate action by consent without a meeting, may authorize another person or persons to act for such stockholder by proxy 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 authorization of a person to act as a proxy may be documented, signed and delivered in accordance with Section 116 of the DGCL; provided
that such authorization shall set forth, or be delivered with information enabling the Corporation to determine, the identity of the stockholder granting such authorization. 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.
2.13 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, if the record date for determining the stockholders
entitled to vote is less than 10 days before the meeting date, 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: (a) 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 (b) during ordinary business hours, at the Corporation’s principal place of business. 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 a list of stockholders entitled to vote at the
meeting shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then such 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.
2.14 INSPECTORS OF ELECTION
Before any meeting of stockholders, the Corporation shall appoint an
inspector or inspectors of election to act at the meeting or its adjournment. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act.
Such inspectors shall:
(a) ascertain the number of shares outstanding and the voting power
of each;
(b) determine the shares represented at the meeting and the validity
of proxies and ballots;
(c) count all votes and ballots;
(d) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors; and
(e) certify their determination of the number of shares represented
at the meeting, and their count of all votes and ballots.
Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. If there are multiple inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
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ARTICLE III - DIRECTORS
3.1 POWERS
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, except as may be otherwise provided in the DGCL or the certificate of incorporation.
3.2 NUMBER OF DIRECTORS
The Board of Directors shall consist of one or more members, each of
whom shall be a natural person. The size of the Board of Directors will be fixed in the manner set forth in the certificate of incorporation. No reduction of the authorized number of directors shall have the effect of removing any director
before that 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, each
director, including a director elected to fill a vacancy or a newly created directorship, shall hold office until the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’s
earlier death, resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors.
The terms of directors shall be as set forth in the certificate of
incorporation.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon notice given in writing or
by electronic transmission to the chairperson of the Board of Directors, chief executive officer, president or secretary of the Corporation. A resignation is effective when the resignation is delivered unless the resignation specifies a later
effective date or an effective date determined upon the happening of an event or events. Unless otherwise provided in the certificate of incorporation or these bylaws, when one or more directors resign from the Board of Directors, effective at
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.
Any vacancies or newly created directorship on the Board of Directors
shall be filled in accordance with the certificate of incorporation.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The Board of Directors 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 may participate in a meeting of the Board of Directors 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 of Directors.
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 of Directors, the chief executive officer, the president, the secretary or a majority of the directors then in office; provided that
the person(s) authorized to call special meetings of the Board of Directors may authorize another person or persons to send notice of such meeting.
Notice of the time and place of special meetings shall be:
(a) delivered personally by hand, by courier or by telephone;
(b) sent by United States first-class mail, postage prepaid;
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(c) sent by facsimile;
(d) sent by electronic mail; or
(e) otherwise given by electronic transmission (as defined in
Section 232 of the DGCL),
directed to each director at that director’s address, telephone
number, facsimile number, electronic mail address or other contact for notice by 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, (iii) sent by electronic mail or (iv) otherwise given by electronic transmission, it shall be delivered, sent or otherwise directed to each director, as applicable, at least 24 hours before the time of the
holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The
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, unless required by statute.
3.8 QUORUM; VOTING
Unless otherwise provided in the certificate of incorporation, at all
meetings of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business. 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.
The affirmative vote of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws.
3.9 BOARD ACTION BY CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or
these bylaws, (a) 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 of Directors or committee, as the case may be,
consent thereto in writing or by electronic transmission; and (b) a consent may be documented, signed and delivered in any manner permitted by Section 116 of the DGCL. Any person (whether or not then a director) may provide, whether through
instruction to an agent or otherwise, that a consent to action will be effective at a future time (including a time determined upon the happening of an event), no later than 60 days after such instruction is given or such provision is made and
such consent shall be deemed to have been given for purposes of this Section 3.9 at such effective time so long as such person is then a director and did not revoke the consent prior to such time. Any such consent shall be revocable
prior to its becoming effective. After an action is taken, the consent or consents relating thereto shall be filed with the minutes of proceedings of the Board of Directors, or the committee or subcommittee thereof, in the same paper or
electronic form as the minutes are maintained.
3.10 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.
3.11 REMOVAL OF DIRECTORS
Any director or the entire Board of Directors may be removed from
office by stockholders of the Corporation in the manner specified in the certificate of incorporation and applicable law. 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.
3.12 BOARD MINUTES
The Board of Directors shall keep (or direct the secretary or
assistant secretary of the Corporation or another person to keep) regular minutes of its meetings.
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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 of Directors 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 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 that may require it; but no such
committee shall have the power or authority to (a) 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 (b) adopt, amend or repeal any bylaw of the Corporation.
4.2 SUBCOMMITTEES
Unless otherwise provided in the certificate of incorporation, these
bylaws or the resolutions of the Board of Directors designating the committee, 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.
4.3 COMMITTEE MINUTES
Each committee and subcommittee shall keep (or direct the secretary
or assistant secretary of the Corporation or another person to keep) regular minutes of its meetings.
4.4 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees and subcommittees shall be
governed by, and held and taken in accordance with, the provisions of:
(a) Section 3.5 (place of meetings and meetings by
telephone);
(b) Section 3.6 (regular meetings);
(c) Section 3.7 (special meetings and notice);
(d) Section 3.8 (quorum; voting);
(e) Section 3.9 (action without a meeting); and
(f) Section 7.4 (waiver of notice)
with such changes in the context of those bylaws as are necessary to
substitute the committee or subcommittee and its members for the Board of Directors and its members; provided, however, (i) the time and place of regular
meetings of committees or subcommittees may be determined either by resolution of the Board of Directors or by resolution of the committee or subcommittee; (ii) special meetings of committees or subcommittees may also be called by resolution of
the Board of Directors or the committee or the subcommittee; and (iii) notice of special meetings of committees and subcommittees shall also be given to all alternate members who shall have the right to attend all meetings of the committee or
subcommittee. The Board of Directors, or in the absence of any such action by the Board of Directors, the applicable committee or subcommittee, may adopt rules for the government of any committee or subcommittee not inconsistent with the
provisions of these bylaws.
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ARTICLE V - OFFICERS
5.1 OFFICERS
The officers of the Corporation shall include a president, a
treasurer and a secretary. The Corporation may also have, at the discretion of the Board of Directors, a chairperson of the Board of Directors, a vice chairperson of the Board of Directors, a chief executive officer, a chief financial officer
or 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.
5.2 APPOINTMENT OF OFFICERS
The Board of Directors 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, 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, in the absence of a chief executive officer, the president, to appoint, such other officers as the business of the Corporation may require. Each of such officers 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 the Board of Directors or, for the avoidance of doubt, any duly authorized committee or subcommittee thereof or by any officer who has been conferred such power of
removal.
Any officer may resign at any time by giving notice, in writing or by
electronic transmission, 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 by the Board of Directors or as provided in Section 5.3.
5.6 REPRESENTATION OF SECURITIES OF OTHER ENTITIES
The chairperson of the Board of Directors, the chief executive
officer, the president, any vice president, the treasurer, the secretary or assistant secretary of the Corporation or any other person authorized by the Board of Directors or the chief executive officer, the president or a vice president, is
authorized to vote, represent and exercise on behalf of the Corporation all rights incident to any and all shares or other securities of any other entity or entities, and all rights incident to any management authority conferred on the
Corporation in accordance with the governing documents of any entity or entities, standing in the name of the Corporation, including the right to act by written consent. 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 AUTHORITY AND DUTIES OF 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 designated from time to time by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board of Directors.
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ARTICLE VI - STOCK
6.1 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the Corporation. Unless otherwise provided by resolution of the Board of Directors, every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in
the name of, the Corporation by any two officers of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile 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 such person were such officer, transfer agent or registrar at the date of issue. The Corporation shall not have power to issue a certificate in bearer form.
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.
6.2 SPECIAL DESIGNATION ON 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 back of the certificate that the Corporation shall issue to represent such class or series of stock; 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 or back of the certificate that the Corporation shall issue
to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and 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. Within a reasonable time after the issuance or transfer of uncertificated stock, the registered owner thereof shall be
given a notice, in writing or by electronic transmission, containing the information required to be set forth or stated on certificates pursuant to this Section 6.2 or Sections 156, 202(a), 218(a) or 364 of the DGCL or with respect to
this Section 6.2 a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and 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. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated stock and the rights and
obligations of the holders of certificates representing stock of the same class and series shall be identical.
6.3 LOST CERTIFICATES
Except as provided in this Section 6.3, 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.
6.4 DIVIDENDS
The Board of Directors, subject to any restrictions contained in the
certificate of incorporation or applicable law, may declare and pay dividends upon the shares of the Corporation’s capital stock. Dividends may be paid in
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cash, in property, or in shares of the Corporation’s capital stock, subject to the
provisions of the certificate of incorporation. The Board of Directors 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.
6.5 TRANSFER OF STOCK
Transfers of record of shares of stock of the Corporation shall be
made only upon its books by the holders thereof, in person or by an attorney duly authorized, and, if such stock is certificated, upon the surrender of a certificate or certificates for a like number of shares, properly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer.
6.6 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 DGCL.
6.7 CERTAIN RESTRICTIONS ON TRANSFER
Without the prior written consent of the Corporation as approved by a
majority of the independent directors of the Corporation, and without limiting the rights of any party to the Amended and Restated Registration Rights Agreement, dated as of the date hereof, by and among the Corporation and the stockholders
party thereto (the “A&R Registration Rights Agreement”), neither any Restricted Transfer nor any public announcement of any intention to effect any Restricted Transfer of any Lock-Up Shares
Beneficially Owned or otherwise held by any Non-Electing Seller (or any Permitted Transferee thereof) may be made during the Lock-Up Period applicable to such Lock-Up Shares.
No Transfer of any shares of the Corporation’s stock may be made,
except in compliance with applicable federal and state securities laws.
To the extent shares of the Corporation’s stock are uncertificated,
the Corporation shall give notice of the restrictions set forth in this Section 6.7 in accordance with the DGCL.
During the Lock-Up Period applicable to any Non-Electing Seller (or
any Permitted Transferee thereof), any purported Transfer of Lock-Up Shares by such Non-Electing Seller (or such Permitted Transferee) other than in accordance with these Bylaws shall be null and void, and the Corporation shall refuse to
recognize any such Transfer for any purpose.
Notwithstanding the provisions set forth in this Section 6.7, if (A)
at least 120 days have elapsed since the Closing Date (as defined in the Business Combination Agreement) and (B) the Lock-Up Period is scheduled to end during a Blackout Period or within five Trading Days prior to a Blackout Period, the Lock-Up
Period shall end 10 Trading Days prior to the commencement of the Blackout Period (the “Blackout-Related Release”); provided that the Corporation shall announce
the date of the expected Blackout-Related Release through a major news service, or on a Form 8-K, at least two Trading Days in advance of the Blackout-Related Release; and provided further that the
Blackout-Related Release shall not occur unless the Corporation shall have publicly released its earnings results for the quarterly period during which the Closing (as defined in the Business Combination Agreement) occurred. For the avoidance
of doubt, in no event shall the Lock-Up Period end earlier than 120 days after the Closing Date pursuant to the Blackout-Related Release.
The foregoing notwithstanding, to the extent any Non-Electing Seller
(or any Permitted Transferee thereof that Beneficially Owns any Lock-Up Shares as a result of a Permitted Transfer) is granted a release or waiver from the restrictions contained in this Section 6.7 prior to the expiration of the
Lock-Up Period or any party under the Sponsor Holders Agreement, dated as of the date hereof, by and among the Corporation and the parties thereto (the “Sponsor Holders Agreement”) or the A&R
Registration Rights Agreement is granted a release or waiver from its restrictions on transfer of the Corporation’s securities under such agreement, then all Non-Electing Sellers (and any Permitted Transferee thereof that Beneficially Owns any
Lock-Up Shares as a result of a Permitted Transfer) shall be automatically granted a release or waiver from the restrictions contained in this Section 6.7 to the same extent, on substantially the same terms as and on a pro rata basis
with, such Non-Electing Seller (or any Permitted Transferee thereof that Beneficially Owns any Lock-Up Shares as a result of a Permitted Transfer) or Person under the Sponsor Holders Agreement or A&R Registration Rights, as applicable, to
which such release or waiver is granted.
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As used in this Section 6.7, the below terms shall have
the following meanings ascribed to them:
(a) “Affiliate” means
(i) with respect to any specified Person that is not a natural person, (A) any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person,
and (B) any corporation, trust, limited liability company, general or limited partnership or other entity advised or managed by, or under common control or management with, such Person (for the purposes of this definition, “control” (including,
with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise) and (ii) with respect to any natural person, any Member of the Immediate Family of such natural person, or any Person that is,
directly or indirectly, controlled by such specified natural person; provided that the Corporation and each of its subsidiaries shall be deemed not to be Affiliates of any Person.
(b) “Beneficially Own” has
the meaning set forth in Rule 13d-3 promulgated under the Exchange Act.
(c) “Blackout Period” means
a broadly applicable and regularly scheduled period during which trading in the Corporation’s securities would not be permitted under the Corporation’s insider trading policy.
(d) “Lock-Up Period” means
the period ending one hundred and eighty (180) days following the Closing Date.
(e) “Lock-Up Shares” means
shares of the Corporation’s stock held by a Non-Electing Seller or a Permitted Transferee thereof, issued (i) as consideration pursuant to that certain Business Combination Agreement (as it may be amended from time to time, the “Business Combination Agreement”), dated as of December 17, 2021, by and among the Corporation, L&F Acquisition Holdings, LLC, ZF Merger Sub, Inc., IDX Merger Sub, Inc., IDX Forward Merger Sub, LLC,
ZeroFox, Inc. (“ZF”), and ID Experts Holdings, Inc. (“IDX” and together with ZF, the “Prior Companies”) or (ii) to
directors, officers and employees of the Corporation or its subsidiaries upon the settlement or exercise of stock options or other equity awards outstanding as of immediately following the Closing (as defined in the Business Combination
Agreement) in respect of awards of the Prior Companies outstanding immediately prior to the Closing. For the avoidance of doubt, shares of the Corporation’s stock, which prior to the Domestication (as defined in the Business Combination
Agreement) were Class A ordinary shares, shares of the Corporation’s stock sold to the PIPE Investors (as defined in the Business Combination Agreement), shares of the Corporation’s stock issuable upon conversion of the Convertible Notes (as
defined in the Business Combination Agreement), shares acquired pursuant to open market purchases after the Closing, as well as any and all other shares of the Corporation’s stock held by any Person other than a Non-Electing Seller or a
Permitted Transferee thereof, are not Lock-Up Shares and such shares are not subject to any Lock-Up Period under these Bylaws.
(f) “Member of the Immediate Family”
means, with respect to any Person who is an individual, (i) each parent, spouse (but not including a former spouse or a spouse from whom such Person is legally separated) or child (including those adopted) of such individual and (ii) each
trustee, solely in his or her capacity as trustee, for a trust naming only one or more of the Persons listed in sub-clause (i) as beneficiaries.
(g) “Non-Electing Seller”
means any Person that (i) is a holder of Lock-Up Shares and (ii) did not execute a counterpart to the A&R Registration Rights Agreement agreeing to be party thereto.
(h) “Permitted Transfer”
means any Transfer (i) made to an Affiliate; (ii) pursuant to a bona fide gift or charitable contribution; (iii) by will or intestate succession upon the death of the stockholder; (iv) pursuant to a court order, qualified domestic relations
order, divorce settlement, divorce decree, separation agreement or settlement agreement related to the distribution of assets in connection with the dissolution of marriage or civil union; (v) in the case of a trust, to a trustor or beneficiary
of the trust or to the estate of a beneficiary of such trust; (vi) pro rata (or in accordance with the applicable organizational documents of the Person making a Transfer) to the direct or indirect partners, members or stockholders of a Person
or any related investment funds or vehicles controlled or managed by such Persons or their respective Affiliates; (vii) to a nominee or custodian of a Person to whom a Transfer would be permitted
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under clauses (i) through (vi) above; (viii) in connection with any legal,
regulatory or other order; (ix) to satisfy tax withholding obligations in connection with the exercise of options to purchase shares of the Corporation’s stock or the vesting of Corporation stock-based awards; (x) to the Corporation in
connection with the repurchase of any Person’s shares of the Corporation’s stock in connection with the termination of the stockholder’s employment with the Corporation pursuant to contractual agreements with the Corporation; (xi) made in
connection with the establishment of a trading plan pursuant to Rule 10b5-1 promulgated under the Exchange Act; provided, however, that such plan does not provide for the Transfer of Lock-Up Shares
during the Lock-Up Period; (xii) in payment on a “net exercise” or “cashless” basis of the exercise or purchase price with respect to the exercise of options to purchase shares of the Corporation’s stock; (xiii) in the event of the
Corporation’s completion of a liquidation, merger, share exchange or other similar transaction which results in all of its stockholders having the right to exchange their shares of stock for cash, securities or other property.
(i) “Permitted Transferee”
means, prior to the expiration of the Lock-Up Period, any Person to whom a Non-Electing Seller is permitted to Transfer shares of stock prior to the expiration of the Lock-Up Period pursuant to the definition of Permitted Transfer.
(j) “Person” means an
individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision
thereof.
(k) “Restricted Transfer”
means any Transfer other than a Permitted Transfer.
(l) “Trading Day” means a
day on which the New York Stock Exchange and the Nasdaq Stock Market are open for the buying and selling of securities.
(m) “Transfer” means, when
used as a noun, any voluntary or involuntary transfer, sale, pledge or hypothecation or other disposition by the transferor (whether by operation of law or otherwise) and, when used as a verb, the transferor voluntarily or involuntarily,
transfers, sells, pledges or hypothecates or otherwise disposes of (whether by operation of law or otherwise), including, in each case, (i) the establishment or increase of a put equivalent position or liquidation with respect to, or decrease
of a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934 (as may be amended, the “Exchange Act”) with respect to, any security or (ii) entry into any swap or
other arrangement that transfers to another Person, in whole or in part, any of the economic consequences of ownership of any security, whether any such transaction is to be settled by delivery of such securities, in cash or otherwise. A
Transfer shall be deemed to include any indirect voluntary or involuntary transfer, sale, pledge or hypothecation or other disposition that is effectuated for the purpose of circumventing the restrictions on Transfer set forth in Section
6.7 of these Bylaws. The terms “Transferee,” “Transferor,” “Transferred,” and other forms of the word “Transfer” shall have the correlative meanings.
6.8 REGISTERED STOCKHOLDERS
The Corporation:
(a) shall be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive dividends and notices and to vote as such owner; and
(b) 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.
ARTICLE VII - MANNER OF GIVING NOTICE AND WAIVER
7.1 NOTICE OF STOCKHOLDERS’ MEETINGS
Notice of any meeting of stockholders shall be given in the manner
set forth in the DGCL and these bylaws.
7.2 NOTICE TO STOCKHOLDERS SHARING AN ADDRESS
Except as otherwise prohibited under the DGCL, without limiting the
manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under the provisions of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a
single
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written notice to stockholders who share an address if consented to by the
stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any stockholder who fails to object in writing to the Corporation, within 60 days of having
been given written notice by the Corporation of its intention to send the single notice, shall be deemed to have consented to receiving such single written notice. This Section 7.2 shall not apply to Sections 164, 296, 311, 312 or 324
of the DGCL.
7.3 NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL
Whenever notice is required to be given, under the DGCL, the
certificate of incorporation or these bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a
license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly
given. In the event that the action taken by the Corporation is such as to require the filing of a certificate under the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons
entitled to receive notice except such persons with whom communication is unlawful.
7.4 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. 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.
ARTICLE VIII - INDEMNIFICATION
8.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY
PROCEEDINGS
Subject to the other provisions of this Article VIII, the Corporation
shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (a “Proceeding”) (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 corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such 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 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.
8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE
RIGHT OF THE CORPORATION
Subject to the other provisions of this Article VIII, the
Corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed Proceeding 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 corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with
the
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defense or settlement of such 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; 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 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 for such expenses which the Court of Chancery or such other court shall deem proper.
8.3 SUCCESSFUL DEFENSE
To the extent that a present or former director or officer (for
purposes of this Section 8.3 only, as such term is defined in Section 145(c)(1) of the DGCL) of the Corporation has been successful on the merits or otherwise in defense of any Proceeding described in Section 8.1 or Section
8.2, 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. The Corporation may indemnify
any other person who is not a present or former director or officer (as such term is defined in Section 145(c)(1) of the DGCL) of the Corporation against expenses (including attorneys’ fees) actually and reasonably incurred by such person to
the extent he or she has been successful on the merits or otherwise in defense of any Proceeding described in Section 8.1 or Section 8.2, or in defense of any claim, issue or matter therein.
8.4 INDEMNIFICATION OF OTHERS
Subject to the other provisions of this Article VIII, the
Corporation shall have power to indemnify its employees and agents, or any other persons, to the extent not prohibited by the DGCL or other applicable law. The Board of Directors shall have the power to delegate to any person or persons
identified in subsections (1) through (4) of Section 145(d) of the DGCL the determination of whether employees or agents shall be indemnified.
8.5 ADVANCED PAYMENT OF EXPENSES
Expenses (including attorneys’ fees) actually and reasonably incurred
by an officer or director of the Corporation in defending any Proceeding shall, to the fullest extent permitted by law, be paid by the Corporation in advance of the final disposition of such Proceeding upon receipt of a written request therefor
(together with documentation reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under this Article
VIII or the DGCL. Such expenses (including attorneys’ fees) actually and reasonably incurred by current or former directors and officers or other current or former employees and agents of the Corporation or by persons currently or
formerly serving at the request of the Corporation as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the
Corporation deems appropriate. The right to advancement of expenses shall not apply to any Proceeding (or any part of any Proceeding) for which indemnity is excluded pursuant to these bylaws, but shall apply to any Proceeding (or any part of
any Proceeding) referenced in Section 8.6(b) or 8.6(c) prior to a determination that the person is not entitled to be indemnified by the Corporation.
8.6 LIMITATION ON INDEMNIFICATION
Subject to the requirements in Section 8.3 and the DGCL, the
Corporation shall not be obligated to indemnify any person pursuant to this Article VIII in connection with any Proceeding (or any part of any Proceeding):
(a) for which payment has actually been received by or on behalf of
such person under any statute, insurance policy, contract, agreement or other indemnity or advancement provision, vote or otherwise, except with respect to any excess beyond the amount actually received under any statute, insurance policy,
contract, agreement, other indemnity or advancement provision, vote or otherwise;
(b) for an accounting or disgorgement of profits pursuant to Section
16(b) of the 1934 Act, or similar provisions of federal, state or local statutory law or common law, if such person is held liable therefor (including pursuant to any settlement arrangements);
(c) for any reimbursement of the Corporation by such person of any
bonus or other incentive-based or equity-based compensation or of any profits realized by such person from the sale of securities of the
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Corporation, as required in each case under the 1934 Act (including any such
reimbursements that arise from an accounting restatement of the Corporation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Corporation of
profits arising from the purchase and sale by such person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liable therefor (including pursuant to any settlement arrangements);
(d) initiated by such person, including any Proceeding (or any part
of any Proceeding) initiated by such person against the Corporation or its directors, officers, employees, agents or other indemnitees, unless (i) the Board of Directors authorized the Proceeding (or the relevant part of the Proceeding) prior
to its initiation, (ii) the Corporation provides the indemnification, in its sole discretion, pursuant to the powers vested in the Corporation under applicable law, (iii) otherwise required to be made under Section 8.7 or (iv) otherwise
required by applicable law; or
(e) if prohibited by applicable law.
8.7 DETERMINATION; CLAIM
If a claim for indemnification or advancement of expenses under this
Article VIII is not paid in full within 30 days after receipt by the Corporation of the written request therefor, the claimant shall be entitled to an adjudication by a court of competent jurisdiction of his or her entitlement to such
indemnification or advancement of expenses. The Corporation shall indemnify such person against any and all expenses that are actually and reasonably incurred by such person in connection with any action brought in accordance with this Section
8.7 for indemnification or advancement of expenses from the Corporation under this Article VIII, to the extent such person is successful in such action, and to the extent not prohibited by law. In any such suit, the Corporation shall,
to the fullest extent not prohibited by law, have the burden of proving that the claimant is not entitled to the requested indemnification or advancement of expenses.
8.8 NON-EXCLUSIVITY OF RIGHTS
The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII 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 or any statute, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office. The Corporation is specifically authorized to enter
into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advancement of expenses, to the fullest extent not prohibited by the DGCL or other applicable law.
8.9 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 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 to indemnify such person against
such liability under the provisions of the DGCL.
8.10 SURVIVAL
The rights to indemnification and advancement of expenses conferred
by this Article VIII shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
8.11 EFFECT OF REPEAL OR MODIFICATION
A right to indemnification or to advancement of expenses arising
under a provision of the certificate of incorporation or a bylaw shall not be eliminated or impaired by an amendment to or repeal or elimination of the certificate of incorporation or these bylaws after the occurrence of the act or omission
that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly
authorizes such elimination or impairment after such action or omission has occurred.
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8.12 CERTAIN DEFINITIONS
For purposes of this Article VIII, references to the “Company” shall include, in addition to the resulting company, any constituent company (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, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent company, or is or was serving at the request of
such constituent company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to
the resulting or surviving company as such person would have with respect to such constituent company if its separate existence had continued. For purposes of this Article VIII, references to “other
enterprises” shall include employee benefit plans; 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, officer,
employee or agent 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 VIII.
ARTICLE IX - GENERAL MATTERS
9.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
Except as otherwise provided by law, the certificate of incorporation
or these bylaws, the Board of Directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute any document or instrument in the name of and on behalf of the Corporation; such authority may be general
or confined to specific instances.
9.2 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.
9.3 SEAL
The Corporation may adopt a corporate seal, which shall be adopted
and which may be altered by the Board of Directors. The Corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
9.4 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, the plural number includes the singular, and the term “person” includes a corporation, partnership, limited liability company, joint venture, trust or other enterprise, and a natural person. Any reference in these bylaws to a section of the DGCL shall be deemed
to refer to such section as amended from time to time and any successor provisions thereto.
ARTICLE X - AMENDMENTS
These bylaws may be adopted, amended or repealed by the stockholders
entitled to vote; provided, however, that the affirmative vote of the holders of at least two-thirds of the total voting power of outstanding voting securities, voting together as a single class, shall be required for the stockholders of the
Corporation to alter, amend or repeal, or adopt any bylaw inconsistent with, the following provisions of these bylaws: Article II, Section 3.1, Section 3.2, Section 3.4, Section 3.11, Article VIII
or this Article X (including, without limitation, any such Article or Section as renumbered as a result of any amendment, alteration, change, repeal, or adoption of any other bylaw). The Board of Directors shall also have the power to
adopt, amend or repeal bylaws.
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FORM OF COMMON EQUITY SUBSCRIPTION AGREEMENT
L&F Acquisition Corp.
150 North Riverside Plaza, Suite 5200
Chicago, Illinois
Ladies and Gentlemen:
This Subscription Agreement (this “Subscription Agreement”) is
being entered into as of the date set forth on the signature page hereto, by and between L&F Acquisition Corp., a Cayman Islands exempted company, which shall be domesticated as a Delaware corporation prior to the closing of the Transaction
(as defined herein) (“SPAC”), and the undersigned investor (the “Investor”), in connection with the Business Combination Agreement, dated as of the date hereof (as may be amended, supplemented or otherwise modified from time to
time, the “Business Combination Agreement”), by and among SPAC, L&F Holdings, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of SPAC (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware
corporation and direct, wholly-owned subsidiary of L&F Holdings (“ZF Merger Sub”), IDX Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“IDX Merger Sub”), IDX Forward Merger
Sub, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F Holdings (“IDX Forward Merger Sub,” and together with ZF Merger Sub and IDX Forward Merger Sub, the “Merger Subs”), ZeroFOX, Inc., a
Delaware corporation (“ZF”), and ID Experts Holdings, Inc., a Delaware corporation (“IDX,” and together with ZF, the “Company Parties”), pursuant to which, among other things, (i) ZF Merger Sub shall be merged with and into
ZF (the “ZF Merger”), with ZF being the surviving entity in the ZF Merger and continuing (immediately following the ZF Merger) as a direct, wholly-owned subsidiary of L&F Holdings, (ii) IDX Merger Sub shall be merged with and into
IDX (the “IDX Merger”), with IDX being the surviving entity in the IDX Merger and continuing (immediately following the IDX Merger) as a direct, wholly-owned subsidiary of L&F Holdings (“Transitional IDX Entity”), and
(iii) Transitional IDX Entity shall be merged with and into IDX Forward Merger Sub (the “IDX Forward Merger,” and together with the ZF Merger and IDX Merger, the “Mergers”), with IDX Forward Merger Sub being the surviving entity
in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned subsidiary of L&F Holdings (the “Surviving IDX Entity”) and, after giving effect to such Mergers, the Company Parties
will become direct subsidiaries of L&F Holdings and indirect subsidiaries of SPAC, on the terms and subject to the conditions therein (the transactions contemplated by the Business Combination Agreement, including the Mergers, the “Transaction”).
In connection with the Transaction, SPAC is seeking commitments from interested investors to purchase, following the consummation of the Domestication (as defined below) and substantially concurrent with the closing of the
Transaction, shares of SPAC’s common stock, par value $0.0001 per share (the “Shares”), in a private placement for a purchase price of $10.00 per share (the “Per Share Purchase Price”). On or about the date of this Subscription
Agreement, SPAC is entering into subscription agreements (the “Other Subscription Agreements,” and together with the Subscription Agreement, the “Subscription Agreements”) with certain other investors (the “Other Investors,”
and together with the Investor, the “Investors”), pursuant to which the Investors have agreed to purchase on the closing date of the Transaction, inclusive of the Shares subscribed for by the Investor, an aggregate amount of up to
2,000,000 Shares, at the Per Share Purchase Price. The aggregate purchase price to be paid by the Investor for the subscribed Shares (as set forth on the signature page hereto) is referred to herein as the “Subscription Amount.”
Prior to the closing of the Transaction (and as more fully described
in the Business Combination Agreement), SPAC will domesticate as a Delaware corporation in accordance with Section 388 of the General Corporation Law of the State of Delaware and de-register as a Cayman Islands exempted company in accordance
with Part XII of the Cayman Islands Companies Act (As Revised) (the “Domestication”).
In connection therewith, and in consideration of the foregoing and
the mutual representations, warranties and covenants, and subject to the conditions, set forth herein, and intending to be legally bound hereby, each of the Investor and SPAC acknowledges and agrees as follows:
1. Subscription. The Investor hereby irrevocably subscribes
for and agrees to purchase from SPAC the number of Shares set forth on the signature page of this Subscription Agreement (the “Subject Shares”) on the terms and subject to the conditions provided for herein. The Investor acknowledges and
agrees that SPAC reserves the right to accept or reject the Investor’s subscription for the Subject Shares for any reason or for no
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reason, in whole or in part, at any time prior to its acceptance, and the same shall
be deemed to be accepted by SPAC only when this Subscription Agreement is signed by a duly authorized person by or on behalf of SPAC; SPAC may do so in counterpart form. The Investor acknowledges and agrees that, as a result of the
Domestication, the Subject Shares that will be purchased by the Investor and issued by SPAC pursuant to this Subscription Agreement shall be shares of common stock in a Delaware corporation (and not, for the avoidance of doubt, ordinary shares
in a Cayman Islands exempted company).
2. Closing. The closing of the sale of the Subject Shares
contemplated hereby (the “Closing”) is contingent upon the consummation of the Domestication and the substantially concurrent consummation of the Transaction. The Closing shall occur substantially concurrently with and be conditioned
upon the effectiveness of, the Transaction. Upon delivery of written notice from (or on behalf of) SPAC to the Investor (the “Closing Notice”), that SPAC reasonably expects all conditions to the closing of the Transaction to be
satisfied or waived on a date that is not less than five (5) business days from the date on which the Closing Notice is delivered to the Investor, the Investor shall deliver to SPAC, three (3) business days prior to the closing date specified
in the Closing Notice (the “Closing Date”), (i) the Subscription Amount by wire transfer of United States dollars in immediately available funds to the account(s) specified by SPAC in the Closing Notice[; provided, that, the Investor and
SPAC agree that any portion of the IDX Closing Cash Consideration to which the Investor is entitled in connection with the consummation of the Transaction (the “Investor SPAC Proceeds”) shall be reduced by the Investor’s Subscription
Amount and such reduction shall, up to the amount of the Investor SPAC Proceeds, be in lieu of the Investor’s delivery of the Subscription Amount pursuant to this clause (i) and the Investor shall only be required to deliver the amount, if any,
by wire transfer of United States dollars in immediately available funds pursuant to this clause (i) by which the Investor’s Subscription Amount exceeds the Investor SPAC Proceeds]1 / [; provided, that, each of the Investor and SPAC
agree that, in accordance with the terms of the Investor’s PIK Promissory Note, dated on or about the date hereof, with ZF, as payor, (the “ZF PIK Note”), any amounts due and owing to Investor as of the Closing in satisfaction of
ZF’s obligations for repayment of principal amounts (up to an amount equal to the Original Principal Amount (as defined in the ZF PIK Note)) under the Investor’s ZF PIK Note in connection with the consummation of the Transaction (the “Investor
PIK Note Payment”) shall be deemed satisfied by the issuance of the Subject Shares hereunder and such issuance in connection with the deemed satisfaction of ZF’s obligations for repayment of the principal amount ZF PIK Note shall, up to
the amount of the Investor PIK Note Payment, be in lieu of the Investor’s delivery of the Subscription Amount pursuant to this clause (i) and the Investor shall only be required to deliver the amount, if any, by wire transfer of United States
dollars in immediately available funds pursuant to this clause (i) by which the Investor’s Subscription Amount exceeds the Investor PIK Note Payment]2 and (ii) any other information that is reasonably requested in the Closing Notice
in order for the Subject Shares to be issued to the Investor, including, without limitation, the legal name of the person in whose name such Subject Shares are to be issued and a duly executed Internal Revenue Service Form W-9 or W-8, as
applicable. On the Closing Date, the Subject Shares shall be issued to the Investor as set forth on the signature page to this Subscription Agreement and subsequently such Subject Shares shall be registered in book entry form in the name of the
Investor on SPAC’s share register; provided, however, that the obligation to issue the Subject Shares to the Investor is contingent upon SPAC having received the Subscription Amount in full accordance with this Section 2.
This Subscription Agreement shall terminate and be of no further force or effect, without any liability to either party hereto, if the SPAC notifies the Investor that the SPAC has abandoned its plans to move forward with the Transaction. If the
Closing does not occur within three (3) business days following the Closing Date specified in the Closing Notice, SPAC shall promptly (but not later than one (1) business day thereafter) return the Subscription Amount in full to the Investor.
For purposes of this Subscription Agreement, “business day” shall mean a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.
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1
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Include only for IDX investors.
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2
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Include only for ZF investors.
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3. Closing Conditions.
a. The obligation of the parties hereto to consummate the purchase
and sale of the Subject Shares pursuant to this Subscription Agreement is subject to the satisfaction or waiver (if permitted by law) of the following conditions:
(i) no applicable governmental authority shall have enacted, issued,
promulgated, enforced or entered any judgment, order, law, rule or regulation (whether temporary, preliminary or permanent) which is then in effect and has the effect of making the consummation of the transactions contemplated hereby illegal or
otherwise restraining or prohibiting consummation of the transactions contemplated hereby; and
(ii) all conditions precedent to the closing of the Transaction
contained in the Business Combination Agreement shall have been satisfied (as determined by the parties to the Business Combination Agreement and other than those conditions under the Business Combination Agreement which, by their nature, are
to be fulfilled at the closing of the Transaction, including to the extent that any such condition is dependent upon the substantially concurrent consummation of the purchase and sale of the Subject Shares pursuant to this Subscription
Agreement) or waived according to the terms of the Business Combination Agreement.
b. The obligation of SPAC to consummate the issuance and sale of the
Subject Shares pursuant to this Subscription Agreement shall be subject to the conditions that (i) all representations and warranties of the Investor contained in this Subscription Agreement are true and correct in all material respects at and
as of the Closing Date, and consummation of the Closing shall constitute a reaffirmation by the Investor of each of the representations and warranties of the Investor contained in this Subscription Agreement as of the Closing Date; and (ii) all
obligations, covenants and agreements of the Investor required to be performed by it at or prior to the Closing Date shall have been performed in all material respects.
c. The obligation of the Investor to consummate the purchase of the
Subject Shares pursuant to this Subscription Agreement shall be subject to the conditions that (i) all representations and warranties of SPAC contained in this Subscription Agreement shall be true and correct in all material respects (other
than representations and warranties that are qualified as to materiality or Material Adverse Effect (as defined herein), which representations and warranties shall be true in all respects) at and as of the Closing Date, and consummation of the
Closing shall constitute a reaffirmation by SPAC of each of the representations and warranties of SPAC contained in this Subscription Agreement as of the Closing Date; and (ii) all obligations, covenants and agreements of SPAC required by the
Subscription Agreement to be performed by it at or prior to the Closing Date shall have been performed in all material respects.
4. Further Assurances. At or prior to the Closing Date, the
parties hereto shall execute and deliver, or cause to be executed and delivered, such additional documents and take such additional actions as may be practical and necessary in order to consummate the subscription as contemplated by this
Subscription Agreement.
5. SPAC Representations and Warranties. SPAC represents and
warrants to the Investor that:
a. SPAC is an exempted company duly incorporated, validly existing
and in good standing under the laws of the Cayman Islands (to the extent such concept exists in such jurisdiction). SPAC has all power (corporate or otherwise) and authority to own, lease and operate its properties and conduct its business as
presently conducted and to enter into, deliver and perform its obligations under this Subscription Agreement. As of the Closing Date, following the Domestication, SPAC will be duly incorporated, validly existing as a corporation and in good
standing under the laws of the State of Delaware.
b. As of the Closing Date, the Subject Shares will be duly
authorized and, when issued and delivered to the Investor against full payment therefor in accordance with the terms of this Subscription Agreement, the Subject Shares will be validly issued, fully paid and non-assessable and will not have been
issued in violation of or subject to any preemptive or similar rights created under SPAC’s certificate of incorporation (as adopted in connection with the Domestication) or under the General Corporation Law of the State of Delaware.
c. This Subscription Agreement has been duly authorized, executed
and delivered by SPAC and, assuming that this Subscription Agreement constitutes the valid and binding agreement of the Investor, this
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Subscription Agreement is enforceable against SPAC in accordance with its terms,
except as may be limited or otherwise affected by (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other laws relating to or affecting the rights of creditors generally, or (ii) principles of equity, whether
considered at law or equity.
d. The issuance and sale of the Subject Shares and the compliance by
SPAC with all of the provisions of this Subscription Agreement and the consummation of the transactions contemplated herein will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of SPAC or any of its subsidiaries pursuant to the terms of (i) any indenture, mortgage, deed of trust, loan agreement, lease,
license or other agreement or instrument to which SPAC or any of its subsidiaries is a party or by which SPAC or any of its subsidiaries is bound or to which any of the property or assets of SPAC is subject that would reasonably be expected to
materially affect the validity of the Subject Shares or the legal authority of SPAC to timely comply in all material respects with the terms of this Subscription Agreement (a “Material Adverse Effect”); (ii) result in any violation of
the provisions of the organizational documents of SPAC after giving effect to the Domestication; or (iii) result in any violation of any statute or any judgment, order, rule or regulation of any court or governmental agency or body, domestic or
foreign, having jurisdiction over SPAC or any of its properties that would reasonably be expected to have a Material Adverse Effect or materially affect the validity of the Shares or the legal authority of SPAC to timely comply in all material
respects with this Subscription Agreement.
e. As of their respective dates, all reports (the “SEC Reports”)
required to be filed by SPAC with the U.S. Securities and Exchange Commission (the “SEC”) have been filed, and SPAC has complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the “Securities
Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations of the SEC promulgated thereunder, and none of the SEC Reports, when filed or, if amended prior to the date of this
Subscription Agreement, as of the date of such amendment with respect to those disclosures that are amended, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Each Investor acknowledges that (i) the Staff of the SEC issued the Staff Statement on Accounting and Reporting Considerations
for Warrants Issued by Special Purpose Acquisition Companies on April 12, 2021 (together with any subsequent guidance, statements or interpretations issued by the SEC or the Staff relating thereto or to other accounting matters related to
initial public offering securities or expenses, the “Statement”), (ii) based on its review of the Statement, on May 28, 2021, SPAC filed Amendment No. 1 to its annual report on Form 10-K/A (the “Restatement”) to amend and restate
its annual report on Form 10-K as of and for the period ended December 31, 2020, that it originally filed with the SEC on March 30, 2021 and (iii) any restatement, revision or other modification of the SEC Reports, including, without
limitation, the Restatement, or any changes to historical accounting policies of SPAC in connection with any order, directive, guideline, comment or recommendation from the SEC that is applicable to SPAC, including, without limitation, arising
from or relating to SPAC’s review of the Statement shall be deemed not material for purposes of this Subscription Agreement, including for purposes of Section 5(d), this Section 5(e), and Sections 6(e) and 6(g),
below.
f. Other than the Other Subscription Agreements, the Business
Combination Agreement, any other subscription agreement consistent with the same terms herein and any other agreement expressly contemplated by the Business Combination Agreement or described in the SEC Reports, SPAC has not entered into any
side letter or similar agreement with any investor in connection with such investor’s direct or indirect investment in SPAC (other than any side letter or similar agreement relating to the transfer to any investor of (i) securities of SPAC by
existing securityholders of SPAC, which may be effectuated as a forfeiture to SPAC and reissuance, or (ii) securities to be issued to the direct or indirect securityholders of the Company Parties pursuant to the Business Combination Agreement).
No Other Subscription Agreement includes terms and conditions that are materially more advantageous to any such Other Investor than Investor hereunder, and no Other Subscription Agreements have been amended in any material respect following the
date of this Subscription Agreement.
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g. Assuming the accuracy of the Investor’s representations and
warranties set forth in Section 6 of this Subscription Agreement, no registration under the Securities Act is required for the offer and sale of the Subject Shares by SPAC to the Investor hereunder. Neither the Subject Shares nor the
Shares subject to the Other Subscription Agreements (i) were offered by any form of general solicitation or general advertising and (ii) are being offered in a manner involving a public offering under, or in a distribution in violation of, the
Securities Act, or any state securities laws.
h. Except for such matters as have not had and would not be
reasonably likely to have a Material Adverse Effect or have a material adverse effect on SPAC’s ability to consummate the transactions contemplated hereby, including the issuance and sale of the Subject Shares, as of the date hereof, there is
no (i) suit, action, proceeding or arbitration before a governmental authority or arbitrator pending, or, to the knowledge of SPAC, threatened in writing against SPAC or (ii) judgment, decree, injunction, ruling or order of any governmental
authority or arbitrator outstanding against SPAC.
i. Assuming the accuracy of the representations and warranties of
the Investors, SPAC is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority, self-regulatory
organization (including NASDAQ or other person in connection with the execution, delivery and performance of this Subscription Agreement (including, without limitation, the issuance of the Subject Shares)), other than (i) filings required by
applicable state securities laws, (ii) those required by NASDAQ, including with respect to obtaining stockholder approval and (iii) the failure of which to obtain would not be reasonably expected to have a Material Adverse Effect or have a
material adverse effect on SPAC’s ability to consummate the transactions contemplated hereby, including the issuance and sale of the Subject Shares.
j. No broker or finder is entitled to any brokerage or finder’s fee
or commission from SPAC solely in connection with the sale of the Subject Shares to the Investors.
6. Investor Representations and Warranties. The Investor
represents and warrants to SPAC that:
a. The Investor, or each of the funds managed by or affiliated with
the Investor for which the Investor is acting as nominee, as applicable, (i) is a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act), a “qualified purchaser” (as defined in Section 2(a)(51) of the Investment
Company Act) or an institutional “accredited investor” (within the meaning of Rule 501(a)(1), (2), (3), (7), (8), (9), (12) or (13) of Regulation D under the Securities Act), in each case, satisfying the applicable requirements set forth on Schedule
A hereto, (ii) is acquiring the Subject Shares only for his, her or its own account and not for the account of others, or if the Investor is subscribing for the Subject Shares as a fiduciary or agent for one or more investor accounts,
each owner of such account is a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act) or “accredited investor” (within the meaning of Rule 501(a) under the Securities Act) and satisfies the applicable requirements
set forth on Schedule A hereto, the Investor has full investment discretion with respect to each such account, and has the full power and authority to make the acknowledgements, representations and agreements herein on behalf of each owner of
each such account, and (iii) is not acquiring the Subject Shares with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act or any securities laws of the United States or any other
jurisdiction. The Investor has completed Schedule A following the signature page hereto and the information contained therein is accurate and complete. The Investor is not an entity formed for the specific purpose of acquiring the
Subject Shares, unless such newly formed entity is an entity in which all of the investors are institutional accredited investors, and is an “institutional account” as defined by FINRA Rule 4512(c). The Investor further acknowledges that it is
aware that the sale to it is being made in reliance on a private placement exempt from registration under the Securities Act and is acquiring the Subject Shares for its own account or for an account over which it exercises sole discretion for
another qualified institutional buyer or accredited investor.
b. The Investor (i) is an institutional account as defined in FINRA
Rule 4512(c), (ii) is a sophisticated investor, experienced in investing in private equity transactions and capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies
involving a
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security or securities and (iii) has exercised independent judgment in evaluating
its participation in the purchase of the Subject Shares. Accordingly, the Investor understands that the offering meets (A) the exemptions from filing under FINRA Rule 5123(b)(1)(A) and (B) the institutional customer exemption under FINRA Rule
2111(b).
c. The Investor acknowledges and agrees that the Subject Shares are
being offered in a transaction not involving any public offering within the meaning of the Securities Act and that the Subject Shares have not been registered under the Securities Act or any other applicable securities laws. The Investor
acknowledges and agrees that the Subject Shares are being offered for resale in transactions not requiring registration under the Securities Act, and unless so registered, may not be offered, resold, transferred, pledged or otherwise disposed
of by the Investor absent an effective registration statement under the Securities Act except in compliance with the registration requirements of the Securities Act or any other applicable securities laws, pursuant to any exemption therefrom or
in a transaction not subject thereto. The Investor acknowledges and agrees that the Subject Shares will be subject to transfer restrictions and, as a result of these transfer restrictions, the Investor may not be able to readily offer, resell,
transfer, pledge or otherwise dispose of the Subject Shares and may be required to bear the financial risk of an investment in the Subject Shares for an indefinite period of time. The Investor acknowledges and agrees that the Subject Shares
will not be eligible for offer, resale, transfer, pledge or disposition pursuant to Rule 144 promulgated under the Securities Act until at least one year from date that the SPAC files a Current Report on Form 8-K following the Closing Date that
includes the “Form 10” information required under applicable SEC rules and regulations. The Investor acknowledges and agrees that it has been advised to consult legal counsel and tax and accounting advisors prior to making any offer, resale,
transfer, pledge or disposition of any of the Subject Shares.
d. The Investor acknowledges and agrees that the Investor is
purchasing the Subject Shares directly from SPAC. The Investor further acknowledges that there have not been, and the Investor hereby agrees that it is not relying on, any representations, warranties, covenants and agreements made to the
Investor by or on behalf of SPAC and the Company Parties, any of their respective affiliates or any control persons, officers, directors, employees, partners, agents or representatives of any of the foregoing or any other person or entity,
expressly or by implication, other than those representations, warranties, covenants and agreements of SPAC expressly set forth in Section 5 of this Subscription Agreement.
e. The Investor’s acquisition and holding of the Subject Shares will
not constitute or result in a non-exempt prohibited transaction under Section 406 of the Employee Retirement Income Security Act of 1974, as amended, Section 4975 of the Internal Revenue Code of 1986, as amended, or any applicable similar law.
f. The Investor acknowledges and agrees that the Investor has
received access to, and has had an adequate opportunity to review, such information as the Investor deems necessary in order to make an investment decision with respect to the Subject Shares, including, with respect to SPAC, the Transaction and
the business of the Company Parties and their subsidiaries. Without limiting the generality of the foregoing, the Investor acknowledges that he, she or it has reviewed the SEC Reports and other information as the Investor has deemed necessary
to make an investment decision with respect to the Subject Shares. The Investor acknowledges and agrees that the Investor and the Investor’s professional advisor(s), if any, have had the full opportunity to ask such questions, receive such
answers and obtain such information as the Investor and such Investor’s professional advisor(s), if any, have deemed necessary to make an investment decision with respect to the Subject Shares, including but not limited to access to marketing
materials and a virtual data room containing information about the Company Parties and their financial condition, results of operations, business, properties, management and prospects sufficient, in the Investor’s judgment, to enable the
Investor to evaluate its investment. The Investor acknowledges that certain information provided by the Company Parties was based on projections, and such projections were prepared based on assumptions and estimates that are inherently
uncertain and are subject to a wide variety of significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the projections. The Investor further
acknowledges that he, she or it has reviewed or had the full opportunity to review all disclosure documents provided to such Investor in the offering of the Subject Shares and no statement or printed material which is contrary to such
disclosure documents has been made or given to the Investor by or on behalf of the SPAC or the Company Parties.
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g. The Investor became aware of this offering of the Subject
Shares solely by means of direct contact between the Investor and SPAC, the Company Parties or a representative of SPAC or the Company Parties, and the Subject Shares were offered to the Investor solely by direct contact between the Investor
and SPAC, the Company Parties or a representative of SPAC or the Company Parties. The Investor did not become aware of this offering of the Subject Shares, nor were the Subject Shares offered to the Investor, by any other means and none of the
SPAC, Company Parties or their respective representatives or any person acting on behalf of any of them acted as investment advisor, broker or dealer to the Investor. The Investor acknowledges that the Subject Shares (i) were not offered by any
form of general solicitation or general advertising and (ii) are not being offered in a manner involving a public offering under, or in a distribution in violation of, the Securities Act, or any state securities laws. The Investor acknowledges
that it is not relying upon, and has not relied upon, any statement, representation or warranty made by any person, firm or corporation (including, without limitation, SPAC, the Company Parties any of their respective affiliates or any control
persons, officers, directors, employees, partners, agents or representatives of any of the foregoing), other than the representations and warranties of SPAC contained in Section 5 of this Subscription Agreement, in making its investment
or decision to invest in SPAC.
h. The Investor acknowledges that it is aware that there are
substantial risks incident to the purchase and ownership of the Subject Shares, including but not limited to, those set forth in the SEC Reports. The Investor has such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of an investment in the Subject Shares, and the Investor has sought such accounting, legal and tax advice as the Investor has considered necessary to make an informed investment decision and the Investor has
made its own assessment and has satisfied itself concerning relevant tax and other economic considerations relative to its purchase of the Subject Shares. The Investor is able to sustain a complete loss on its investment in the Subject Shares,
has no need for liquidity with respect to its investment in the Subject Shares and has no reason to anticipate any change in circumstances, financial or otherwise, which may cause or require any sale or distribution of all or any part of the
Subject Shares.
i. Alone, or together with any professional advisor(s), the Investor
has adequately analyzed and fully considered the risks of an investment in the Subject Shares and determined that the Subject Shares are a suitable investment for the Investor and that the Investor is able at this time and in the foreseeable
future to bear the economic risk of a total loss of the Investor’s investment in SPAC. The Investor acknowledges specifically that a possibility of total loss exists.
j. In making its decision to purchase the Subject Shares, the
Investor has relied solely upon independent investigation made by the Investor.
k. The Investor acknowledges and agrees that no federal or state
agency has passed upon or endorsed the merits of the offering of the Shares or made any findings or determination as to the fairness of this investment.
l. The Investor, if not an individual, has been duly formed or
incorporated and is validly existing and is in good standing under the laws of its jurisdiction of formation or incorporation, with power and authority to enter into, deliver and perform its obligations under this Subscription Agreement.
m. The execution, delivery and performance by the Investor of this
Subscription Agreement and the transactions contemplated herein are within the powers of the Investor, have been duly authorized and will not constitute or result in a breach or default under or conflict with any order, ruling or regulation of
any court or other tribunal or of any governmental commission or agency, or any agreement or other undertaking, to which the Investor is a party or by which the Investor is bound, and, if the Investor is not an individual, will not violate any
provisions of the Investor’s organizational documents, including, without limitation, its incorporation or formation papers, bylaws, indenture of trust or partnership or operating agreement, as may be applicable. The signature on this
Subscription Agreement is genuine, and the signatory, if the Investor is an individual, has legal competence and capacity to execute the same or, if the Investor is not an individual, the signatory has been duly authorized to execute the same,
and, assuming that this Subscription Agreement constitutes the valid and binding obligation of SPAC, this Subscription Agreement constitutes a legal, valid and binding obligation of the Investor, enforceable against the Investor
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in accordance with its terms except as may be limited or otherwise affected by
(i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other laws relating to or affecting the rights of creditors generally, and (ii) principles of equity, whether considered at law or equity.
n. The Investor is not (i) a person or entity named on the List of
Specially Designated Nationals and Blocked Persons, the Executive Order 13599 List, the Foreign Sanctions Evaders List, or the Sectoral Sanctions Identification List, each of which is administered by the U.S. Treasury Department’s Office of
Foreign Assets Control (“OFAC”) (collectively, “OFAC Lists”), (ii) owned, directly or indirectly, or controlled by, or acting on behalf of, one or more persons that are named on the OFAC Lists; (iii) organized, incorporated,
established, located, resident or born in, or a citizen, national or the government, including any political subdivision, agency or instrumentality thereof, of, Cuba, Iran, North Korea, Syria, the Crimea region of Ukraine or any other country
or territory embargoed or subject to substantial trade restrictions by the United States, (iv) a Designated National as defined in the Cuban Assets Control Regulations, 31 C.F.R. Part 515, or (v) a non-U.S. shell bank or providing banking
services indirectly to a non-U.S. shell bank (each, a “Prohibited Investor”). The Investor agrees to provide law enforcement agencies, if requested thereby, such records as required by applicable law, provided that the Investor
is permitted to do so under applicable law. Investor represents that if it is a financial institution subject to the Bank Secrecy Act (31 U.S.C. section 5311 et seq.) (the “BSA”), as amended by the USA PATRIOT Act of 2001 (the “PATRIOT
Act”), and its implementing regulations (collectively, the “BSA/PATRIOT Act”), the Investor maintains policies and procedures reasonably designed to comply with applicable obligations under the BSA/PATRIOT Act. The Investor also
represents that, to the extent required, it maintains policies and procedures reasonably designed to ensure compliance with OFAC-administered sanctions programs, including for the screening of its investors against the OFAC sanctions programs,
including the OFAC Lists. The Investor further represents and warrants that, to the extent required by applicable law, the Investor maintains policies and procedures reasonably designed to ensure that the funds held by the Investor and used to
purchase the Subject Shares were legally derived and were not obtained, directly or indirectly, from a Prohibited Investor.
o. The Investor has or has commitments to have and, when required to
deliver payment to SPAC pursuant to Section 2 above, will have, sufficient funds to pay the Subscription Amount and consummate the purchase and sale of the Subject Shares pursuant to this Subscription Agreement.
p. As of the date hereof, the Investor does not have, and during the
thirty (30) day period immediately prior to the date hereof the Investor has not entered into, any “put equivalent position” as such term is defined in Rule 16a-1 under the Exchange Act or short sale positions with respect to the securities of
the SPAC. Notwithstanding the foregoing, nothing in this Section 6(p) (i) shall apply to any entities under common management with the Investor (including the Investor’s controlled affiliates and/or affiliates) from entering into any
such transactions; and (ii) in the case of an Investor that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Investor’s assets, the representations set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Subject Shares covered by this Subscription Agreement.
q. The Investor is not currently (and at all times through Closing
will refrain from being or becoming) a member of a “group” (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision) acting for the purpose of acquiring, holding, voting or disposing of equity
securities of the SPAC (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than a group consisting solely of the Investor and its affiliates.
7. Registration Rights.
a. In the event that the Subject Shares are not registered in
connection with the consummation of the Transaction, SPAC agrees that, as soon as practicable (but in any case no later than thirty (30) calendar days after the Closing Date), it will file with the SEC (at its sole cost and expense) a
registration statement registering the resale of the Subject Shares (the “Registration Statement”), and it shall use its commercially reasonable efforts to have the Registration Statement declared effective as soon as practicable after
the filing thereof, but no later than the earlier of (i) ninety (90) calendar days after the filing thereof (or one hundred twenty (120) calendar days after the filing thereof if the SEC notifies SPAC that it will “review” the
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Registration Statement) and (ii) ten (10) business days after SPAC is notified
(orally or in writing, whichever is earlier) by the SEC that the Registration Statement will not be “reviewed” or will not be subject to further review. In connection with the foregoing, Investor shall not be required to execute any lock-up or
similar agreement or otherwise be subject to any contractual restriction on the ability to transfer the Subject Shares. SPAC agrees to cause such Registration Statement, or another shelf registration statement that includes the Subject Shares
to be sold pursuant to this Subscription Agreement, to remain effective until the earliest of (A) the second anniversary of the Closing, (B) the date on which the Investor ceases to hold any Subject Shares issued pursuant to this Subscription
Agreement, or (C) on the first date on which the Investor is able to sell all of its Subject Shares issued pursuant to this Subscription Agreement (or shares received in exchange therefor) under Rule 144 promulgated under the Securities Act (“Rule
144”) within ninety (90) days without the public information, volume or manner of sale limitations of such rule (such date, the “End Date”). Prior to the End Date, SPAC will use commercially reasonable efforts to qualify the Shares
for listing on the applicable stock exchange. The Investor agrees to disclose its ownership to SPAC upon request to assist it in making the determination with respect to Rule 144 described in clause (C), above. In no event shall
the Investor be identified as a statutory underwriter in the Registration Statement unless in response to a comment or request from the staff of the SEC or another regulatory agency; provided, that if the SEC requests that the Investor
be identified as a statutory underwriter in the Registration Statement, the Investor will have an opportunity to withdraw its Shares from the Registration Statement. Notwithstanding the foregoing, if the SEC prevents SPAC from including any or
all of the Shares proposed to be registered under the Registration Statement due to limitations on the use of Rule 415 of the Securities Act for the resale of the Shares by the applicable shareholders or otherwise, such Registration Statement
shall register for resale such number of Shares which is equal to the maximum number of Shares as is permitted by the SEC. In such event, the number of Shares to be registered for each selling shareholder named in the Registration Statement
shall be reduced pro rata among all such selling shareholders. SPAC may amend the Registration Statement so as to convert the Registration Statement to a Registration Statement on Form S-3 at such time after SPAC becomes eligible to use such
Form S-3. The Investor acknowledges and agrees that SPAC may delay or postpone the effectiveness of the Registration Statement, and from time to time require the Investor not to sell under the Registration Statement or to suspend the use of any
such registration statement if it determines that in order for such registration statement not to contain a material misstatement or omission, an amendment thereto would be needed to include information that would at that time not otherwise be
required in a current, quarterly, or annual report under the Exchange Act, provided, that, (I) SPAC shall not so delay filing or so suspend the use of the Registration Statement for a period of more than ninety (90) consecutive days or
more than a total of one hundred-twenty (120) calendar days in any three hundred sixty (360) day period and (II) SPAC shall use commercially reasonable efforts to make such Registration Statement available for the sale by the Investor of such
securities as soon as practicable thereafter. SPAC’s obligations to include the Subject Shares issued pursuant to this Subscription Agreement (or shares issued in exchange therefor) for resale in the Registration Statement are contingent upon
the Investor furnishing in writing to SPAC such information regarding the Investor, the securities of SPAC held by the Investor and the intended method of disposition of such Shares, which shall be limited to non-underwritten public offerings,
as shall be reasonably requested by SPAC to effect the registration of such Shares, and shall execute such documents in connection with such registration as SPAC may reasonably request that are customary of a selling shareholder in similar
situations. The Investor acknowledges and agrees that if it does not provide SPAC with such requested information, SPAC may not be able to register the Investor’s Shares for resale pursuant this Section 7.
b. SPAC will provide a draft of the Registration Statement to the
Investor for review at least two (2) business days in advance of filing the Registration Statement. In no event shall the Investor be identified as a statutory underwriter in the Registration Statement unless in response to a comment or request
from the staff of the SEC or another regulatory agency; provided, however, that if the SEC requests that the Investor be identified as a statutory underwriter in the Registration Statement, the Investor will have an opportunity to withdraw from
the Registration Statement.
c. Prior to the End Date, SPAC shall advise the Investor within five
(5) business days (at SPAC’s expense): (i) when a Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the SEC for amendments or supplements to any Registration Statement or the prospectus
included therein or for additional information; (iii) of the issuance by the SEC of any stop order
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suspending the effectiveness of any Registration Statement or the initiation of any
proceedings for such purpose; (iv) of the receipt by SPAC of any notification with respect to the suspension of the qualification of the Shares included therein for sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose; and (v) subject to the provisions in this Subscription Agreement, of the occurrence of any event that requires the making of any changes in any Registration Statement or prospectus so that, as of such date, the statements therein
are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading
(provided that any such notice pursuant to this Section 7(c)(iv) shall solely provide that the use of the Registration Statement or prospectus has been suspended without setting forth the reason for such suspension). SPAC shall use its
commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of any Registration Statement as soon as reasonably practicable. Upon the occurrence of any event contemplated in clauses (i) through (v) above,
except for such times as SPAC is permitted hereunder to suspend, and has suspended, the use of a prospectus forming part of a registration statement, SPAC shall use its commercially reasonable efforts to as soon as reasonably practicable
prepare a posteffective amendment to such registration statement or a supplement to the related prospectus, or file any other required document so that, as thereafter delivered to purchasers of the Shares included therein, such prospectus will
not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Investor agrees that it will
immediately discontinue offers and sales of the Shares using a Registration Statement until the Investor receives copies of a supplemental or amended prospectus that corrects the misstatement(s) or omission(s) referred to above in clause
(v) and receives notice that any post-effective amendment has become effective or unless otherwise notified by SPAC that it may resume such offers and sales. If so directed by SPAC, the Investor will deliver to SPAC or, in the Investor’s sole
discretion destroy, all copies of the prospectus covering the Shares in the Investor’s possession; provided, however, that this obligation to deliver or destroy all copies of the prospectus covering the Shares shall not apply (x) to the extent
the Investor is required to retain a copy of such prospectus in order to comply with applicable legal, regulatory, self-regulatory or professional requirements or in accordance with a bona fide pre-existing document retention policy or (y) to
copies stored electronically on archival servers as a result of automatic data back-up.
d. Indemnification
(i) SPAC agrees to indemnify and hold harmless, to the extent
permitted by law, the Investor, its directors, and officers, employees, and agents, and each person who controls the Investor (within the meaning of the Securities Act or the Exchange Act) and each affiliate of the Investor (within the meaning
of Rule 405 under the Securities Act) from and against any and all out-of-pocket losses, claims, damages, liabilities and expenses (including, without limitation, any reasonable and documented attorneys’ fees and expenses incurred in connection
with defending or investigating any such action or claim) caused by any untrue or alleged untrue statement of material fact contained in any Registration Statement, prospectus included in any Registration Statement or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained
in any information furnished in writing to SPAC by or on behalf of the Investor expressly for use therein.
(ii) The Investor agrees, severally and not jointly with any person
that is a party to the Other Subscription Agreements, to indemnify and hold harmless SPAC, its directors and officers and agents and each person who controls SPAC (within the meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses (including, without limitation, reasonable and documented attorneys’ fees) resulting from any untrue statement of material fact contained in the Registration Statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in
any information or affidavit so furnished in writing by or on behalf of the Investor expressly for use therein. In no event shall the liability of the Investor be greater in amount than the dollar amount of the net proceeds received by the
Investor upon the sale of the Shares purchased pursuant to this Subscription Agreement giving rise to such indemnification obligation.
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(iii) Any person entitled to indemnification herein shall (1)
give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any person’s right to indemnification hereunder to the extent
such failure has not prejudiced the indemnifying party) and (2) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party
shall not be subject to any liability for any settlement made by the indemnified party without its consent. An indemnifying party who elects not to assume the defense of a claim shall not be obligated to pay the fees and expenses of more than
one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of legal counsel to any indemnified party a conflict of interest exists between such indemnified party and any
other of such indemnified parties with respect to such claim. No indemnifying party shall, without the consent of the indemnified party, consent to the entry of any judgment or enter into any settlement which cannot be settled in all respects
by the payment of money (and such money is so paid by the indemnifying party pursuant to the terms of such settlement) or which settlement does not include as an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or litigation.
(iv) The indemnification provided for under this Subscription
Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director, employee, agent, affiliate or controlling person of such indemnified party and shall survive
the transfer of the Shares purchased pursuant to this Subscription Agreement.
(v) If the indemnification provided under this Section 7(d) from the
indemnifying party is unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities and expenses referred to herein, then the indemnifying party, in lieu of indemnifying the indemnified
party, shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities and expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party
and the indemnified party, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and indemnified party shall be determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, was made by, or relates to information supplied by or on behalf of, such indemnifying party or indemnified party, and
the indemnifying party’s and indemnified party’s relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses or other liabilities referred
to above shall be deemed to include, subject to the limitations set forth above, any legal or other fees, charges or expenses reasonably incurred by such party in connection with any investigation or proceeding. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution pursuant to this Section 7(d) from any person who was not guilty of such fraudulent misrepresentation. Any contribution pursuant to
this Section 7(d) by any seller of Shares shall be limited in amount to the amount of net proceeds received by such seller from the sale of such Shares pursuant to the Registration Statement. Notwithstanding anything to the contrary herein, in
no event will any party be liable for consequential, special, exemplary or punitive damages in connection with this Subscription Agreement.
8. Termination. This Subscription Agreement shall terminate
and be void and of no further force and effect, and all rights and obligations of the parties hereunder shall terminate without any further liability on the part of any party in respect thereof, upon the earlier to occur of (a) such date and
time as the Business Combination Agreement is terminated in accordance with its terms without the Transaction being consummated, (b) upon the mutual written agreement of each of the parties hereto to terminate this Subscription Agreement, or
(c) upon written notice by SPAC or the Investor to the other (provided that the party delivering such notice is not in material breach of its obligations under this Subscription Agreement) if, on the Closing Date of the Transaction, any of the
conditions to Closing of the other party set forth in Section 3 of this Subscription Agreement have not been satisfied as of the time required hereunder to be so satisfied or waived (to the extent a valid waiver is capable of being issued) by
the party entitled to grant such waiver and, as a result thereof, the transactions contemplated by this Subscription Agreement are not consummated, or (d) by written notice by SPAC or the Investor to the other at any time after 11:59 pm
prevailing Eastern time on the earlier of (i) the
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Termination Date (as defined in the Business Combination Agreement as in effect on
the date hereof) or (ii) August 23, 2022, in either case if the Closing has not occurred by such date other than as a result of a breach by the terminating party (the termination events described in clauses (a)–(e), above, collectively, the
“Termination Events”); provided that nothing herein will relieve any party from liability for any willful breach hereof prior to the time of termination, and each party will be entitled to any remedies at law or in equity to recover
losses, liabilities or damages arising from any such willful breach. SPAC shall notify the Investor in writing of the termination of the Business Combination Agreement promptly after the termination of such agreement. Upon the occurrence of any
Termination Event, this Subscription Agreement shall be void and of no further effect and any monies paid by the Investor to SPAC in connection herewith shall promptly (and in any event within one (1) business day) following the Termination
Event be returned to the Investor.
9. Trust Account Waiver. The Investor acknowledges that SPAC
is a blank check company with the powers and privileges to effect a merger, asset acquisition, reorganization or similar business combination involving SPAC and one or more businesses or assets. The Investor further acknowledges that, as
described in SPAC’s prospectus relating to its initial public offering dated November 18, 2020 (the “Prospectus”) available at www.sec.gov, substantially all of SPAC’s assets consist of the cash proceeds of SPAC’s initial public offering
and private placement of its securities, and substantially all of those proceeds have been deposited in a trust account (the “Trust Account”) for the benefit of SPAC, its public shareholders and the underwriters of SPAC’s initial public
offering. Except with respect to interest earned on the funds held in the Trust Account that may be released to SPAC to pay its tax obligations and to fund certain of its working capital requirements, the cash in the Trust Account may be
disbursed only for the purposes set forth in the Prospectus. For and in consideration of SPAC entering into this Subscription Agreement, the receipt and sufficiency of which are hereby acknowledged, the Investor, on behalf of itself and its
representatives hereby irrevocably waives any and all right, title and interest, or any claim of any kind it has or may have in the future arising out of this Subscription Agreement, in or to any monies held in the Trust Account (or
distributions therefrom to SPAC’s public shareholders or to the underwriter of SPAC’s initial public offering in respect of its deferred underwriting commissions held in the Trust Account), and agrees not to seek recourse against the Trust
Account as a result of, or arising out of, this Subscription Agreement; provided, however, that nothing in this Section 9 shall be deemed to limit the Investor’s right, title, interest or claim to any monies held in the
Trust Account by virtue of its record or beneficial ownership of Shares currently outstanding on the date hereof, pursuant to a validly exercised redemption right with respect to any such Shares, except to the extent that the Investor has
otherwise agreed with SPAC to not exercise such redemption right.
10. Miscellaneous.
a. Neither this Subscription Agreement nor any rights that may
accrue to the parties hereunder (other than the Shares acquired hereunder, if any) may be transferred or assigned without the prior written consent of each of the other parties hereto; provided that (i) this Subscription Agreement and
any of the Investor’s rights and obligations hereunder may be assigned to any fund, account, co-investment arrangement or other investment vehicle managed, advised, administered, arranged, sponsored or serviced by the same
investment manager as the Investor or by an affiliate (as defined in Rule 12b-2 under the Exchange Act) of such investment manager without the prior consent of SPAC and (ii) the Investor’s rights under Section 7 may be assigned to an
assignee or transferee of the Subject Shares; provided further that prior to such assignment any such assignee shall agree in writing to be bound by the terms hereof; provided, that no assignment pursuant to clause (i)
of this Section 10(a) shall relieve the Investor of its obligations hereunder unless otherwise agreed to in writing by the SPAC.
b. SPAC may request from the Investor such additional information as
SPAC may deem necessary to evaluate the eligibility of the Investor to acquire the Shares, and the Investor shall promptly provide such information as may reasonably be requested to the extent readily available; provided that SPAC
agrees to keep any such information provided by Investor confidential except (i) as necessary to include in any registration statement SPAC is required to file hereunder, (ii) as required by the federal securities law or pursuant to other
routine proceedings of regulatory authorities or (iii) to the extent such disclosure is required by law, at the request of the staff of the SEC or regulatory agency or under the regulations of any national securities exchange on which SPAC’s
securities are listed for trading. The Investor acknowledges that SPAC may file a copy of this Subscription Agreement (or a form of this Subscription Agreement) with the SEC as an exhibit to a periodic report or a registration statement of
SPAC.
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c. The Investor acknowledges that SPAC, the Company Parties and
others will rely on the acknowledgments, understandings, agreements, representations and warranties contained in this Subscription Agreement, including Schedule A hereto. Prior to the Closing, the Investor agrees to promptly notify SPAC
and the Company Parties in writing (including, for the avoidance of doubt, by email) if any of the acknowledgments, understandings, agreements, representations and warranties made by the Investor as set forth in Section 6 above are no
longer accurate in any material respect (other than those acknowledgments, understandings, agreements, representations and warranties qualified by materiality, in which case the Investor shall notify SPAC if they are no longer accurate in any
respect). The Investor acknowledges and agrees that each purchase by the Investor of Shares from SPAC will constitute a reaffirmation of the acknowledgments, understandings, agreements, representations and warranties herein (as modified by any
such notice) by the Investor as of the time of such purchase.
d. SPAC and the Company Parties are each entitled to rely upon this
Subscription Agreement and each is irrevocably authorized to produce this Subscription Agreement or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby;
provided, however, that the foregoing clause of this Section 10(d) shall not give the Company Parties any rights other than those expressly set forth herein and, without limiting the generality of the foregoing and for
the avoidance of doubt, in no event shall the Company Parties be entitled to rely on any of the representations and warranties of SPAC set forth in this Subscription Agreement.
e. All the agreements, representations and warranties made by each
party hereto in this Subscription Agreement shall survive the Closing until eighteen (18) months after the Closing Date.
f. This Subscription Agreement may not be amended, modified, waived
or terminated (other than pursuant to the terms of Section 8 above) except by an instrument in writing, signed by each of the parties hereto, provided, however, that no modification or waiver by SPAC of the provisions of
this Subscription Agreement shall be effective without the prior written consent of the Company Parties (other than modifications or waivers that are solely ministerial in nature or otherwise immaterial and do not affect any economic or any
other material term of this Subscription Agreement). No failure or delay of any party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the parties hereto and
third-party beneficiaries hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have hereunder. [The parties hereto expressly agree that ZF is an express third-party beneficiary of the provision in clause
(i) of Section 2 hereof.]5
g. This Subscription Agreement (including the schedule hereto)
constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, among the parties hereto, with respect to the subject matter hereof. Except as set forth in Section
8, Section 10(c), Section 10(d), Section 10(f), this Section 10(g), Section 10(l) and Section 11 with respect to the persons specifically referenced therein this Subscription Agreement shall not
confer any rights or remedies upon any person other than the parties hereto, and their respective successors and assigns, and the parties hereto acknowledge that such persons so referenced are express third party beneficiaries of this
Subscription Agreement with right of enforcement for the purposes of, and to the extent of, the rights granted to them, if any, pursuant to the applicable provisions.
h. Except as otherwise provided herein, this Subscription Agreement
shall be binding upon, and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives, and permitted assigns, and the agreements, representations, warranties, covenants and
acknowledgments contained herein shall be deemed to be made by, and be binding upon, such heirs, executors, administrators, successors, legal representatives and permitted assigns.
i. If any provision of this Subscription Agreement shall be
adjudicated by a court of competent jurisdiction to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Subscription Agreement shall not in any way be affected or impaired thereby
and shall continue in full force and effect.
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5
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Include only for ZF investors.
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j. This Subscription Agreement may be executed and delivered in
one (1) or more counterparts (including by electronic means, such as facsimile, in .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 by different
parties in separate counterparts, with the same effect as if all parties hereto had signed the same document. All counterparts so executed and delivered shall be construed together and shall constitute one and the same agreement.
k. Each party shall pay all of its own expenses in connection with
this Subscription Agreement and the transactions contemplated herein.
l. At any time, the SPAC may (i) extend the time for the performance
of any obligation or other act of the Investor, (ii) waive any inaccuracy in the representations and warranties of the Investor contained herein or in any document delivered by the Investor pursuant hereto and (iii) waive compliance with any
agreement of the Investor or any condition to its own obligations contained herein; provided, however, that no extension or waiver by SPAC of the provisions of this Subscription Agreement shall be effective without the prior
written consent of the Company Parties (other than extensions or waivers that are solely ministerial in nature or otherwise immaterial and do not affect any economic or any other material term of this Subscription Agreement). At any time, the
Investor may (A) extend the time for the performance of any obligation or other act of the SPAC, (B) waive any inaccuracy in the representations and warranties of the SPAC contained herein or in any document delivered by the SPAC pursuant
hereto and (C) waive compliance with any agreement of the SPAC or any condition to its own obligations contained herein. Any such extension or waiver shall only be valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
m. The parties hereto acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Subscription Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of this Subscription Agreement, without posting a bond or undertaking and without proof of damages, to enforce specifically the terms and provisions of this Subscription Agreement, this being in
addition to any other remedy to which such party is entitled at law, in equity, in contract, in tort or otherwise.
n. If any change in the number, type or classes of authorized shares
of SPAC (including the Shares), other than as contemplated by the Business Combination Agreement or any agreement contemplated by the Business Combination Agreement, shall occur between the date hereof and immediately prior to the Closing by
reason of reclassification, recapitalization, stock split (including reverse stock split) or combination, exchange or readjustment of shares, or any stock dividend, the number of Shares issued to the Investor shall be appropriately adjusted to
reflect such change.
o. This Subscription Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof) as to all matters (including any action, suit, litigation, arbitration, mediation,
claim, charge, complaint, inquiry, proceeding, hearing, audit, investigation or reviews by or before any governmental entity related hereto), including matters of validity, construction, effect, performance and remedies.
p. Each party hereto hereby, and any person asserting rights as a
third party beneficiary may do so only if he, she or it, irrevocably agrees that any action, suit or proceeding between or among the parties hereto, whether arising in contract, tort or otherwise, arising in connection with any disagreement,
dispute, controversy or claim arising out of or relating to this Subscription Agreement or any related document or any of the transactions contemplated hereby or thereby (“Legal Dispute”) shall be brought only to the exclusive
jurisdiction of the courts of the State of Delaware or the federal courts located in the State of Delaware, and each party hereto hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such
suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such
suit, action or proceeding that is brought in any such court has been brought in an inconvenient forum. During the period a Legal Dispute that is filed in accordance with this Section 10(p) is pending before a court, all actions, suits
or proceedings with respect
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to such Legal Dispute or any other Legal Dispute, including any counterclaim,
cross-claim or interpleader, shall be subject to the exclusive jurisdiction of such court. Each party hereto and any person asserting rights as a third party beneficiary may do so only if he, she or it hereby waives, and shall not assert as a
defense in any Legal Dispute, that (a) such party is not personally subject to the jurisdiction of the above named courts for any reason, (b) such action, suit or proceeding may not be brought or is not maintainable in such court, (c) such
party’s property is exempt or immune from execution, (d) such action, suit or proceeding is brought in an inconvenient forum, or (e) the venue of such action, suit or proceeding is improper. A final judgment in any action, suit or proceeding
described in this Section 10(p) following the expiration of any period permitted for appeal and subject to any stay during appeal shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by applicable laws. EACH OF THE PARTIES HERETO AND ANY PERSON ASSERTING RIGHTS AS A THIRD PARTY BENEFICIARY MAY DO SO ONLY IF HE, SHE OR IT IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY ON ANY CLAIMS OR
COUNTERCLAIMS ASSERTED IN ANY LEGAL DISPUTE RELATING TO THIS SUBSCRIPTION AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND FOR ANY COUNTERCLAIM RELATING THERETO. IF THE SUBJECT MATTER OF ANY SUCH LEGAL DISPUTE IS ONE IN WHICH THE WAIVER OF
JURY TRIAL IS PROHIBITED, NO PARTY HERETO NOR ANY PERSON ASSERTING RIGHTS AS A THIRD PARTY BENEFICIARY SHALL ASSERT IN SUCH LEGAL DISPUTE A NONCOMPULSORY COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SUBSCRIPTION AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. FURTHERMORE, NO PARTY HERETO NOR ANY PERSON ASSERTING RIGHTS AS A THIRD PARTY BENEFICIARY SHALL SEEK TO CONSOLIDATE ANY SUCH LEGAL DISPUTE WITH A SEPARATE ACTION OR OTHER LEGAL PROCEEDING IN WHICH A JURY TRIAL CANNOT BE
WAIVED.
q. Any notice or communication required or permitted hereunder to be
given to the Investor shall be in writing and either delivered personally, emailed, sent by overnight mail via a reputable overnight carrier, or sent by certified or registered mail, postage prepaid, to such address(es) or email address(es) set
forth on the signature page hereto, and shall be deemed to be given and received (i) when so delivered personally, (ii) when sent, with no mail undeliverable or other rejection notice, if sent by email, or (iii) three (3) business days after
the date of mailing to the address below or to such other address or addresses as such person may hereafter designate by notice given hereunder:
(i) if to the Investor, to such address or addresses set forth on
the signature page hereto;
(ii) if to SPAC, to:
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L&F Acquisition Corp.
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150 North Riverside Plaza, Suite 5200
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Chicago, Illinois
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Attn:
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Adam Gerchen, Chief Executive Officer
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Email:
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[***]
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with a required copy to (which copy shall not constitute notice):
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Kirkland & Ellis LLP
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601 Lexington Avenue
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New York, New York 10022
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Attn:
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Richard J. Campbell, P.C., Peter Seligson and Aslam A. Rawoof
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Email:
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[***]
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and
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Kirkland & Ellis LLP
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401 Congress Avenue
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Austin, Texas 78701
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Attn:
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John Kaercher, P.C.
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Email:
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[***]
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D-15
r. If Investor is a Massachusetts Business Trust, a copy of the
Declaration of Trust of Investor or any affiliate thereof is on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that the Subscription Agreement is executed on behalf of the trustees of Investor
or any affiliate thereof as trustees and not individually and that the obligations of the Subscription Agreement are not binding on any of the trustees or stockholders of Investor or any affiliate thereof individually but are binding only upon
Investor or any affiliate thereof and its assets and property.
11. Non-Reliance and Exculpation. . The Investor acknowledges
that it is not relying upon, and has not relied upon, any statement, representation or warranty made by any person, firm or corporation, other than the statements, representations and warranties of SPAC expressly contained in Section 5
of this Subscription Agreement, in making its investment or decision to invest in SPAC. The Investor acknowledges and agrees that none of (i) any Other Investor pursuant to any Other Subscription Agreement (including such Other Investor’s
respective affiliates or any control persons, officers, directors, employees, partners, agents or representatives of any of the foregoing), or (ii) any other party to the Business Combination Agreement or any Non-Party Affiliate (other than
SPAC with respect to the previous sentence), shall have any liability to the Investor, or to any Other Investor, pursuant to, arising out of or relating to this Subscription Agreement or any other subscription agreement related to the private
placement of the Shares, the negotiation hereof or thereof or its subject matter, or the transactions contemplated hereby or thereby, including, without limitation, with respect to any action heretofore or hereafter taken or omitted to be taken
by any of them in connection with the purchase of the Shares or with respect to any claim (whether in tort, contract, under federal or state securities laws or otherwise) for breach of this Subscription Agreement or in respect of any written or
oral representations made or alleged to be made in connection herewith, as expressly provided herein, or for any actual or alleged inaccuracies, misstatements or omissions with respect to any information or materials of any kind furnished by
SPAC, the Company Parties or any Non-Party Affiliate concerning SPAC, the Company Parties, any of their controlled affiliates, this Subscription Agreement or the transactions contemplated hereby. For purposes of this Subscription Agreement,
“Non-Party Affiliates” means each former, current or future officer, director, employee, partner, member, manager, direct or indirect equityholder or affiliate of SPAC, the Company Parties or any of SPAC’s or the Company Parties’ controlled
affiliates or any family member of the foregoing.
12. No Short Sales. The Investor agrees that, from the date
hereof until the Closing Date or the earlier termination of this Subscription Agreement, none of the Investor its controlled affiliates or any person or entity acting on behalf of the Investor or pursuant to the direction of the Investor will
(i) engage in any transaction or arrangement (including, without limitation, any short sale or the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or similar
instrument, including without limitation equity repurchase agreements and securities lending arrangements, however described or defined) that has, or is designed or intended to have, or that could reasonably be expected to lead to or result in
a sale, loan, pledge or other disposition or transfer by any person (whether the Investor or any other person) that is reasonably expected to have, the same economic effect, on a net basis, to any such person as a “short sale” (as defined in
Rule 200 promulgated under Regulation SHO under the Exchange Act) by such person of any economic consequences of ownership (excluding, for the avoidance of doubt, any consequences resulting solely from foreign exchange fluctuations), in whole
or in part, directly or indirectly, physically or synthetically, of any Shares or any securities of SPAC, whether any such transaction or arrangement (or instrument provided for thereunder) would be settled by delivery of securities of SPAC, in
cash or otherwise, or (ii) publicly disclose the intention to undertake any of the foregoing; provided, however, for the avoidance of doubt, the provisions of this Section 12 shall not apply to long sales (including
sales of securities held by the Investor, its controlled affiliates or any person or entity acting on behalf of, or at the direction of, the Investor, or any of its controlled affiliates prior to the date hereof or securities purchased by the
Investor, its controlled affiliates or any person or entity acting on behalf of, or at the direction of, the Investor, in the open market after the date hereof or the hedging of any such securities). Notwithstanding the foregoing, nothing in
this Section 12 (i) shall prohibit any entities under common management with the Investor that have no knowledge (constructive or otherwise) of this Subscription Agreement or of Investor’s participation in the transactions contemplated
hereby from entering into any of the transactions set forth in the first sentence of this Section 12; and (ii) in the case of an Investor that is a multi-managed investment vehicle whereby separate portfolio managers or desks manage
separate portions of
D-16
such Investor’s assets and the portfolio managers have no knowledge of the investment
decisions made by the portfolio managers managing other portions of such Investor’s assets, this Section 12 shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to
purchase the Shares covered by this Subscription Agreement.
13. Disclosure. SPAC shall, by 9:00 a.m., New York City time,
no later than on the first (1st) business day immediately following the date hereof, issue one or more press releases or file with the SEC a Current Report on Form 8-K (collectively, the “Disclosure Document”) disclosing all material terms of
the transactions contemplated hereby and by the Other Subscription Agreements and Business Combination Agreement, the Transaction and any other material, nonpublic information that SPAC has provided to the Investor at any time prior to the
filing of the Disclosure Document. Upon the issuance of the Disclosure Document, to the actual knowledge of SPAC, the Investor shall not be in possession of any material, non-public information received from SPAC or any of its officers,
directors, or employees or agents, and the Investor shall no longer be subject to any confidentiality or similar obligations under any current agreement, whether written or oral, with SPAC or any of its affiliates, relating to the transactions
contemplated by this Subscription Agreement. Notwithstanding anything in this Subscription Agreement to the contrary, SPAC shall not publicly disclose the name of the Investor or any of its affiliates or advisers, or include the name of the
Investor or any of its affiliates or advisers in any press release or in any filing with the SEC or any regulatory agency or trading market, without the prior written consent of the Investor, except (i) as required by the federal securities law
or pursuant to other routine proceedings of regulatory authorities, (ii) to the extent such disclosure is required by law, at the request of the staff of the SEC or regulatory agency or under the regulations of any national securities exchange
on which SPAC’s securities are listed for trading or (iii) to the extent such announcements or other communications contain only information previously disclosed in a public statement, press release or other communication previously approved in
accordance with this Section 13.
14. Separate Obligations. For ease of administration, this
single Subscription Agreement is being executed so as to enable each Investor identified on the signature page to enter into a Subscription Agreement, severally, but not jointly. The parties hereto agree that each Subscription Agreement shall
be treated as if it were a separate agreement with respect to each Investor listed on the signature page, as if each Investor entity had executed a separate Subscription Agreement naming only itself as the Investor, and no Investor listed on
the signature page shall have any liability under the Subscription Agreement for the obligations of any other Investor so listed. For the avoidance of doubt, all obligations of the Investor hereunder are separate and several from the
obligations of any Other Investor. The decision of the Investor to purchase the Subject Shares pursuant to this Subscription Agreement has been made by Investor independently of any Other Investor or any other investor and independently of any
information, materials, statements or opinions as to the business, financial condition or results of operations of the SPAC, the Company Parties, or any of their respective subsidiaries which may have been made or given by any Other Investor or
by any agent or employee of any Other Investor, and neither the Investor nor any of its agents or employees shall have any liability to any Other Investor (or any other person) relating to or arising from any such information, materials,
statements or opinions. Nothing contained herein or in any Other Subscription Agreement, and no action taken by the Investor or Other Investors pursuant hereto or thereto, shall be deemed to constitute the Investor and Other Investor as a
partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investor and the Other Investors are in any way acting in concert or as a group with respect to such obligations or the transactions
contemplated by this Subscription Agreement and the Other Subscription Agreements. The Investor acknowledges that no Other Investor has acted as agent for the Investor in connection with making its investment hereunder and no Other Investor
will be acting as agent of the Investor in connection with monitoring its investment in the Shares or enforcing its rights under this Subscription Agreement. The Investor shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Subscription Agreement, and it shall not be necessary for any Other Investor to be joined as an additional party in any proceeding for such purpose.
[SIGNATURE PAGES FOLLOW]
D-17
Confidential
IN WITNESS WHEREOF, the Investor has executed or caused this Subscription Agreement to be executed by its duly authorized representative as of the date set forth below.
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Name of Investor:
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State/Country of Formation or Domicile:
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By:
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Name:
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Title:
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Name in which Shares are to be registered (if different):
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Date: , 2021
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Investor’s EIN:
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Business Address-Street:
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Mailing Address-Street (if different):
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City, State, Zip:
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City, State, Zip:
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Attn:
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Attn:
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Telephone No.:
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Telephone No.:
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Facsimile No.:
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Facsimile No.:
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Email:
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Number of Shares subscribed for:
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Aggregate Subscription Amount: $
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Price Per Share: $10.00
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You must pay the Subscription Amount by wire transfer of United
States dollars in immediately available funds to the account specified by SPAC in the Closing Notice. To the extent the offering is oversubscribed the number of Shares received and the Subscription Amount may be less than the maximum number of
Shares subscribed for.
[Signature Page to Subscription Agreement]
D-18
SCHEDULE A
ELIGIBILITY REPRESENTATIONS OF THE INVESTOR
This Schedule must be completed by Investor and forms a part of the
Subscription Agreement to which it is attached. Capitalized terms used and not otherwise defined in this Schedule have the meanings given to them in the Subscription Agreement. The Investor must check the applicable box in either Section A,
Section B or Section C below.
A. QUALIFIED INSTITUTIONAL BUYER STATUS
(Please check the applicable subparagraphs):
☐ We are a “qualified institutional
buyer” (as defined in Rule 144A under the Securities Act (a “QIB”)).
** OR **
B. INSTITUTIONAL ACCREDITED INVESTOR STATUS
(Please check the applicable subparagraphs):
1. ☐ We are an “accredited
investor” (within the meaning of Rule 501(a) under the Securities Act or an entity in which all of the equity holders are accredited investors within the meaning of Rule 501(a) under the Securities Act), and have marked and initialed the
appropriate box below indicating the provision under which we qualify as an “accredited investor.”
2. ☐ We are not a natural
person.
Rule 501(a) under the Securities Act, in relevant part, states that an “accredited
investor” shall mean any person who comes within any of the below listed categories, or who the issuer reasonably believes comes within any of the below listed categories, at the time of the sale of the securities to that person. The Investor
has indicated, by marking and initialing the appropriate box below, the provision(s) below which apply to the Investor and under which the Investor accordingly qualifies as an “accredited investor.”
☐ Any bank, registered broker or
dealer, insurance company, registered investment company, business development company, or small business investment company;
☐ Any plan established and maintained
by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $5,000,000;
☐ Any employee benefit plan, within
the meaning of the Employee Retirement Income Security Act of 1974, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5,000,000;
☐ Any organization described in
Section 501(c)(3) of the Internal Revenue Code, corporation, similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
☐ Any trust with assets in excess of
$5,000,000, not formed to acquire the securities offered, whose purchase is directed by a sophisticated person; or
☐ Any entity in which all of the
equity owners are accredited investors meeting one or more of the above tests.
C. QUALIFIED PURCHASER STATUS
(Please check the applicable subparagraphs):
FOR INDIVIDUALS:
1. ☐ A natural person who owns
not less than U.S.$5,000,000 in investments. For this purpose, investments owned by the Investor include all investments that are the Investor’s separate property and any investments held jointly with the Investor’s spouse, as community
property or otherwise, but do not include investments that are the separate property of the Investor’s spouse unless the interest will be a joint investment of the Investor and the Investor’s spouse.
D-20
2. ☐ A natural person who
has discretionary investment authority with regard to at least U.S.$25,000,000 of investments, including for this purpose solely the Investor’s own investments and investments of third parties that are themselves accurately described by one or
more paragraphs of this Section C.
(Please check the applicable subparagraphs):
FOR ENTITIES:
3. ☐ A corporation,
partnership, limited liability company, trust or other organization that: (i)was not organized or reorganized and is not operated for the specific purpose of acquiring the interest or any other interest in SPAC, and less than 40% of the assets
of which will consist of interests in SPAC (calculated as of the time of the Investor’s execution of this Subscription Agreement); (ii)owns not less than U.S.$5,000,000 in investments; and (iii)is owned directly or indirectly solely by or for
two or more natural persons who are related as siblings or spouses (including former spouses), or direct lineal descendants by birth or adoption, spouses of such persons, the estates of such persons, or foundations, charitable organizations, or
trusts established by or for the benefit of such persons.
4. ☐ A trust: (i) that is not
described in paragraph (3) of this Section C; (ii) that was not organized or reorganized and is not operated for the specific purpose of acquiring the interest or any other interest in SPAC, and less than 40% of the assets of which will consist
of interests in SPAC (calculated as of the time of the Investor’s execution of this Subscription Agreement); and (iii) with respect to which each of the settlors and other contributors of assets, trustees, and other authorized decision makers
is a person described in paragraph (1), (2), (3) or (4) of this Section C.
5. ☐ An entity that: (i) was
not organized or reorganized and is not operated for the specific purpose of acquiring the interest or any other interest in SPAC, and less than 40% of the assets of which will consist of interests in SPAC (calculated as of the time of the
Investor’s execution of this Subscription Agreement); and (ii) has discretionary investment authority with regard to at least U.S.$25,000,000 of investments, whether for its own account or for the account of other persons that are themselves
accurately described by one or more other paragraphs of this Section C.
6. ☐ An entity, each and every
beneficial owner of which is a person accurately described by one or more of the foregoing paragraphs of this Section C or is itself an entity each and every beneficial owner of which is a person accurately described by one or more of the
foregoing paragraphs of this Section C. If the Investor is a qualified purchaser solely for the reason described in this paragraph 6, the Investor shall, at the request of the SPAC, submit to SPAC a separate
qualified purchaser questionnaire for each beneficial owner of the Investor’s securities.
This page should be completed by the Investor
and constitutes a part of the Subscription Agreement.
D-21
FORM OF CONVERTIBLE NOTES SUBSCRIPTION AGREEMENT
L&F Acquisition Corp.
150 North Riverside Plaza, Suite 5200
Chicago, Illinois
Ladies and Gentlemen:
This Subscription Agreement (this “Subscription Agreement”) is
being entered into as of the date set forth on the signature page hereto, by and between L&F Acquisition Corp., a Cayman Islands exempted company, which shall be domesticated as a Delaware corporation prior to the closing of the Transaction
(as defined herein) (“SPAC”), and the undersigned investor (the “Investor”), in connection with the Business Combination Agreement, dated as of the date hereof (as may be amended, supplemented or otherwise modified from time to
time, the “Business Combination Agreement”), by and among SPAC, L&F Holdings, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of SPAC (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware
corporation and direct, wholly-owned subsidiary of L&F Holdings (“ZF Merger Sub”), IDX Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“IDX Merger Sub”), IDX Forward Merger
Sub, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F Holdings (“IDX Forward Merger Sub,” and together with ZF Merger Sub and IDX Forward Merger Sub, the “Merger Subs”), ZeroFOX, Inc., a
Delaware corporation (“ZF”), and ID Experts Holdings, Inc., a Delaware corporation (“IDX,” and together with ZF, the “Company Parties”), pursuant to which, among other things, (i) ZF Merger Sub shall be merged with and into
ZF (the “ZF Merger”), with ZF being the surviving entity in the ZF Merger and continuing (immediately following the ZF Merger) as a direct, wholly-owned subsidiary of L&F Holdings, (ii) IDX Merger Sub shall be merged with and into
IDX (the “IDX Merger”), with IDX being the surviving entity in the IDX Merger and continuing (immediately following the IDX Merger) as a direct, wholly-owned subsidiary of L&F Holdings (“Transitional IDX Entity”), and
(iii) Transitional IDX Entity shall be merged with and into IDX Forward Merger Sub (the “IDX Forward Merger,” and together with the ZF Merger and IDX Merger, the “Mergers”), with IDX Forward Merger Sub being the surviving entity
in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned subsidiary of L&F Holdings (the “Surviving IDX Entity”) and, after giving effect to such Mergers, the Company Parties
will become direct subsidiaries of L&F Holdings and indirect subsidiaries of SPAC, on the terms and subject to the conditions therein (the transactions contemplated by the Business Combination Agreement, including the Mergers, the “Transaction”).
In connection with the Transaction, SPAC is seeking commitments from interested investors to purchase, following the consummation of the Domestication (as defined below) and substantially concurrent with, and contingent upon, the closing of
the Transaction, SPAC’s 7.00%/8.75% convertible senior cash/PIK toggle notes due 2025 (the “Notes”), in the principal amount set forth on the signature page hereto (the “Subscribed Notes”), for a purchase price equal to 100% of
the principal amount of the Subscribed Notes (the “Purchase Price”). On or about the date of this Subscription Agreement, SPAC is entering into subscription agreements for the Notes (the “Other Subscription Agreements,” and
together with the Subscription Agreement, the (“Subscription Agreements”) with certain other investors (the “Other Investors,” and together with the Investor, the “Investors”), pursuant to which the Investors have agreed to
purchase on the closing date of the Transaction, inclusive of the Notes subscribed for by the Investor, up to $150,000,000 in aggregate principal amount of the Notes. The aggregate Purchase Price to be paid by the Investor for the subscribed
Notes (as set forth on the signature page hereto) is referred to herein as the “Subscription Amount.”
Prior to the closing of the Transaction (and as more fully described
in the Business Combination Agreement), SPAC will domesticate as a Delaware corporation in accordance with Section 388 of the General Corporation Law of the State of Delaware and de-register as a Cayman Islands exempted company in accordance
with Part XII of the Cayman Islands Companies Act (As Revised) (the “Domestication”).
In connection with the issuance of the Notes on the closing date of
the Transaction, SPAC and Wilmington Trust, National Association, as trustee (the “Trustee”) will enter into an indenture in respect of the Notes in substantially the form attached hereto as Exhibit A (the “Indenture”).
E-1
In connection therewith, and in consideration of the foregoing and
the mutual representations, warranties and covenants, and subject to the conditions, set forth herein, and intending to be legally bound hereby, each of the Investor and SPAC acknowledges and agrees as follows:
1. Subscription. Subject to the terms and conditions hereof,
the Investor hereby subscribes for and agrees to purchase from SPAC, and SPAC hereby agrees to issue and sell to Investor, upon the payment of the Purchase Price, the Subscribed Notes on the terms and subject to the conditions provided for
herein (such subscription and issuance, the “Subscription”). The Investor acknowledges and agrees that, as a result of the Domestication, the Subscribed Notes that will be purchased by the Investor and issued by SPAC pursuant to this
Subscription Agreement shall be issued by SPAC as a Delaware corporation (and not, for the avoidance of doubt, by a Cayman Islands exempted company). SPAC hereby expressly covenants and agrees that the Purchase Price shall be used exclusively
for the Transaction, including as working capital for SPAC after the Closing.
2. Closing. The closing of the Subscription (the “Closing”) is
contingent upon the consummation of the Domestication and the substantially concurrent consummation of the Transaction. The Closing shall occur substantially concurrently with and be conditioned upon the effectiveness of, the Transaction. Upon
delivery of written notice from (or on behalf of) SPAC to the Investor (the “Closing Notice”), that SPAC reasonably expects all conditions to the closing of the Transaction to be satisfied or waived on a date that is not less than five
(5) business days from the date on which the Closing Notice is delivered to the Investor, the Investor shall deliver to an escrow agent mutually acceptable to SPAC and the Investor (pursuant to an escrow agreement (the “Escrow Agreement”) by
and among SPAC, the Investor and such escrow agent with terms acceptable to the Investor), three (3) business days prior to the closing date specified in the Closing Notice (the “Closing Date”), (i) the Subscription Amount by wire transfer of
United States dollars in immediately available funds to the account(s) specified by SPAC in the Closing Notice (which, for the avoidance of doubt, shall be the escrow account specified in the Escrow Agreement) and (ii) any other information
that is reasonably requested in the Closing Notice in order for the Subscribed Notes to be issued to the Investor through the DWAC procedures of the Depository Trust Company (“DTC”), including, without limitation, the legal name of the person
in whose name such Subscribed Notes are to be issued and a duly executed Internal Revenue Service Form W-9 or W-8, as applicable. On the Closing Date, SPAC shall deliver to Investor or its nominee the Subscribed Notes in book entry form through
the DWAC procedures of DTC free and clear of any liens or restrictions (other than those arising under the Indenture, this Subscription Agreement or applicable state or federal securities law); provided, however, that the obligation to issue
the Subscribed Notes to the Investor is contingent upon SPAC having received the Subscription Amount in full accordance with this Section 2. This Subscription Agreement shall terminate and be of no further force or effect, without any liability
to either party hereto, if SPAC notifies the Investor that SPAC has abandoned its plans to move forward with the Transaction. If the Closing does not occur within three (3) business days following the Closing Date specified in the Closing
Notice, SPAC shall promptly (but not later than one (1) business day thereafter) return the Subscription Amount in full to the Investor (and shall provide any notices required pursuant to the Escrow Agreement in respect of such return). For
purposes of this Subscription Agreement, “business day” shall mean a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.
3. Closing Conditions.
a. The obligation of the parties hereto to consummate the purchase
and sale of the Subscribed Notes pursuant to this Subscription Agreement is subject to the satisfaction or waiver (if permitted by law) of the following conditions:
(i) no suspension of the offering or sale or trading of SPAC common
stock, par value $0.0001 per share (the “Common Stock”) in any applicable jurisdiction, or initiation or threatening in writing of any proceedings for any such purposes, shall be deemed to have occurred and be continuing and the shares
of Common Stock underlying the Subscribed Notes (the “Underlying Shares”) shall have been approved for listing on the New York Stock Exchange (the “NYSE”) or the Nasdaq Capital Market (“NASDAQ”), subject to official notice of issuance;
(ii) no applicable governmental authority shall have enacted,
issued, promulgated, enforced or entered any judgment, order, law, rule or regulation (whether temporary, preliminary or permanent) which is then in effect and has the effect of making the consummation of the transactions contemplated
E-2
hereby illegal or otherwise restraining or prohibiting consummation of the
transactions contemplated hereby and no such governmental authority shall have instituted or threatened in writing a proceeding seeking to impose any such restraint or prohibition; and
(iii) all conditions precedent to the closing of the Transaction
contained in the Business Combination Agreement, including the approval of the Transaction by SPAC’s shareholders, shall have been satisfied (as determined by the parties to the Business Combination Agreement and other than those conditions
under the Business Combination Agreement which, by their nature, are to be fulfilled at the closing of the Transaction, including to the extent that any such condition is dependent upon the substantially concurrent consummation of the purchase
and sale of the Subscribed Notes pursuant to this Subscription Agreement) or waived according to the terms of the Business Combination Agreement and the closing of the Transaction shall occur concurrently with, or immediately following, the
Closing.
b. The obligation of SPAC to consummate the issuance and sale of the
Subscribed Notes pursuant to this Subscription Agreement shall be subject to the conditions that (i) all representations and warranties of the Investor contained in this Subscription Agreement are true and correct in all material respects at
and as of the Closing Date, and consummation of the Closing shall constitute a reaffirmation by the Investor of each of the representations and warranties of the Investor contained in this Subscription Agreement as of the Closing Date; (ii) all
obligations, covenants and agreements of the Investor required to be performed by it at or prior to the Closing Date shall have been performed in all respects except where the failure of such performance or compliance would not reasonably be
expected to prevent, materially delay or materially impair the ability of the SPAC to consummate the Closing and (iii) the Indenture shall have been executed by the applicable parties thereto.
c. The obligation of the Investor to consummate the purchase of the
Subscribed Notes pursuant to this Subscription Agreement shall be subject to the conditions that:
(i) all representations and warranties of SPAC contained in this
Subscription Agreement shall be true and correct in all material respects (other than representations and warranties that are qualified as to materiality or Material Adverse Effect (as defined herein), which representations and warranties shall
be true in all respects) at and as of the Closing Date, and consummation of the Closing shall constitute a reaffirmation by SPAC of each of the representations and warranties of SPAC contained in this Subscription Agreement as of the Closing
Date;
(ii) all obligations, covenants and agreements of SPAC required by
the Subscription Agreement to be performed by it at or prior to the Closing Date shall have been performed in all material respects;
(iii) there shall have been no amendment, waiver of modification to
the Business Combination Agreement that would reasonably be expected to have a material and adverse economic impact on the Notes without having received the Investor’s prior written consent (provided, for the avoidance of doubt, that any change
to the aggregate purchase consideration in respect of the Transaction or any change to the definition of Company Material Adverse Effect shall be deemed to have a material and adverse impact on the Notes);
(iv) After giving effect to the Transactions, including the
substantially concurrent consummation of the purchase and sale of the Subscribed Notes pursuant to this Subscription Agreement, the Available Closing Acquiror Cash (as defined in the Business Combination Agreement in effect on the date hereof)
shall be at least $170 million;
(v) there has not occurred a Material Adverse Effect with respect to
SPAC (as defined in Section 5(e), below) or an Acquiror Material Adverse Effect as defined in the Business Combination Agreement;
(vi) After giving effect to the Transactions, including the
substantially concurrent consummation of the purchase and sale of the Subscribed Notes pursuant to this Subscription Agreement, SPAC shall have no other Indebtedness for borrowed money other than the Notes in an aggregate principal amount not
to exceed $150.0 million and Indebtedness that is secured, senior in right of payment to the Notes or structurally senior to the Notes not to exceed $50.0 million;
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(vii) SPAC shall have paid, or provided for payment on the
closing funds flow, of all reasonable and documented out-of-pocket fees and expenses of the lead Investor incurred in connection with this Subscription Agreement, the Indenture and related documents including (without limitation) the reasonable
and documented fees and expenses of Stroock & Stroock & Lavan LLP, as counsel to the lead Investor, to the extent invoiced at least one (1) Business Day prior to the Closing Date;
(viii) SPAC shall have executed a registration rights agreement for
the benefit of the Investors, providing for customary demand, shelf and piggyback registration rights and otherwise in form and substance acceptable to the Investors and SPAC;
(ix) (x) there shall be no Default or Event of Default (each as
defined in the Indenture) under the Indenture as of the Closing Date on a pro forma basis after giving effect to the Transaction; and (y) (1) a waiver for each of (I) that certain Loan and Security Agreement, dated as of January 7, 2021, among
ZeroFox, Inc., as borrower, RBP Financial Services, LLC, ZeroFox Chile Holdings, LLC, ZeroFox India Holding, LLC and Vigilanteati, Inc., as guarantors, and Stifel Bank, as bank, (as amended, supplemented or modified from time to time, the “Stifel
Loan Agreement”), and (II) that certain Loan and Security Agreement, dated as of January 7, 2021, among ZeroFox, Inc., RBP Financial Services, LLC, ZeroFox Chile Holdings, LLC, ZeroFox India Holding, LLC and Vigilanteati, Inc.,
collectively as borrower, and Orix Growth Capital, LLC as lender (as amended, supplemented or modified from time to time, the “Orix Loan Agreement”), shall have been obtained to permit the incurrence of the Notes or (2) the indebtedness
outstanding under each of the Stifel Loan Agreement and the Orix Loan Agreement shall have been repaid in full;
(x) the Escrow Agreement shall have been executed by the
applicable parties thereto;
(xi) the Trustee shall have received all customary deliverables in
connection with the execution of the Indenture and authentication of the Notes, in each case in form and substance satisfactory to the Trustee;
(xii) all actions necessary to ensure that the Notes are eligible at
DTC on the Closing Date shall have been taken (provided such actions shall not result in changes to the economic terms of the Notes); and
(xiii) the Indenture shall have been executed by the applicable
parties thereto.
d. In no event may any party rely upon a failure of a condition in
this Section 3 to the extent such party’s breach of its obligations under this Agreement was a cause of such condition failing to be satisfied.
4. Further Assurances. At or prior to the Closing Date, the
parties hereto shall execute and deliver, or cause to be executed and delivered, such additional documents and take such additional actions as may be practical and necessary in order to consummate the subscription as contemplated by this
Subscription Agreement.
5. SPAC Representations and Warranties. For purposes of this
Section 5, the term “SPAC” shall refer to (x) with respect to the representations and warranties made as of the date hereof (except as provided in clause (y)), SPAC and (y) with respect to representations and warranties in subsections (f), (k),
(m) and (p) of this Section 5 made as of the date hereof and the representations and warranties made as of the Closing Date, the combined company after giving effect to the Transaction as of the Closing Date. SPAC represents and warrants to the
Investor that as of the date hereof and as of the Closing Date:
a. SPAC is an exempted company duly incorporated, validly existing
and in good standing under the laws of the Cayman Islands (to the extent such concept exists in such jurisdiction). SPAC has all power (corporate or otherwise) and authority to own, lease and operate its properties and conduct its business as
presently conducted and to enter into, deliver and perform its obligations under this Subscription Agreement. As of the Closing Date, following the Domestication, SPAC (i) will be duly incorporated, validly existing as a corporation and in good
standing under the laws of the State of Delaware, (ii) will have all power (corporate or otherwise) and authority to own, lease and operate its properties and conduct its business as presently conducted and to enter into, deliver and perform
its obligations under this Subscription Agreement and (iii) will be duly licensed or qualified to conduct its business and, if applicable, will be in good standing under the laws of each jurisdiction (other than its jurisdiction of
incorporation) in which the conduct of its business or the ownership of its properties or assets requires such license or qualification,
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except, with respect to the foregoing clause (iii), where the failure to be
in good standing would not reasonably be expected to have a Material Adverse Effect (as defined below). For purposes of this Subscription Agreement, a “Material Adverse Effect” means any change, event, circumstance, occurrence, effect,
development or state of facts (each an “Effect”) that, individually or in the aggregate, with any other change, event, circumstance, occurrence, effect, development or state of facts, either (a) has a material adverse effect on the
business, assets, operations, results of operations or financial condition of SPAC and its subsidiaries, taken as a whole, or (b) prevents or materially delays or materially impacts the ability of any of the SPAC, L&F Holdings or the Merger
Subs to consummate all or any of the Transactions or would reasonably be expected to have any such effect; provided, however, that none of the following, alone or in combination, shall be taken into account in determining
whether a Material Adverse Effect has occurred: (1) changes or proposed changes in applicable Law (as defined in the Business Combination Agreement), regulations or interpretations thereof or decisions by any governmental authority or
arbitrator after the date of this Subscription Agreement; (2) changes or proposed changes in United States generally accepted accounting principles, consistently applied (or any official interpretation thereof) after the date of this
Subscription Agreement; (3) any downturn in general economic conditions, including changes in the credit, debt, securities, financial, capital or reinsurance markets (including changes in interest or exchange rates, prices of any security or
market index or commodity or any disruption of such markets), in each case, in the United States or anywhere else in the world; (4) any earthquake, hurricane, tornado, pandemic or other natural or man-made disaster; (5) the taking of any action
expressly required by the Business Combination Agreement or this Subscription Agreement; (6) the announcement of the Business Combination Agreement or this Subscription Agreement or consummation of the Transactions; or (7) the consummation of
any Acquiror Shareholder Redemption (as defined in the Business Combination Agreement); provided, that, that any Effect referred to in clauses (1) through (4) immediately above shall be taken into account in determining whether a
Material Adverse Effect has occurred or could reasonably be expected to occur to the extent that such Effect has a disproportionate effect on SPAC compared to other participants in the industries in which SPAC conducts its businesses; provided,
further, that the underlying causes of such instances set forth in clauses (1) through (4) may, if they are not otherwise excluded from the definition of Material Adverse Effect, be taken into account in determining whether a Material
Adverse Effect has occurred.
b. The Underlying Shares issuable upon conversion of the Convertible
Notes are duly authorized and, when issued upon conversion of the Convertible Notes, will be validly issued, fully paid and non-assessable and will not have been issued in violation of any preemptive or similar rights created under SPAC’s
organizational documents (as adopted on or prior to the Closing Date), by any contract to which SPAC is a party or by which it is bound, or under the laws of its jurisdiction of incorporation.
c. As of the Closing Date, (i) the Subscribed Notes will be duly
authorized and, when issued and delivered to the Investor against full payment therefor in accordance with the terms of this Subscription Agreement, will be validly issued and will constitute legal, valid and binding obligations of SPAC,
enforceable against SPAC in accordance with their terms, except that the enforcement thereof may be subject to applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally or by equitable principles relating to
enforceability (collectively, the “Enforceability Exceptions”), and will not have been issued in violation of or subject to any preemptive or similar rights created under SPAC’s certificate of incorporation (as adopted in connection with
the Domestication) or under the General Corporation Law of the State of Delaware and (ii) the Indenture will be duly authorized by SPAC and, when duly authorized, executed and delivered by the Trustee, will constitute a legal, valid and binding
obligation of SPAC, enforceable against SPAC in accordance with its terms, except that the enforcement thereof may be subject to the Enforceability Exceptions.
d. This Subscription Agreement has been duly authorized, executed
and delivered by SPAC and, assuming that this Subscription Agreement constitutes the valid and binding agreement of the Investor, this Subscription Agreement is enforceable against SPAC in accordance with its terms, except as may be limited or
otherwise affected by the Enforceability Exceptions and, on the Closing Date, the Indenture will be duly authorized, executed and delivered by SPAC.
e. The execution and delivery of this Subscription Agreement and the
Indenture, the issuance and sale of the Notes, the issuance and delivery of the Underlying Shares upon conversion of the Subscribed Notes
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in accordance with the terms of the Indenture and the compliance by SPAC with all of
the provisions of this Subscription Agreement and the Indenture and the consummation of the transactions contemplated herein will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of SPAC or any of its subsidiaries pursuant to the terms of (i) any indenture, mortgage, deed of trust, loan agreement, lease,
license or other agreement or instrument to which SPAC or any of its subsidiaries is a party or by which SPAC or any of its subsidiaries is bound or to which any of the property or assets of SPAC is subject; (ii) the organizational documents of
SPAC on the date hereof or after giving effect to the Domestication; or (iii) any statute or any judgment, order, rule or regulation of any court or governmental agency or body, domestic or foreign, having jurisdiction over SPAC or any of its
properties that, in the case of clause (i) and clause (iii), would reasonably be expected to have a Material Adverse Effect or materially affect the validity of the Subscribed Notes or the ability of SPAC to timely comply in all
material respects with this Subscription Agreement (including the issuance of the Notes) or the Indenture.
f. Assuming the accuracy of the representations and warranties of
the Investors, SPAC is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority, self-regulatory
organization (including NASDAQ or other person in connection with the execution, delivery and performance of this Subscription Agreement (including, without limitation, the issuance of the Subscribed Notes)), other than (i) filings required by
applicable state securities laws, (ii) those required by NASDAQ, including with respect to obtaining stockholder approval, and (iii) the failure of which to obtain would not be reasonably expected to have a Material Adverse Effect or have a
material adverse effect on SPAC’s ability to consummate the transactions contemplated hereby, including the issuance and sale of the Subscribed Notes.
g. The Subscribed Notes are not, and following the Closing, will not
be, subject to any Transfer Restriction. The term “Transfer Restriction” means any condition to or restriction on the ability of the undersigned or any other holder of the Subscribed Notes to pledge, sell, assign or otherwise transfer
the Subscribed Notes under any organizational document, policy or agreement of, by or with SPAC, but excluding the restrictions on transfer to be described in the Indenture and Section 6(c) of this Subscription Agreement with respect to
the status of the Subscribed Notes as “restricted securities” pending their registration for resale under the Securities Act of 1933, as amended (the “Securities Act”), in accordance with the terms of this Subscription Agreement.
h. As of their respective dates, all reports (the “SEC Reports”)
required to be filed by SPAC with the U.S. Securities and Exchange Commission (the “SEC”) have been filed, and SPAC has complied in all material respects with the applicable requirements of the Securities Act and the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and the rules and regulations of the SEC promulgated thereunder, and none of the SEC Reports, when filed or, if amended prior to the date of this Subscription Agreement, as of the date of
such amendment with respect to those disclosures that are amended, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. On April 12, 2021 the Staff of the SEC (the “SEC Staff”) issued the Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose
Acquisition Companies (together with any subsequent guidance, statements or interpretations issued by the SEC or the SEC Staff relating thereto or to other accounting matters related to initial public offering securities or expenses, the “Statement”).
Based on its review of the Statement, on May 28, 2021, SPAC filed Amendment No. 1 to its Annual Report on Form 10-K/A (the “Warrant Restatement”) to amend and restate its Annual Report on Form 10-K as of and for the period ended
December 31, 2020, that it originally filed with the SEC on March 30, 2021. In addition, on December 9, 2021, SPAC filed Amendment No. 2 to its Annual Report on Form 10-K/A (the “Temporary Equity 10-K/A Restatement”) to amend and restate
the Warrant Restatement and on December 10, 2021, SPAC filed Amendment No. 1 to its Quarterly Report on Form 10-Q/A (the “Temporary Equity 10-Q/A Restatement” and, together with the Warrant Restatement and the Temporary Equity 10-K/A
Restatement, the “Restatements”) to amend and restate its Quarterly Report on Form 10-Q as of and for the period ended September 30, 2021, that it originally filed with the SEC on November 12, 2021. Each Investor acknowledges that any
restatement, revision or other modification of the SEC Reports, including, without limitation, the Restatements, or any changes to historical accounting policies of SPAC
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necessary to comply with any order, directive, guideline, comment or recommendation
announced or issued by the SEC after the date of this Subscription Agreement that is applicable to SPAC, including, without limitation, arising from or relating to SPAC’s review of the Statement or the matters addressed in the Restatements,
shall be deemed not material for purposes of this Subscription Agreement, including for purposes of Section 5(f), this Section 5(h), and Section 6(f) below and the definition of “Material Adverse Effect.” Other than as
noted herein, the financial statements of SPAC included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of
filing and fairly present in all material respects the financial position of SPAC as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal,
year-end audit adjustments.
i. As of the date hereof, the authorized share capital of SPAC
consists of US$55,100 divided into (i) 500,000,000 ordinary shares, par value $0.0001 per share (“SPAC Ordinary Shares”), (ii) 50,000,000 class B shares, par value $0.0001 per share (“Class B Shares”) and (iii) 1,000,000
preference shares, par value $0.0001 per share (“SPAC Preference Shares”) of which (A) 17,250,000 SPAC Ordinary Shares are issued and outstanding as of the date of this Agreement, (B) 4,312,500 Class B Shares are issued and outstanding
as of the date hereof, and (C) no shares of SPAC Preference Shares are issued and outstanding as of the date hereof. All of the issued and outstanding shares of SPAC Ordinary Shares and Class B Shares (I) have been duly authorized and validly
issued and are fully paid and non-assessable, (II) were issued in compliance in all material respects with applicable Law, and (III) were not issued in breach or violation of any preemptive or similar rights or Contract. As of the date hereof,
Acquiror has issued 16,213,430 warrants (“SPAC Ordinary Share Warrants”) that entitle the holder thereof to purchase SPAC Ordinary Shares at an exercise price of $11.50 per share on the terms and conditions set forth in the applicable
warrant agreement. All (i) issued and outstanding Ordinary Shares and Class B Shares have been duly authorized and validly issued, are fully paid and non-assessable and are not subject to preemptive or similar rights and (ii) issued and
outstanding SPAC Ordinary Share Warrants constitute legal, valid and binding obligations of SPAC, enforceable against SPAC in accordance with their terms. As of the date hereof, except as set forth above and pursuant to the Other Subscription
Agreements and the Business Combination Agreement, there are no outstanding options, warrants or other rights to subscribe for, purchase or acquire from SPAC any SPAC Ordinary Shares, Class B Shares, SPAC Preference Shares or other equity
interests in SPAC (collectively, “Equity Interests”) or securities convertible into or exchangeable or exercisable for Equity Interests. In connection with the Domestication, (i) each then issued and outstanding SPAC Ordinary Share shall
convert automatically, on a one-for-one basis, into a share of Common Stock; (ii) each then issued and outstanding Class B Share shall convert automatically, on a one-for-one basis, into a share Common Stock; and (iii) each then issued and
outstanding whole SPAC Ordinary Share Warrant shall convert automatically into a whole warrant exercisable for one share of Common Stock (“SPAC Warrant”), pursuant to the applicable warrant agreement. As of the date hereof, SPAC has no
subsidiaries other than L&F Holdings and the Mergers Subs and does not own, directly or indirectly, interests or investments (whether equity or debt) in any person, whether incorporated or unincorporated other than L&F Holdings and the
Mergers Subs. There are no stockholder agreements, voting trusts or other agreements or understandings to which SPAC is a party or by which it is bound relating to the voting or registration of any Equity Interests, other than (A) the letter
agreements entered into by SPAC in connection with SPAC’s initial public offering on November 23, 2020 pursuant to which SPAC’s sponsor and SPAC’s executive officers and independent directors agreed to vote in favor of any proposed Business
Combination (as defined therein), which includes the Transaction, and (B) as contemplated by the Business Combination Agreement. There are no securities or instruments issued by or to which SPAC is a party containing anti-dilution or similar
provisions that will be triggered by the issuance of (i) the Subscribed Notes, (ii) any Notes to be issued pursuant to any Other Subscription Agreement or (iii) any shares of Common Stock upon conversion of any of the Subscribed Notes or any of
the Notes to be issued pursuant to any Other Subscription Agreement.
j. Other than the Other Subscription Agreements, the Business
Combination Agreement, any other subscription agreement consistent with the same terms herein and any other agreement expressly contemplated by the Business Combination Agreement or described in the SEC Reports, SPAC has not entered into any
side letter or similar agreement with any investor in connection with such investor’s direct or indirect investment in SPAC (other than any side letter or similar agreement relating to the transfer to any
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investor of (i) securities of SPAC by existing securityholders of SPAC, which may be
effectuated as a forfeiture to SPAC and reissuance, or (ii) securities to be issued to the direct or indirect securityholders of SPAC Parties pursuant to the Business Combination Agreement). No Other Subscription Agreement includes terms and
conditions that are materially more advantageous to any such Other Investor than Investor hereunder, and no Other Subscription Agreements have been amended in any material respect following the date of this Subscription Agreement.
k. Assuming the accuracy of the Investor’s representations and
warranties set forth in Section 6 of this Subscription Agreement, no registration under the Securities Act is required for the offer and sale of the Subscribed Notes by SPAC to the Investor hereunder.
l. Neither the Subscribed Notes nor the shares of Common Stock
underlying the Other Subscription Agreements (i) were offered by any form of general solicitation or general advertising and (ii) are being offered in a manner involving a public offering under, or in a distribution in violation of, the
Securities Act, or any state securities laws.
m. Except for such matters as have not had and would not be
reasonably likely to have a Material Adverse Effect or have a material adverse effect on SPAC’s ability to consummate the transactions contemplated hereby, including the issuance and sale of the Subscribed Notes, as of the date hereof, there is
no (i) suit, action, proceeding or arbitration before a governmental authority or arbitrator pending, or, to the knowledge of SPAC, threatened in writing against SPAC or (ii) judgment, decree, injunction, ruling or order of any governmental
authority or arbitrator outstanding against SPAC.
n. The issued and outstanding shares of Common Stock are registered
pursuant to Section 12(b) of the Exchange Act and are listed for trading on NYSE under the symbol “LNFA” (it being understood that the trading symbol will be changed and that the Common Stock will be listed on NASDAQ and not on the NYSE in
connection with the Transaction). There is no suit, action, proceeding or investigation pending or, to the knowledge of SPAC, threatened against SPAC by the NYSE or the SEC with respect to any intention by such entity to deregister the shares
of Common Stock or prohibit or terminate the listing of the shares of Common Stock on the NYSE. SPAC has taken no action that is designed to terminate the registration of the shares of Common Stock under the Exchange Act. SPAC will file a
listing application with NASDAQ for the Underlying Shares and such application approved by NASDAQ prior to Closing.
o. [Except for the Placement Agents (as defined in Section 6(d),
below)]1 no broker or finder is entitled to any brokerage or finder’s fee or commission from SPAC solely in connection with the sale of the Subscribed Notes to the Investors.
p. Except for such matters as have not had and would not be
reasonably expected to have a Material Adverse Effect, SPAC is, and has been since its inception, in compliance with all laws applicable to the conduct of its business. SPAC has not received any written, or to its knowledge, other communication
from a governmental entity that alleges that SPAC is not in compliance with or is in default or violation of any applicable law, except where such non-compliance, default or violation would not be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. Except for such matters as have not had and would not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect, there is no (i) action, lawsuit, claim or other
proceeding, in each case by or before any governmental authority pending, or, to the knowledge of SPAC, threatened against SPAC or (ii) judgment, decree, injunction, ruling or order of any governmental entity or arbitrator outstanding against
SPAC.
q. SPAC has not in the past nor will it hereafter take any action to
sell, offer for sale or solicit offers to buy any securities of SPAC that could result in the initial sale of the Subscribed Notes not being exempt from the registration requirements of Section 5 of the Securities Act.
r. SPAC has not disclosed to the Investors information that would
constitute material non-public information as of the date of the filing of the Registration Statement on Form S-4 to be filed with respect to the Transaction (the “Form S-4”).
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1
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Insert for Monarch Capital only.
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6. Investor Representations and Warranties. The Investor
represents and warrants to SPAC that:
a. The Investor, or each of the funds managed by or affiliated with
the Investor for which the Investor is acting as nominee, as applicable, (i) is a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act), a “qualified purchaser” (as defined in Section 2(a)(51) of the Investment
Company Act) or an institutional “accredited investor” (within the meaning of Rule 501(a)(1), (2), (3), (7), (8), (9), (12) or (13) of Regulation D under the Securities Act), in each case, satisfying the applicable requirements set forth on Schedule
A hereto, (ii) is acquiring the Subscribed Notes only for his, her or its own account and not for the account of others, or if the Investor is subscribing for the Subscribed Notes as a fiduciary or agent for one or more investor accounts,
each owner of such account is a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act) or “accredited investor” (within the meaning of Rule 501(a) under the Securities Act) and satisfies the applicable requirements
set forth on Schedule A hereto, the Investor has full investment discretion with respect to each such account, and has the full power and authority to make the acknowledgements, representations and agreements herein on behalf of each owner of
each such account, and (iii) is not acquiring the Subscribed Notes with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act or any securities laws of the United States or any other
jurisdiction. The Investor has completed Schedule A following the signature page hereto and the information contained therein is accurate and complete. The Investor is not an entity formed for the specific purpose of acquiring the
Subscribed Notes, unless such newly formed entity is an entity in which all of the investors are institutional accredited investors, and is an “institutional account” as defined by FINRA Rule 4512(c). The Investor further acknowledges that it
is aware that the sale to it is being made in reliance on a private placement exempt from registration under the Securities Act and is acquiring the Subscribed Notes for its own account or for an account over which it exercises sole discretion
for another qualified institutional buyer or accredited investor.
b. The Investor (i) is an institutional account as defined in FINRA
Rule 4512(c), (ii) is a sophisticated investor, experienced in investing in private equity transactions and capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies
involving a security or securities and (iii) has exercised independent judgment in evaluating its participation in the purchase of the Subscribed Notes. Accordingly, the Investor understands that the offering meets (A) the exemptions from
filing under FINRA Rule 5123(b)(1)(A) and (B) the institutional customer exemption under FINRA Rule 2111(b).
c. The Investor acknowledges and agrees that the Subscribed Notes
are being offered in a transaction not involving any public offering within the meaning of the Securities Act and that the Subscribed Notes have not been registered under the Securities Act or any other applicable securities laws. The Investor
acknowledges and agrees that the Subscribed Notes are being offered for resale in transactions not requiring registration under the Securities Act, and unless so registered, may not be offered, resold, transferred, pledged or otherwise disposed
of by the Investor absent an effective registration statement under the Securities Act except in compliance with the registration requirements of the Securities Act or any other applicable securities laws, pursuant to any exemption therefrom or
in a transaction not subject thereto and that any book-entry position or certificates representing the Subscribed Notes shall contain a restrictive legend to such effect. The Investor acknowledges and agrees that the Subscribed Notes and the
Underlying Shares (if any) will be subject to transfer restrictions and, as a result of these transfer restrictions, the Investor may not be able to readily offer, resell, transfer, pledge or otherwise dispose of the Subscribed Notes and may be
required to bear the financial risk of an investment in the Subscribed Notes for an indefinite period of time. The Investor acknowledges and agrees that the Subscribed Notes will not be eligible for offer, resale, transfer, pledge or
disposition pursuant to Rule 144 promulgated under the Securities Act until at least one year from the Closing Date. The Investor acknowledges and agrees that it has been advised to consult legal counsel and tax and accounting advisors prior to
making any offer, resale, transfer, pledge or disposition of any of the Subscribed Notes and the Underlying Shares.
Each book entry for the Subscribed Notes shall contain a notation,
and each certificate (if any) evidencing the Notes shall be stamped or otherwise imprinted with a legend, in substantially the following form:
THIS SECURITY AND THE COMMON STOCK, IF ANY, ISSUABLE UPON CONVERSION
OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
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(THE “SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE INVESTOR:
(1) REPRESENTS THAT EITHER (A) IT AND ANY ACCOUNT FOR WHICH IT IS
ACTING IS A “QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT OR (B) IT IS AN INSTITUTIONAL “ACCREDITED INVESTOR”
(WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT), AND
(2) AGREES FOR THE BENEFIT OF ZEROFOX HOLDINGS, INC. (THE “COMPANY”)
THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN PRIOR TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LAST ORIGINAL ISSUE DATE HEREOF OR SUCH SHORTER PERIOD OF TIME AS PERMITTED
BY RULE 144 UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THERETO AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW, EXCEPT:
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BECOME EFFECTIVE
UNDER THE SECURITIES ACT AND IS EFFECTIVE AT THE TIME OF SUCH TRANSFER, OR
(C) TO A PERSON THAT YOU REASONABLY BELIEVE TO BE A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, OR
(D) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH CLAUSE
(2)(D) ABOVE, THE COMPANY AND THE TRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN
COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
d. The Investor acknowledges and agrees that the Investor is
purchasing the Subscribed Notes directly from SPAC. The Investor further acknowledges that there have not been, and the Investor hereby agrees that it is not relying on, any representations, warranties, covenants and agreements made to the
Investor by or on behalf of [SPAC, the Company Parties, Jefferies LLC and Stifel Financial Corp. (the “Placement Agents”), any of their respective affiliates or any control persons, officers, directors, employees, partners, agents or
representatives of any of the foregoing or any other person or entity, expressly or by implication, other than those representations, warranties, covenants and agreements of SPAC expressly set forth in Section 5 of this Subscription Agreement.
and in the Indenture. The Investor acknowledges and is aware that (i) the Placement Agents are each acting as the Company’s joint placement agent, (ii) Stifel Financial Corp. is acting as financial advisor and capital markets advisor to ZF in
connection with the Transaction and (iii) Jefferies LLC is acting as financial advisor and capital markets advisor to SPAC in connection with the Transaction. The Investor understands and acknowledges that the roles of Stifel Financial Corp.
and Jefferies LLC as capital markets advisors to ZF and SPAC, respectively, may give rise to potential conflicts of interest or the appearance thereof.]1/[SPAC and the Company Parties, any of their respective affiliates or any
control persons, officers, directors, employees, partners, agents or representatives of any of the foregoing or any other person or entity, expressly or by implication, other than those representations, warranties, covenants and agreements of
SPAC expressly set forth in Section 5 of this Subscription Agreement.]2
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e. The Investor’s acquisition and holding of the Subscribed Notes
will not constitute or result in a non-exempt prohibited transaction under Section 406 of the Employee Retirement Income Security Act of 1974, as amended, Section 4975 of the Internal Revenue Code of 1986, as amended, or any applicable similar
law.
f. The Investor acknowledges and agrees that the Investor has
received access to, and has had an adequate opportunity to review, such information as the Investor deems necessary in order to make an investment decision with respect to the Subscribed Notes, including, with respect to SPAC, the Transaction
and the business of the Company Parties and their subsidiaries. Without limiting the generality of the foregoing, the Investor acknowledges that he, she or it has reviewed the SEC Reports and other information as the Investor has deemed
necessary to make an investment decision with respect to the Subscribed Notes. The Investor acknowledges and agrees that the Investor and the Investor’s professional advisor(s), if any, have had the full opportunity to ask such questions,
receive such answers and obtain such information as the Investor and such Investor’s professional advisor(s), if any, have deemed necessary to make an investment decision with respect to the Subscribed Notes, including but not limited to access
to marketing materials and a virtual data room containing information about the Company Parties and their financial condition, results of operations, business, properties, management and prospects sufficient, in the Investor’s judgment, to
enable the Investor to evaluate its investment. The Investor acknowledges that certain information provided by the Company Parties was based on projections, and such projections were prepared based on assumptions and estimates that are
inherently uncertain and are subject to a wide variety of significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the projections. The Investor further
acknowledges that he, she or it has reviewed or had the full opportunity to review all disclosure documents provided to such Investor in the offering of the Subscribed Notes and no statement or printed material which is contrary to such
disclosure documents has been made or given to the Investor by or on behalf of SPAC or the Company Parties.
g. The Investor became aware of this offering of the Subscribed
Notes solely by means of direct contact between the Investor and SPAC, the Company Parties or a representative of SPAC or the Company Parties, and the Subscribed Notes were offered to the Investor solely by direct contact between the Investor
and SPAC, the Company Parties or a representative of SPAC or the Company Parties. [The Investor did not become aware of this offering of the Subscribed Notes, nor were the Subscribed Notes offered to the Investor, by any other means and none of
the SPAC, Company Parties, the Placement Agents or their respective representatives or any person acting on behalf of any of them acted as investment advisor, broker or dealer to the Investor. The Investor acknowledges that the Subscribed Notes
(i) were not offered by any form of general solicitation or general advertising and (ii) are not being offered in a manner involving a public offering under, or in a distribution in violation of, the Securities Act, or any state securities
laws. The Investor acknowledges that such information and projections were prepared without the participation of the Placement Agents and that the Placement Agents do not assume responsibility for independent verification of, or the accuracy or
completeness of, such information or projections.]3 / [The Investor did not become aware of this offering of the Subscribed Notes, nor were the Subscribed Notes offered to the Investor, by any other means and none of the SPAC,
Company Parties or their respective representatives or any person acting on behalf of any of them acted as investment advisor, broker or dealer to the Investor. The Investor acknowledges that the Subscribed Notes (i) were not offered by any
form of general solicitation or general advertising and (ii) are not being offered in a manner involving a public offering under, or in a distribution in violation of, the Securities Act, or any state securities laws. The Investor acknowledges
that it is not relying upon, and has not relied upon, any statement, representation or warranty made by any person, firm or corporation (including, without limitation, SPAC, the Company Parties any of their respective affiliates or any control
persons, officers, directors, employees, partners, agents or representatives of any of the foregoing), other than the representations and warranties of SPAC contained in Section 5 of this Subscription Agreement, in making its investment or
decision to invest in SPAC.]4
h. [The Investor acknowledges that it is aware that there are
substantial risks incident to the purchase and ownership of the Subscribed Notes and Underlying Shares , including but not limited to, those set forth in the SEC Reports. The Investor has such knowledge and experience in financial and business
matters as to
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be capable of evaluating the merits and risks of an investment in the Subscribed
Notes and the Underlying Shares, and the Investor has sought such accounting, legal and tax advice as the Investor has considered necessary to make an informed investment decision and the Investor has made its own assessment and has satisfied
itself concerning relevant tax and other economic considerations relative to its purchase of the Subscribed Notes. The Investor will not look to the Placement Agents for all or part of any such loss or losses the Investor may suffer, is able to
sustain a complete loss on its investment in the Subscribed Notes, has no need for liquidity with respect to its investment in the Subscribed Notes and has no reason to anticipate any change in circumstances, financial or otherwise, which may
cause or require any sale or distribution of all or any part of the Subscribed Notes.]5 / [The Investor acknowledges that it is aware that there are substantial risks incident to the purchase and ownership of the Subscribed Notes,
including but not limited to, those set forth in the SEC Reports. The Investor has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Subscribed Notes, and
the Investor has sought such accounting, legal and tax advice as the Investor has considered necessary to make an informed investment decision and the Investor has made its own assessment and has satisfied itself concerning relevant tax and
other economic considerations relative to its purchase of the Subscribed Notes. The Investor is able to sustain a complete loss on its investment in the Subscribed Notes, has no need for liquidity with respect to its investment in the
Subscribed Notes and has no reason to anticipate any change in circumstances, financial or otherwise, which may cause or require any sale or distribution of all or any part of the Subscribed Notes.]6
i. Alone, or together with any professional advisor(s), the Investor
has adequately analyzed and fully considered the risks of an investment in the Subscribed Notes and determined that the Subscribed Notes are a suitable investment for the Investor and that the Investor is able at this time and in the
foreseeable future to bear the economic risk of a total loss of the Investor’s investment in SPAC. The Investor acknowledges specifically that a possibility of total loss exists.
j. In making its decision to purchase the Subscribed Notes, the
Investor has relied solely upon independent investigation made by the Investor and upon the representations, warranties and covenants set forth herein and in the Indenture. [Without limiting the generality of the foregoing, the Investor has not
relied on any statements or other information provided by or on behalf of the Placement Agents or any of their respective affiliates or any control persons, officers, directors, employees, partners, agents or representatives of any of the
foregoing concerning SPAC, the Company Parties, the Transaction, the Business Combination Agreement, this Subscription Agreement or the transactions contemplated hereby or thereby, the Subscribed Notes or the offer and sale of the Subscribed
Notes.
k. The Investor acknowledges that the Placement Agents: (i) have not
provided the Investor with any information or advice with respect to the Subscribed Notes or Underlying Shares, (ii) have not made or make any representation, express or implied as to SPAC, the Company Parties, the Company Parties’ credit
quality, the Subscribed Notes or the Investor’s purchase of the Subscribed Notes, (iii) have not acted as the Investor’s financial advisor or fiduciary in connection with the issue and purchase of Subscribed Notes, (iv) may have acquired, or
during the term of this Subscription Agreement may acquire, non-public information with respect to the Company Parties, which, subject to the requirements of applicable law, the Investor agrees need not be provided to it, (v) may have existing
or future business relationships with SPAC and the Company Parties (including, but not limited to, lending, depository, risk management, advisory and banking relationships) and will pursue actions and take steps that it deems or they deem
necessary or appropriate to protect its or their interests arising therefrom without regard to the consequences for a holder of Notes, and that certain of these actions may have material and adverse consequences for a holder of Notes. The
Investor acknowledges that SPAC, Target and/or the Placement Agents and/or their respective affiliates may now or in the future own securities of SPAC and may purchase securities in connection with the Transaction.
l. The Investor acknowledges that it has not relied on the Placement
Agents in connection with its determination as to the legality of its acquisition of the Subscribed Notes and Underlying Shares or as to the other matters referred to herein and the Investor has not relied on any investigation that the
Placement
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Agents, any of their affiliates or any person acting on their behalf have conducted
with respect to the Subscribed Notes and Underlying Shares, SPAC or the Company Parties. The Investor further acknowledges that it has not relied on any information contained in any research reports prepared by the Placement Agents or any of
their affiliates.]7
m. The Investor acknowledges and agrees that no federal or state
agency has passed upon or endorsed the merits of the offering of the Subscribed Notes and Underlying Shares or made any findings or determination as to the fairness of this investment.
n. The Investor, if not an individual, has been duly formed or
incorporated and is validly existing and is in good standing under the laws of its jurisdiction of formation or incorporation, with power and authority to enter into, deliver and perform its obligations under this Subscription Agreement.
o. The execution, delivery and performance by the Investor of this
Subscription Agreement and the transactions contemplated herein are within the powers of the Investor, have been duly authorized and (i) will not constitute or result in a breach or default under or conflict with any order, ruling or regulation
of any court or other tribunal or of any governmental commission or agency, or any agreement or other undertaking, to which the Investor is a party or by which the Investor is bound, that would reasonably be expected to result in an Investor
Material Adverse Effect, and, (ii) if the Investor is not an individual, will not violate any provisions of the Investor’s organizational documents, including, without limitation, its incorporation or formation papers, bylaws, indenture of
trust or partnership or operating agreement, as may be applicable. The signature on this Subscription Agreement is genuine, and the signatory, if the Investor is an individual, has legal competence and capacity to execute the same or, if the
Investor is not an individual, the signatory has been duly authorized to execute the same, and, assuming that this Subscription Agreement constitutes the valid and binding obligation of SPAC, this Subscription Agreement constitutes a legal,
valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms except as may be limited or otherwise affected by (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other
laws relating to or affecting the rights of creditors generally, and (ii) principles of equity, whether considered at law or equity. For purposes hereof, “Investor Material Adverse Effect” shall mean an event, change,
development, occurrence, condition or effect with respect to the Investor that would reasonably be expected to have a material adverse effect on the Investor’s ability to consummate the purchase of the Subscribed Notes.
p. The Investor is not (i) a person or entity named on the List of
Specially Designated Nationals and Blocked Persons, the Executive Order 13599 List, the Foreign Sanctions Evaders List, or the Sectoral Sanctions Identification List, each of which is administered by the U.S. Treasury Department’s Office of
Foreign Assets Control (“OFAC”) (collectively, “OFAC Lists”), (ii) owned, directly or indirectly, or controlled by, or acting on behalf of, one or more persons that are named on the OFAC Lists; (iii) organized, incorporated,
established, located, resident or born in, or a citizen, national or the government, including any political subdivision, agency or instrumentality thereof, of, Cuba, Iran, North Korea, Syria, the Crimea region of Ukraine or any other country
or territory embargoed or subject to substantial trade restrictions by the United States, (iv) a Designated National as defined in the Cuban Assets Control Regulations, 31 C.F.R. Part 515, or (v) a non-U.S. shell bank or providing banking
services indirectly to a non-U.S. shell bank (each, a “Prohibited Investor”). The Investor agrees to provide law enforcement agencies, if requested thereby, such records as required by applicable law, provided that the Investor
is permitted to do so under applicable law. Investor represents that if it is a financial institution subject to the Bank Secrecy Act (31 U.S.C. section 5311 et seq.) (the “BSA”), as amended by the USA PATRIOT Act of 2001 (the “PATRIOT
Act”), and its implementing regulations (collectively, the “BSA/PATRIOT Act”), the Investor maintains policies and procedures reasonably designed to comply with applicable obligations under the BSA/PATRIOT Act. The Investor also
represents that, to the extent required, it maintains policies and procedures reasonably designed to ensure compliance with OFAC-administered sanctions programs, including for the screening of its investors against the OFAC sanctions programs,
including the OFAC Lists. The Investor further represents and warrants that, to the extent required by applicable law, the Investor maintains policies and procedures reasonably designed to ensure that the funds held by the Investor and used to
purchase the Subscribed Notes were legally derived and were not obtained, directly or indirectly, from a Prohibited Investor.
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q. [Neither the Placement Agents, nor any of their respective
affiliates nor any control persons, officers, directors, employees, partners, agents or representatives of any of the foregoing have made any independent investigation with respect to SPAC, the Company Parties or their subsidiaries or any of
their respective businesses, or the Subscribed Notes and Underling Shares or the accuracy, completeness or adequacy of any information supplied to the Investor by SPAC.]8
r. The Investor has or has commitments to have and, when required to
deliver payment to SPAC pursuant to Section 2 above, will have, sufficient funds to pay the Subscription Amount and consummate the purchase and sale of the Subscribed Notes pursuant to this Subscription Agreement.
s. As of the date hereof, the Investor does not have any “put
equivalent position” as such term is defined in Rule 16a-1 under the Exchange Act or short sale positions with respect to the securities of SPAC. Notwithstanding the foregoing, nothing in this Section 6(s) (i) shall apply to any
entities under common management with the Investor (including the Investor’s controlled affiliates and/or affiliates) from entering into any such transactions; and (ii) in the case of an Investor that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Investor’s assets, the representations set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment
decision to purchase the Subscribed Notes covered by this Subscription Agreement.
t. The Investor is not currently (and at all times through Closing
will refrain from being or becoming) a member of a “group” (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision) acting for the purpose of acquiring, holding, voting or disposing of equity
securities of SPAC (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than a group consisting solely of the Investor and its affiliates.
u. No foreign person (as defined in 31 C.F.R. Part 800.224) will
have control (as defined in 31 C.F.R. Part 800.208) over SPAC from and after the Closing as a result of the purchase and sale of Securities hereunder.
7. Termination. This Subscription Agreement shall terminate
and be void and of no further force and effect, and all rights and obligations of the parties hereunder shall terminate without any further liability on the part of any party in respect thereof, upon the earlier to occur of (a) such date and
time as the Business Combination Agreement is terminated in accordance with its terms without the Transaction being consummated, (b) upon the mutual written agreement of each of the parties hereto to terminate this Subscription Agreement,
(c) upon written notice by SPAC or the Investor to the other (provided that the party delivering such notice is not in material breach of its obligations under this Subscription Agreement) if, on the Closing Date of the Transaction, any of the
conditions to Closing of the other party set forth in Section 3 of this Subscription Agreement have not been satisfied as of the time required hereunder to be so satisfied or waived (to the extent a valid waiver is capable of being
issued) by the party entitled to grant such waiver and, as a result thereof, the transactions contemplated by this Subscription Agreement are not consummated, or (d) by written notice by SPAC or the Investor to the other at any time after 11:59
pm prevailing Eastern time on the earlier of (i) the Termination Date (as defined in the Business Combination Agreement as in effect on the date hereof) or (ii) August 23, 2022, in either case if the Closing has not occurred by such date other
than as a result of a breach by the terminating party (the termination events described in clauses (a)–(e), above, collectively, the “Termination Events”); provided that nothing herein will relieve any party from liability for any
willful breach hereof prior to the time of termination, and each party will be entitled to any remedies at law or in equity to recover losses, liabilities or damages arising from any such willful breach. SPAC shall notify the Investor in
writing of the termination of the Business Combination Agreement promptly after the termination of such agreement. Upon the occurrence of any Termination Event, this Subscription Agreement shall be void and of no further effect and any monies
paid by the Investor to SPAC in connection herewith shall promptly (and in any event within one (1) business day) following the Termination Event be returned to the Investor.
8. Trust Account Waiver. The Investor acknowledges that SPAC
is a blank check company with the powers and privileges to effect a merger, asset acquisition, reorganization or similar business combination involving SPAC and one or more businesses or assets. The Investor further acknowledges that, as
described in SPAC’s prospectus relating to its initial public offering dated November 18, 2020 (the “Prospectus”) available at www.sec.gov, substantially all of SPAC’s assets consist of the cash proceeds of SPAC’s initial public offering and
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private placement of its securities, and substantially all of those proceeds have
been deposited in a trust account (the “Trust Account”) for the benefit of SPAC, its public shareholders and the underwriters of SPAC’s initial public offering. Except with respect to interest earned on the funds held in the Trust Account that
may be released to SPAC to pay its tax obligations and to fund certain of its working capital requirements, the cash in the Trust Account may be disbursed only for the purposes set forth in the Prospectus. For and in consideration of SPAC
entering into this Subscription Agreement, the receipt and sufficiency of which are hereby acknowledged, the Investor, on behalf of itself and its representatives hereby irrevocably waives any and all right, title and interest, or any claim of
any kind it has or may have in the future arising out of this Subscription Agreement, in or to any monies held in the Trust Account (or distributions therefrom to SPAC’s public shareholders or to the underwriter of SPAC’s initial public
offering in respect of its deferred underwriting commissions held in the Trust Account), and agrees not to seek recourse against the Trust Account as a result of, or arising out of, this Subscription Agreement; provided, however, that nothing
in this Section 8 shall be deemed to limit the Investor’s right, title, interest or claim to any monies held in the Trust Account by virtue of its record or beneficial ownership of Common Stock currently outstanding on the date hereof, pursuant
to a validly exercised redemption right with respect to any such Common Stock, except to the extent that the Investor has otherwise agreed with SPAC to not exercise such redemption right.
9. Miscellaneous.
a. Neither this Subscription Agreement nor any rights that may
accrue to the parties hereunder (other than the Subscribed Notes acquired hereunder, if any) may be transferred or assigned without the prior written consent of each of the other parties hereto; provided that (i) this Subscription
Agreement and any of the Investor’s rights and obligations hereunder may be assigned to any fund, account, co-investment arrangement or other investment vehicle managed, advised, administered, arranged, sponsored or serviced by the same
investment manager as the Investor or by an affiliate (as defined in Rule 12b-2 under the Exchange Act) of such investment manager without the prior consent of SPAC and (ii) SPAC may transfer the Subscription Agreement and its rights (but not
obligations) hereunder solely in connection with the consummation of the Transaction and exclusively to another entity under the control of, or under common control with, SPAC; provided further that prior to such assignment any such
assignee shall agree in writing to be bound by the terms hereof; provided, that no assignment pursuant to clause (i) of this Section 9(a) shall relieve the Investor of its obligations hereunder unless otherwise agreed to
in writing by SPAC.
b. SPAC may request from the Investor such additional information as
SPAC may deem reasonably necessary to evaluate the eligibility of the Investor to acquire the Subscribed Notes, and the Investor shall promptly provide such information as may reasonably be requested to the extent readily available; provided
that SPAC agrees to keep any such information provided by Investor confidential except (i) as necessary to include in any registration statement SPAC is required to file hereunder, (ii) as required by the federal securities law or pursuant to
other routine proceedings of regulatory authorities or (iii) to the extent such disclosure is required by law, at the request of the staff of the SEC or regulatory agency or under the regulations of any national securities exchange on which
SPAC’s securities are listed for trading. The Investor acknowledges that SPAC may file a copy of this Subscription Agreement (or a form of this Subscription Agreement) with the SEC as an exhibit to a periodic report or a registration statement
of SPAC.
c. The Investor acknowledges that SPAC, the Company Parties[, the
Placement Agents] and others will rely on the acknowledgments, understandings, agreements, representations and warranties contained in this Subscription Agreement, including Schedule A hereto. Prior to the Closing, the Investor agrees to
promptly notify SPAC and, the Company Parties [and the Placement Agents] in writing (including, for the avoidance of doubt, by email) if any of the acknowledgments, understandings, agreements, representations and warranties made by the Investor
as set forth in Section 6 above are no longer accurate in any material respect (other than those acknowledgments, understandings, agreements, representations and warranties qualified by materiality, in which case the Investor shall notify SPAC
[and the Placement Agents] if they are no longer accurate in any respect). The Investor acknowledges and agrees that each purchase by the Investor of the Subscribed Notes from SPAC will constitute a reaffirmation of the acknowledgments,
understandings, agreements, representations and warranties herein (as modified by any such notice) by the Investor as of the time of such purchase.9
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d. SPAC and, the Company Parties [and the Placement Agents] are
each entitled to rely upon this Subscription Agreement and each is irrevocably authorized to produce this Subscription Agreement or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby; provided, however, that the foregoing clause of this Section 9(d) shall not give the Company Parties [or the Placement Agents] any rights other than those expressly set forth herein and, without limiting the
generality of the foregoing and for the avoidance of doubt, in no event shall the Company Parties be entitled to rely on any of the representations and warranties of SPAC set forth in this Subscription Agreement.1
e. All the agreements, representations and warranties made by each
party hereto in this Subscription Agreement shall survive the Closing until (18) months after the Closing Date.
f. This Subscription Agreement may not be amended, modified, waived
or terminated (other than pursuant to the terms of Section 7 above) except by an instrument in writing, signed by each of the parties hereto; provided, however, that no modification or waiver by SPAC of the provisions of this
Subscription Agreement shall be effective without the prior written consent of the Company Parties (other than modifications or waivers that are solely ministerial in nature or otherwise immaterial and do not affect any economic or any other
material term of this Subscription Agreement). No failure or delay of any party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the parties hereto and
third-party beneficiaries hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have hereunder.
g. This Subscription Agreement (including the schedule hereto)
constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, among the parties hereto, with respect to the subject matter hereof. Except as set forth in
Section 8, Section 9(c), Section 9(d), Section 9(f), this Section 9(g), Section 9(l) and Section 10 with respect to the persons specifically referenced therein[, and Section 6 with respect to the Placement Agents,]2 this Subscription
Agreement shall not confer any rights or remedies upon any person other than the parties hereto, and their respective successors and assigns, and the parties hereto acknowledge that such persons so referenced are express third party
beneficiaries of this Subscription Agreement with right of enforcement for the purposes of, and to the extent of, the rights granted to them, if any, pursuant to the applicable provisions.
h. SPAC represents and warrants to the Investor that as of the date
hereof and as of the Closing Date, there are no Other Subscription Agreements, side letter agreements or other agreements or understandings (including written summaries of any oral understandings) with any Other Investors (collectively, the
“PIPE Agreements”) which include terms and conditions that are materially more advantageous to any such Other Investor (as compared to Investor) other than such PIPE Agreements containing any of the following: (i) any rights or benefits granted
to an Other Investor in connection with such Other Investor’s compliance with any law, regulation or policy specifically applicable to such Other Investor or in connection with the taxable status of an Other Investor, (ii) any rights or
benefits which are personal to an Other Investor based solely on its place of organization or headquarters, organizational form of, or other particular restrictions applicable to, such Other Investor, (iii) any rights with respect to the
confidentiality or disclosure of an Other Investor’s identity or (iv) any rights or benefits granted to the SPAC, L&F Holdings, the Company Parties or any of their respective affiliates or any of their respective partners, members,
shareholders, employees or agents.
i. Except as otherwise provided herein, this Subscription Agreement
shall be binding upon, and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives, and permitted assigns, and the agreements, representations, warranties, covenants and
acknowledgments contained herein shall be deemed to be made by, and be binding upon, such heirs, executors, administrators, successors, legal representatives and permitted assigns.
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j. If any provision of this Subscription Agreement shall be
adjudicated by a court of competent jurisdiction to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Subscription Agreement shall not in any way be affected or impaired thereby
and shall continue in full force and effect.
k. This Subscription Agreement may be executed and delivered in one
(1) or more counterparts (including by electronic means, such as facsimile, in .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 by different parties in
separate counterparts, with the same effect as if all parties hereto had signed the same document. All counterparts so executed and delivered shall be construed together and shall constitute one and the same agreement.
l. SPAC shall be solely responsible for and shall bear all of costs
and expenses incurred by or on behalf of SPAC in connection with this Subscription Agreement. SPAC shall reimburse the lead Investor for all reasonable and documented out of-pocket costs and expenses incurred in connection with this
Subscription Agreement, the Indenture and the Transaction, including, without limitation, the reasonable and documented fees and expenses of Stroock & Stroock & Lavan LLP, as counsel to the lead Investor, (i) on the date hereof to the
extent invoiced on or prior to the date hereof, (ii) on the Closing Date to the extent invoiced at least one (1) Business Day prior to the Closing Date. This Section 9(l) shall survive the termination of this Subscription Agreement.
m. At any time, SPAC may (i) extend the time for the performance of
any obligation or other act of the Investor, (ii) waive any inaccuracy in the representations and warranties of the Investor contained herein or in any document delivered by the Investor pursuant hereto and (iii) waive compliance with any
agreement of the Investor or any condition to its own obligations contained herein; provided, however, that no extension or waiver by SPAC of the provisions of this Subscription Agreement shall be effective without the prior
written consent of the Company Parties (other than extensions or waivers that are solely ministerial in nature or otherwise immaterial and do not affect any economic or any other material term of this Subscription Agreement). At any time, the
Investor may (A) extend the time for the performance of any obligation or other act of SPAC, (B) waive any inaccuracy in the representations and warranties of SPAC contained herein or in any document delivered by SPAC pursuant hereto and (C)
waive compliance with any agreement of SPAC or any condition to its own obligations contained herein. Any such extension or waiver shall only be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby.
n. The parties hereto acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Subscription Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to seek
an injunction or injunctions to prevent breaches of this Subscription Agreement, without posting a bond or undertaking and without proof of damages, to enforce specifically the terms and provisions of this Subscription Agreement, this being in
addition to any other remedy to which such party is entitled at law, in equity, in contract, in tort or otherwise.
o. If any change in the number, type or classes of authorized shares
of SPAC, other than as contemplated by the Business Combination Agreement or any agreement contemplated by the Business Combination Agreement, shall occur between the date hereof and immediately prior to the Closing by reason of
reclassification, recapitalization, stock split (including reverse stock split) or combination, exchange or readjustment of shares, or any stock dividend, the number of Underlying Shares potentially issued to the Investor shall be appropriately
adjusted to reflect such change.
p. This Subscription Agreement shall be governed by and construed in
accordance with the laws of the State of New York (regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof) as to all matters (including any action, suit, litigation, arbitration, mediation,
claim, charge, complaint, inquiry, proceeding, hearing, audit, investigation or reviews by or before any governmental entity related hereto), including matters of validity, construction, effect, performance and remedies.
q. Each party hereto hereby, and any person asserting rights as a
third party beneficiary may do so only if he, she or it, irrevocably agrees that any action, suit or proceeding between or among the parties hereto, whether arising in contract, tort or otherwise, arising in connection with any disagreement,
dispute, controversy or claim arising out of or relating to this Subscription Agreement or any related document or
E-17
any of the transactions contemplated hereby or thereby (“Legal Dispute”)
shall be brought only to the exclusive jurisdiction of the courts of the State of New York or the federal courts located in the State of New York, and each party hereto hereby consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding
in any such court or that any such suit, action or proceeding that is brought in any such court has been brought in an inconvenient forum. During the period a Legal Dispute that is filed in accordance with this Section 9(q) is pending
before a court, all actions, suits or proceedings with respect to such Legal Dispute or any other Legal Dispute, including any counterclaim, cross-claim or interpleader, shall be subject to the exclusive jurisdiction of such court. Each party
hereto and any person asserting rights as a third party beneficiary may do so only if he, she or it hereby waives, and shall not assert as a defense in any Legal Dispute, that (a) such party is not personally subject to the jurisdiction of the
above named courts for any reason, (b) such action, suit or proceeding may not be brought or is not maintainable in such court, (c) such party’s property is exempt or immune from execution, (d) such action, suit or proceeding is brought in an
inconvenient forum, or (e) the venue of such action, suit or proceeding is improper. A final judgment in any action, suit or proceeding described in this Section 9(q) following the expiration of any period permitted for appeal and
subject to any stay during appeal shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable laws. EACH OF THE PARTIES HERETO AND ANY PERSON ASSERTING RIGHTS AS A THIRD
PARTY BENEFICIARY MAY DO SO ONLY IF HE, SHE OR IT IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY ON ANY CLAIMS OR COUNTERCLAIMS ASSERTED IN ANY LEGAL DISPUTE RELATING TO THIS SUBSCRIPTION AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY AND FOR ANY COUNTERCLAIM RELATING THERETO. IF THE SUBJECT MATTER OF ANY SUCH LEGAL DISPUTE IS ONE IN WHICH THE WAIVER OF JURY TRIAL IS PROHIBITED, NO PARTY HERETO NOR ANY PERSON ASSERTING RIGHTS AS A THIRD PARTY BENEFICIARY
SHALL ASSERT IN SUCH LEGAL DISPUTE A NONCOMPULSORY COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SUBSCRIPTION AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. FURTHERMORE, NO PARTY HERETO NOR ANY PERSON ASSERTING RIGHTS AS A THIRD PARTY
BENEFICIARY SHALL SEEK TO CONSOLIDATE ANY SUCH LEGAL DISPUTE WITH A SEPARATE ACTION OR OTHER LEGAL PROCEEDING IN WHICH A JURY TRIAL CANNOT BE WAIVED.
r. Any notice or communication required or permitted hereunder to be
given to any party hereto shall be in writing and either delivered personally, emailed, sent by overnight mail via a reputable overnight carrier, or sent by certified or registered mail, postage prepaid, to such address(es) or email address(es)
set forth below, and shall be deemed to be given and received (i) when so delivered personally, (ii) when sent, with no mail undeliverable or other rejection notice, if sent by email, or (iii) three (3) business days after the date of mailing
to the address below or to such other address or addresses as such person may hereafter designate by notice given hereunder:
(i) if to the Investor, to such address or addresses set forth on
the signature page hereto;
(ii) if to SPAC, to:
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L&F Acquisition Corp.
150 North Riverside Plaza, Suite 5200
Chicago, Illinois
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Attn:
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Adam Gerchen, Chief Executive Officer
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Email:
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[***]
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with a required copy to (which copy shall not constitute notice):
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Kirkland & Ellis LLP
601 Lexington Avenue
New York, New York 10022
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Attn:
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Richard J. Campbell, P.C., Peter Seligson and Aslam A. Rawoof
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Email:
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[***]
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E-18
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and
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Kirkland & Ellis LLP
401 Congress Avenue
Austin, Texas 78701
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Attn:
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John Kaercher, P.C.
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Email:
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[***]
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s. If Investor is a Massachusetts Business Trust, a copy of the
Declaration of Trust of Investor or any affiliate thereof is on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that the Subscription Agreement is executed on behalf of the trustees of Investor
or any affiliate thereof as trustees and not individually and that the obligations of the Subscription Agreement are not binding on any of the trustees or stockholders of Investor or any affiliate thereof individually but are binding only upon
Investor or any affiliate thereof and its assets and property.
10. Non-Reliance and Exculpation. [The Investor acknowledges
and agrees that none of (i) any Other Investor pursuant to any Other Subscription Agreement (including such Other Investor’s respective affiliates or any control persons, officers, directors, employees, partners, agents or representatives of
any of the foregoing), (ii) the Placement Agents, their respective affiliates or any control persons, officers, directors, employees, partners, agents or representatives of any of the foregoing, or (iii) any other party to the Business
Combination Agreement or any Non-Party Affiliate (other than SPAC with respect to the previous sentence), shall have any liability to the Investor, or to any Other Investor, pursuant to, arising out of or relating to this Subscription Agreement
or any other subscription agreement related to the private placement of the Subscribed Notes, the negotiation hereof or thereof or its subject matter, or the transactions contemplated hereby or thereby, including, without limitation, with
respect to any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the purchase of the Subscribed Notes or with respect to any claim (whether in tort, contract, under federal or state securities laws or
otherwise) for breach of this Subscription Agreement or in respect of any written or oral representations made or alleged to be made in connection herewith, as expressly provided herein, or for any actual or alleged inaccuracies, misstatements
or omissions with respect to any information or materials of any kind furnished by SPAC, the Company Parties, the Placement Agents or any Non-Party Affiliate concerning SPAC, the Company Parties, the Placement Agents, any of their controlled
affiliates, this Subscription Agreement or the transactions contemplated hereby. For purposes of this Subscription Agreement, “Non-Party Affiliates” means each former, current or future officer, director, employee, partner, member, manager,
direct or indirect equityholder or affiliate of SPAC, the Company Parties, the Placement Agents or any of SPAC’s, the Company Parties’ or the Placement Agents’ controlled affiliates or any family member of the foregoing.]10 / [The
Investor acknowledges that it is not relying upon, and has not relied upon, any statement, representation or warranty made by any person, firm or corporation, other than the statements, representations and warranties of SPAC expressly contained
in Section 5 of this Subscription Agreement, in making its investment or decision to invest in SPAC. The Investor acknowledges and agrees that none of (i) any Other Investor pursuant to any Other Subscription Agreement (including such Other
Investor’s respective affiliates or any control persons, officers, directors, employees, partners, agents or representatives of any of the foregoing), or (ii) any other party to the Business Combination Agreement or any Non-Party Affiliate
(other than SPAC with respect to the previous sentence), shall have any liability to the Investor, or to any Other Investor, pursuant to, arising out of or relating to this Subscription Agreement or any other subscription agreement related to
the private placement of the Subscribed Notes, the negotiation hereof or thereof or its subject matter, or the transactions contemplated hereby or thereby, including, without limitation, with respect to any action heretofore or hereafter taken
or omitted to be taken by any of them in connection with the purchase of the Subscribed Notes or with respect to any claim (whether in tort, contract, under federal or state securities laws or otherwise) for breach of this Subscription
Agreement or in respect of any written or oral representations made or alleged to be made in connection herewith, as expressly provided herein, or for any actual or alleged inaccuracies, misstatements or omissions with respect to any
information or materials of any kind furnished by SPAC, the Company Parties or any Non-Party Affiliate concerning SPAC, the Company Parties, any of their controlled affiliates, this Subscription Agreement
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10
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Insert for Monarch Capital only.
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E-19
or the transactions contemplated hereby. For purposes of this Subscription Agreement,
“Non-Party Affiliates” means each former, current or future officer, director, employee, partner, member, manager, direct or indirect equityholder or affiliate of SPAC, the Company Parties or any of SPAC’s, the Company Parties’ controlled
affiliates or any family member of the foregoing.]11
11. Disclosure. [SPAC shall, by 9:00 a.m., New York City time,
no later than on the first (1st) business day immediately following the date hereof, issue one or more press releases or file with the SEC a Current Report on Form 8-K (collectively, the “Current Report”) disclosing all material terms of the
transactions contemplated hereby and by the Other Subscription Agreements and Business Combination Agreement and the Transaction. To the extent not already disclosed in the Current Report, SPAC shall include in the Form S-4 any other material,
nonpublic information that SPAC has provided to the Investor at any time. Upon the filing of the Form S-4, to the actual knowledge of SPAC, the Investor shall not be in possession of any material, non-public information received from SPAC or
any of its officers, directors, or employees or agents, and the Investor shall no longer be subject to any confidentiality or similar obligations under any current agreement, whether written or oral, with SPAC, the Placement Agents or any of
their affiliates, relating to the transactions contemplated by this Subscription Agreement. Notwithstanding anything in this Subscription Agreement to the contrary, SPAC shall not publicly disclose the name of the Investor or any of its
affiliates or advisers, or include the name of the Investor or any of its affiliates or advisers in any press release or in any filing with the SEC or any regulatory agency or trading market, without the prior written consent of the Investor,
except (i) as required by the federal securities law or pursuant to other routine proceedings of regulatory authorities, (ii) to the extent such disclosure is required by law, at the request of the staff of the SEC or regulatory agency or under
the regulations of any national securities exchange on which SPAC’s securities are listed for trading or (iii) to the extent such announcements or other communications contain only information previously disclosed in a public statement, press
release or other communication previously approved in accordance with this Section 11; provided, in each case of clause (i) and clause (ii), that SPAC shall provide Investor with prior written notice of such disclosure, and shall consult with
Investor regarding such disclosure.]12 / [SPAC shall, by 9:00 a.m., New York City time, no later than on the first (1st) business day immediately following the date hereof, issue one or more press releases or file with the SEC a
Current Report on Form 8-K (collectively, the “Disclosure Document”) disclosing all material terms of the transactions contemplated hereby and by the Other Subscription Agreements and Business Combination Agreement, the Transaction and any
other material, nonpublic information that SPAC has provided to the Investor at any time prior to the filing of the Disclosure Document. Upon the issuance of the Disclosure Document, to the actual knowledge of SPAC, the Investor shall not be in
possession of any material, non-public information received from SPAC or any of its officers, directors, or employees or agents, and the Investor shall no longer be subject to any confidentiality or similar obligations under any current
agreement, whether written or oral, with SPAC or any of its affiliates, relating to the transactions contemplated by this Subscription Agreement. Notwithstanding anything in this Subscription Agreement to the contrary, SPAC shall not publicly
disclose the name of the Investor or any of its affiliates or advisers, or include the name of the Investor or any of its affiliates or advisers in any press release or in any filing with the SEC or any regulatory agency or trading market,
without the prior written consent of the Investor, except (i) as required by the federal securities law or pursuant to other routine proceedings of regulatory authorities, (ii) to the extent such disclosure is required by law, at the request of
the staff of the SEC or regulatory agency or under the regulations of any national securities exchange on which SPAC’s securities are listed for trading or (iii) to the extent such announcements or other communications contain only information
previously disclosed in a public statement, press release or other communication previously approved in accordance with this Section 11.]13
12. Separate Obligations. For ease of administration, this
single Subscription Agreement is being executed so as to enable each Investor identified on the signature page to enter into a Subscription Agreement, severally, but not jointly. The parties hereto agree that each Subscription Agreement shall
be treated as if it were a separate agreement with respect to each Investor listed on the signature page, as if each Investor entity had executed a separate Subscription Agreement naming only itself as the Investor, and no Investor listed on
the signature page shall have any liability under the Subscription Agreement for the obligations of any other Investor so listed. For the avoidance of doubt, all obligations of the Investor hereunder are separate and several from the
obligations of any Other Investor. The decision of the Investor to purchase the Subscribed Notes pursuant to this Subscription
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11
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Insert for all other investors.
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12
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Insert for Monarch Capital only.
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13
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Insert for all other investors.
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E-20
Agreement has been made by Investor independently of any Other Investor or any other
investor and independently of any information, materials, statements or opinions as to the business, financial condition or results of operations of SPAC, the Company Parties, or any of their respective subsidiaries which may have been made or
given by any Other Investor or by any agent or employee of any Other Investor, and neither the Investor nor any of its agents or employees shall have any liability to any Other Investor (or any other person) relating to or arising from any such
information, materials, statements or opinions. Nothing contained herein or in any Other Subscription Agreement, and no action taken by the Investor or Other Investors pursuant hereto or thereto, shall be deemed to constitute the Investor and
Other Investor as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investor and the Other Investors are in any way acting in concert or as a group with respect to such obligations or
the transactions contemplated by this Subscription Agreement and the Other Subscription Agreements. The Investor acknowledges that no Other Investor has acted as agent for the Investor in connection with making its investment hereunder and no
Other Investor will be acting as agent of the Investor in connection with monitoring its investment in the Subscribed Note or enforcing its rights under this Subscription Agreement. The Investor shall be entitled to independently protect and
enforce its rights, including without limitation the rights arising out of this Subscription Agreement, and it shall not be necessary for any Other Investor to be joined as an additional party in any proceeding for such purpose.
[SIGNATURE PAGES FOLLOW]
E-21
IN WITNESS WHEREOF, the Investor has executed or caused this Subscription Agreement to be executed by its duly authorized representative as of the date set forth below.
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Name of Investor:
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State/Country of Formation or Domicile:
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By:
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Name:
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Title:
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Name in which Underlying Shares are to be registered (if different):
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Date: , 2021
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Investor’s EIN:
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Business Address-Street:
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Mailing Address-Street (if different):
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City, State, Zip:
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City, State, Zip:
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Attn:
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Attn:
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Telephone No.:
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Telephone No.:
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Facsimile No.:
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Facsimile No.:
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Email:
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Aggregate Principal Amount of Subscribed Notes:
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$
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Aggregate Purchase Price
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$
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You must pay the Purchase Price by wire transfer of United States
dollars in immediately available funds to the account specified by SPAC in the Closing Notice.
[Signature Page to Subscription Agreement]
E-22
SCHEDULE A
ELIGIBILITY REPRESENTATIONS OF THE INVESTOR
This Schedule must be completed by Investor and forms a part of the Subscription
Agreement to which it is attached. Capitalized terms used and not otherwise defined in this Schedule have the meanings given to them in the Subscription Agreement. The Investor must check the applicable box in either Section A, Section B or
Section C below.
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A.
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QUALIFIED INSTITUTIONAL BUYER STATUS
|
(Please check the applicable subparagraphs):
☐ We are a “qualified institutional buyer” (as defined
in Rule 144A under the Securities Act (a “QIB”)).
** OR **
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B.
|
INSTITUTIONAL ACCREDITED INVESTOR STATUS
|
(Please check the applicable subparagraphs):
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1.
|
☐ We are an “accredited investor” (within the meaning of Rule 501(a) under the Securities
Act or an entity in which all of the equity holders are accredited investors within the meaning of Rule 501(a) under the Securities Act), and have marked and initialed the appropriate box below indicating the provision under which we
qualify as an “accredited investor.”
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2.
|
☐ We are not a natural person.
|
Rule 501(a) under the Securities Act, in relevant part, states that an “accredited
investor” shall mean any person who comes within any of the below listed categories, or who the issuer reasonably believes comes within any of the below listed categories, at the time of the sale of the securities to that person. The Investor
has indicated, by marking and initialing the appropriate box below, the provision(s) below which apply to the Investor and under which the Investor accordingly qualifies as an “accredited investor.”
☐ Any bank, registered broker or dealer, insurance
company, registered investment company, business development company, or small business investment company;
☐ Any plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $5,000,000;
☐ Any employee benefit plan, within the meaning of the
Employee Retirement Income Security Act of 1974, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5,000,000;
☐ Any organization described in Section 501(c)(3) of
the Internal Revenue Code, corporation, similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
☐ Any trust with assets in excess of $5,000,000, not
formed to acquire the securities offered, whose purchase is directed by a sophisticated person; or
☐ Any entity in which all of the equity owners are
accredited investors meeting one or more of the above tests.
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C.
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QUALIFIED PURCHASER STATUS
|
(Please check the applicable subparagraphs):
FOR INDIVIDUALS:
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1.
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☐ A natural person who owns not less than U.S.$5,000,000 in investments. For this purpose,
investments owned by the Investor include all investments that are the Investor’s separate property and any investments held jointly with the Investor’s spouse, as community property or otherwise, but do not include investments that are
the separate property of the Investor’s spouse unless the interest will be a joint investment of the Investor and the Investor’s spouse.
|
E-24
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2.
|
☐ A natural person who has discretionary investment authority with regard to at least
U.S.$25,000,000 of investments, including for this purpose solely the Investor’s own investments and investments of third parties that are themselves accurately described by one or more paragraphs of this Section C.
|
(Please check the applicable subparagraphs):
FOR ENTITIES:
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3.
|
☐ A corporation, partnership, limited liability company, trust or other organization that:
(i)was not organized or reorganized and is not operated for the specific purpose of acquiring the interest or any other interest in SPAC, and less than 40% of the assets of which will consist of interests in SPAC (calculated as of the
time of the Investor’s execution of this Subscription Agreement); (ii)owns not less than U.S.$5,000,000 in investments; and (iii)is owned directly or indirectly solely by or for two or more natural persons who are related as siblings or
spouses (including former spouses), or direct lineal descendants by birth or adoption, spouses of such persons, the estates of such persons, or foundations, charitable organizations, or trusts established by or for the benefit of such
persons.
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4.
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☐ A trust: (i) that is not described in paragraph (3) of this Section C; (ii) that was not
organized or reorganized and is not operated for the specific purpose of acquiring the interest or any other interest in SPAC, and less than 40% of the assets of which will consist of interests in SPAC (calculated as of the time of the
Investor’s execution of this Subscription Agreement); and (iii) with respect to which each of the settlors and other contributors of assets, trustees, and other authorized decision makers is a person described in paragraph (1), (2), (3)
or (4) of this Section C.
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5.
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☐ An entity that: (i) was not organized or reorganized and is not operated for the
specific purpose of acquiring the interest or any other interest in SPAC, and less than 40% of the assets of which will consist of interests in SPAC (calculated as of the time of the Investor’s execution of this Subscription Agreement);
and (ii) has discretionary investment authority with regard to at least U.S.$25,000,000 of investments, whether for its own account or for the account of other persons that are themselves accurately described by one or more other
paragraphs of this Section C.
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|
6.
|
☐ An entity, each and every beneficial owner of which is a person accurately described by
one or more of the foregoing paragraphs of this Section C or is itself an entity each and every beneficial owner of which is a person accurately described by one or more of the foregoing paragraphs of this Section C. If the Investor is a qualified purchaser solely for the reason described in this paragraph 6, the Investor shall, at the request of SPAC, submit to SPAC a separate qualified purchaser questionnaire for each
beneficial owner of the Investor’s securities.
|
This page should be completed by the Investor
and constitutes a part of the Subscription Agreement.
E-25
ZEROFOX HOLDINGS, INC.1
AND
WILMINGTON TRUST, NATIONAL ASSOCIATION,
as Trustee
INDENTURE
Dated as of [•], 2022
7.00%/8.75% Convertible Senior Cash/PIK Toggle Notes due 2025
|
1
|
NTD: Issuer to be confirmed as ZeroFox Holdings, Inc., as the entity which survives as the
public parent resulting from the de-SPAC transaction among L&F Acquisition Corp., ZeroFox Inc. and ID Experts.
|
E-27
TABLE OF CONTENTS
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EXHIBIT
| | | | |
E-31
INDENTURE dated as of [•], 2022 between ZEROFOX HOLDINGS, INC., a
Delaware corporation, as issuer (the “Company,” as more fully set forth in Section 1.01) and WILMINGTON TRUST, NATIONAL ASSOCIATION, a national bank association, as trustee (the “Trustee,” as more fully set forth in Section 1.01).
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issuance of its 7.00%/8.75% Convertible Senior Cash/PIK Toggle Notes due 2025 (the “Notes”), initially in an aggregate principal amount not to exceed $150,000,000, and in order to provide
the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery of this Indenture; and
WHEREAS, the Form of Note, the certificate of authentication to be
borne by each Note, the Form of Notice of Conversion, the Form of Fundamental Change Repurchase Notice and the Form of Assignment and Transfer to be borne by the Notes are to be substantially in the forms hereinafter provided; and
WHEREAS, all acts and things necessary to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee or a duly authorized authenticating agent, as provided in this Indenture, the valid, binding and legal obligations of the Company, and this Indenture, the valid, binding and
legal agreement of the Company and the Trustee, have been done and performed, and the execution of this Indenture and the issuance hereunder of the Notes have in all respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the
Notes are, and are to be, authenticated, issued and delivered, and in consideration of the premises and of the purchase and acceptance of the Notes by the Holders thereof, the Company covenants and agrees with the Trustee for the equal and
proportionate benefit of the respective Holders from time to time of the Notes (except as otherwise provided below), as follows:
DEFINITIONS
Section 1.01 Definitions. The terms defined in this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture
supplemental hereto shall have the respective meanings specified in this Section 1.01. The words “herein,” “hereof,” “hereunder” and words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other
subdivision. The terms defined in this Article include the plural as well as the singular.
“1934 Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Additional Shares” shall
have the meaning specified in Section 14.14(a).
“Affiliate” of any specified
Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control,” when used with respect to any specified
Person means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and
“controlled” have meanings correlative to the foregoing. Notwithstanding anything to the contrary herein, the determination of whether one Person is an “Affiliate” of another Person for purposes of this
Indenture shall be made based on the facts at the time such determination is made or required to be made, as the case may be, hereunder. For purposes of this Agreement, no Excluded Holder shall be deemed an Affiliate of the Issuer and its
Subsidiaries.
“Applicable Procedures”
means, with respect to a Depositary, as to any matter at any time, the policies and procedures of such Depositary, if any, that are applicable to such matter at such time.
“Applicable Tax Law” shall
have the meaning specified in Section 17.17.
“Board of Directors” means
the board of directors of the Company or a committee of such board duly authorized to act for it hereunder.
E-32
“Board Resolution” means a
copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors, and to be in full force and effect on the date of such certification, and delivered to the Trustee.
“Business Combination Agreement”
means that certain Business Combination Agreement, dated as of December [•], 2021, among L&F Acquisition Corp., L&F Acquisition Holdings, LLC, ZF Merger Sub, Inc., IDX Merger Sub, Inc., IDX Forward Merger Sub, LLC, ZeroFOX, Inc. and ID
Expert Holdings, Inc., as the same may be amended prior to the Closing Date.
“Business Day” means any day
other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be
authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental
authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York generally are open for use by customers on such day.
“Capital Stock” means, for
any entity, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) stock issued by that entity; provided that
debt securities that are convertible into or exchangeable for Capital Stock shall not constitute Capital Stock prior to their conversion or exchange, as the case may be.
“Cash Management Obligations”
means (1) obligations in respect of any overdraft and related liabilities arising from treasury, depository, cash pooling arrangements, electronic fund transfer, treasury services and cash management services, including controlled disbursement
services, working capital lines, lines of credit, overdraft facilities, foreign exchange facilities, deposit and other accounts and merchant services, or other cash management arrangements or any automated clearing house arrangements, (2) other
obligations in respect of netting or setting off arrangements, credit, debit or purchase card programs, stored value card and similar arrangements and (3) obligations in respect of any other services related, ancillary or complementary to the
foregoing (including any overdraft and related liabilities arising from treasury, depository, cash pooling arrangements and cash management services, corporate credit and purchasing cards and related programs or any automated clearing house
transfers of funds), in each case not constituting debt for borrowed money.
“Clause A Distribution” shall
have the meaning specified in Section 14.04(c).
“Clause B Distribution” shall
have the meaning specified in Section 14.04(c).
“Clause C Distribution” shall
have the meaning specified in Section 14.04(c).
“close of business” means
5:00 p.m. (New York City time).
“Closing Date” means [•],
2022.
“Commission” means the U.S.
Securities and Exchange Commission.
“Common Equity” of any Person
means Capital Stock of such Person that is generally entitled (a) to vote in the election of directors of such Person or (b) if such Person is not a corporation, to vote or otherwise participate in the selection of the governing body, partners,
managers or others that will control the management or policies of such Person.
“Common Stock” means the
Common Stock of the Company, par value $0.0001 per share, at the date of this Indenture, subject to Section 14.07.
“Company” shall have the
meaning specified in the first paragraph of this Indenture, and subject to the provisions of Article 11, shall include its successors and assigns.
“Company Mandatory Conversion
Condition” means the conditions required for the Company to cause Notes to be converted pursuant to Section 14.03(a).
“Company Mandatory Conversion Right”
means a conversion right pursuant to Section 14.03(a).
“Company Order” means a
written order of the Company, signed on behalf of the Company by an Officer and delivered to the Trustee.
E-33
“Contingent Obligations”
means, with respect to any Person, any obligation of such Person guaranteeing in any manner, whether directly or indirectly, any Non-Financing Lease Obligation or other obligation that does not constitute Indebtedness (“primary obligations”) of
any other Person (the “primary obligor”), including any obligation of such Person, whether or not contingent:
(1) to purchase any such primary obligation or any property
constituting direct or indirect security therefor;
(2) to advance or supply funds:
(a) for the purchase or payment of any such primary obligation; or
(b) to maintain the working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary obligor; or
(3) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.
“Conversion Agent” shall
have the meaning specified in Section 4.02.
“Conversion Date” shall
have the meaning specified in Section 14.02(c).
“Conversion Obligation”
shall have the meaning specified in Section 14.01(a).
“Conversion Price” means as
of any time, $1,000 divided by the Conversion Rate as of such time.
“Conversion Rate” shall
have the meaning specified in Section 14.01(a).
“Corporate Trust Office”
means the corporate trust office of the Trustee at which at any time its corporate trust business shall be administered, which office at the date hereof is located at Wilmington Trust, National Association, Global Capital Markets, 50 South
Sixth Street, Suite 1290. Minneapolis, Minnesota 55402 Attention: ZeroFox Holdings, Inc. Administrator, or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate
trust office of any successor trustee (or such other address as such successor trustee may designate from time to time by notice to the Holders and the Company).
“Custodian” means the
Trustee, as custodian for The Depository Trust Company, with respect to the Global Notes, or any successor entity thereto.
“Daily Conversion Value”
shall mean, for each of the 30 consecutive Trading Days during the Observation Period, one-thirtieth (1/30th) of the product of (a) the Conversion Rate on such Trading Day and (b) the greater of (i) the Daily VWAP on such Trading Day and
(ii) the Last Reported Sales Price on such Trading Day.
“Daily Measurement Value”
means the Specified Dollar Amount (if any), divided by 30.
“Daily Settlement Amount”
shall mean, for each of the 30 consecutive Trading Days during the Observation Period:
(a) cash in an amount equal to the lesser of (i) the Daily
Measurement Value and (ii) the Daily Conversion Value on such Trading Day; and
(b) if the Daily Conversion Value on such Trading Day exceeds the
Daily Measurement Value, a number of shares of Common Stock equal to (i) the difference between the Daily Conversion Value and the Daily Measurement Value, divided by (ii) the Daily VWAP for such
Trading Day.
“Daily VWAP” means the per
share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page “[•]” (or its equivalent successor if such page is not
available) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such Trading Day (or if such volume-weighted average price is unavailable, the market value of one
share of the Common Stock on such Trading Day determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained for this purpose by the Company). The “Daily
VWAP” shall be determined without regard to after-hours trading or any other trading outside of the regular trading session trading hours.
E-34
“Default” means any event
that is, or after notice or passage of time, or both, would be, an Event of Default.
“Defaulted Amounts” means any
amounts on any Note (including, without limitation, the Fundamental Change Repurchase Price, principal and interest) that are payable but are not punctually paid or duly provided for.
“Depositary” means, with
respect to each Global Note, the Person specified in Section 2.05(b) as the Depositary with respect to such Notes, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and
thereafter, “Depositary” shall mean or include such successor.
“Disqualified Capital Stock”
means Capital Stock that (a) requires the payment of any dividends (other than dividends payable solely in shares of Qualified Capital Stock), (b) matures or is mandatorily redeemable or subject to mandatory repurchase or redemption or
repurchase at the option of the holders thereof (other than solely for Qualified Capital Stock and cash in lieu of fractional shares of such Qualified Capital Stock), in each case in whole or in part and whether upon the occurrence of any
event, pursuant to a sinking fund obligation on a fixed date or otherwise (including as the result of a failure to maintain or achieve any financial performance standards) or (c) is convertible or exchangeable, automatically or at the option of
any holder thereof, into any Indebtedness, Capital Stock or other assets other than Qualified Capital Stock, in the case of each of clauses (a), (b) and (c), prior to the date that is 91 days after the Maturity Date (other than (i) upon payment
in full of the Notes or (ii) upon an “asset sale” or a “change in control”; provided, that any payment required pursuant to this clause (ii) is subject to the compliance by the relevant Person with this
Indenture, including Section 15.02, as applicable); provided, further, however, that (x) only the portion of Capital
Stock which so matures or is mandatorily redeemable or subject to mandatory repurchase or redemption at the option of the holder thereof or is so convertible or exchangeable prior to such date shall be deemed to be Disqualified Capital Stock
and (y) if such Capital Stock is issued to any current or former employee, director, officer, manager or consultant or to any plan for the benefit of current or former employees, directors, officers, managers or consultants of the Company or
its Subsidiaries or by any such plan to such employees, directors, officers, managers or consultants, such Capital Stock shall not constitute Disqualified Capital Stock solely because it may be required to be repurchased by the Company or a
Subsidiary in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability.
“Distributed Property” shall
have the meaning specified in Section 14.04(c).
“Effective Date” shall have
the meaning specified in Section 14.14(c), except that, as used in Section 14.04 and Section 14.05, “Effective Date” means the first date on which shares of the Common Stock trade on the applicable
exchange or in the applicable market, regular way, reflecting the relevant share split or share combination, as applicable. For the avoidance of doubt, any alternative trading convention on the applicable exchange or market in respect of shares
of the Common Stock under a separate ticker symbol or CUSIP number will not be considered “regular way” for this purpose.
“Eligible Market” means The
New York Stock Exchange, The NASDAQ Global Select Market, the Nasdaq Global Market or The NASDAQ Capital Market.
“Equity Conditions” means,
with respect to a given date of determination: (i) on each day during the period beginning thirty (30) calendar days prior to such applicable date of determination and ending on and including such applicable date of determination (the “Equity Conditions Measuring Period”) either (x) one or more registration statements filed with the Commission pursuant to the Registration Rights Agreement shall be effective and the prospectus contained
therein shall be available on such applicable date of determination (with, for the avoidance of doubt, any shares of Common Stock previously sold pursuant to such prospectus deemed unavailable) for the resale of all shares of Common Stock to be
issued in connection with the event requiring this determination (without regard to any limitations on conversion set forth herein) (a “Required Minimum Securities Amount”) or (y) all shares of Common
Stock issuable upon conversion of the applicable Notes shall be eligible for sale pursuant to Rule 144 of the Securities Act (without volume or manner of sale limitations), without the need for registration under any applicable federal or state
securities laws (in each case, disregarding any limitation on conversion of the Notes) and the Company is then current with its filings with the Commission; (ii) on each day during the Equity Conditions Measuring Period, the Common Stock
(including all shares of Common Stock issued or issuable upon conversion of the Notes) is listed or designated for quotation (as applicable) on an Eligible Market and shall not have been suspended from trading on an Eligible Market
E-35
(other than suspensions of not more than two (2) days and occurring prior to the
applicable date of determination due to business announcements by the Company) nor shall delisting or suspension by an Eligible Market have been threatened (with a reasonable prospect of delisting occurring after giving effect to all applicable
notice, appeal, compliance and hearing periods) or reasonably likely to occur or pending as evidenced by (A) a writing by such Eligible Market or (B) the Company falling below the minimum listing maintenance requirements of the Eligible Market
on which the Common Stock is then listed or designated for quotation, as applicable; (iii) during the Equity Conditions Measuring Period, the Company shall have delivered all shares of Common Stock issuable upon conversion of the Notes on a
timely basis in accordance herewith; (iv) any shares of Common Stock to be issued in connection with the event requiring determination (or issuable upon conversion of the portion of the Notes being redeemed in the event requiring this
determination) may be issued in full; (v) any shares of Common Stock to be issued in connection with the event requiring determination (or issuable upon conversion of the portion of the Notes being redeemed in the event requiring this
determination (without regards to any limitations on conversion set forth herein)) may be issued in full without violating the rules or regulations of the Eligible Market on which the Common Stock is then listed or designated for quotation (as
applicable); (vi) on each day during the Equity Conditions Measuring Period, no public announcement of a pending, proposed or intended Fundamental Change (as defined in the Indenture) shall have occurred which has not been abandoned, terminated
or consummated; (vii) the Company shall have no knowledge of any fact that would reasonably be expected to cause (1) any registration statement required to be filed with the Commission pursuant to the Registration Rights Agreement to not be
effective or the prospectus contained therein to not be available for the resale of the applicable Required Minimum Securities Amount of all shares of Common Stock issuable upon conversion of the applicable Notes in accordance with the terms of
the Registration Rights Agreement or (2) any shares of Common Stock issuable upon conversion of the applicable Notes to not be eligible for sale pursuant to Rule 144 without the need for registration under any applicable federal or state
securities laws (in each case, disregarding any limitation on conversion of the Notes) and the Company is then current with its filings with the Commission, (viii) none of the Holders shall be in possession of any material, non-public
information provided to any of them by the Company, any of its Subsidiaries or any of their respective Affiliates, employees, officers, representatives, agents or the like; (ix) [reserved]; (x) on each Trading Day during the Equity Conditions
Measuring Period, there shall not have occurred any Volume Failure as of such applicable date of determination; (xi) on the applicable date of determination all shares of Common Stock to be issued in connection with the event requiring this
determination (or issuable upon conversion of the portion of this Note being redeemed in the event requiring this determination (without regards to any limitations on conversion set forth herein)) may be issued in full from the authorized and
available shares of Common Stock of the Company; (xii) on each day during the Equity Conditions Measuring Period, there shall not have occurred and there shall not exist an Event of Default (as defined in the Indenture) or an event that with
the passage of time or giving of notice would constitute an Event of Default; and (xiii) the shares of Common Stock issuable pursuant to the event requiring the satisfaction of the Equity Conditions are duly authorized and listed and eligible
for trading without restriction on an Eligible Market.
“Equity Conditions Failure”
means, with respect to any date of determination, the Equity Conditions have not been satisfied (or waived in writing by the applicable Holder).
“Equity Conditions Measuring Period”
shall have the meaning specified in the definition of “Equity Conditions.”
“Event of Default” shall have
the meaning specified in Section 6.01.
“Ex-Dividend Date” means the
first date on which shares of the Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the issuance, dividend or distribution in question, from the Company or, if applicable, from
the seller of Common Stock on such exchange or market (in the form of due bills or otherwise) as determined by such exchange or market. For the avoidance of doubt, any alternative trading convention on the applicable exchange or market in
respect of shares of the Common Stock under a separate ticker symbol or CUSIP number will not be considered “regular way” for this purpose.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exchange Election” shall
have the meaning specified in Section 14.12.
E-36
“Excluded Holders” means
each of Corbin Capital Partners LP, Victory Park Capital, LLC and their respective Affiliates and any fund, account, co-investment arrangement or other investment vehicle managed, advised, administered, arranged, sponsored or serviced by any of
the foregoing.
“Expiration Date” shall
have the meaning specified in Section 14.04(e).
“Form of Assignment and Transfer”
means the “Form of Assignment and Transfer” attached as Attachment 3 to the Form of Note attached hereto as Exhibit A.
“Form of Fundamental Change
Repurchase Notice” means the “Form of Fundamental Change Repurchase Notice” attached as Attachment 2 to the Form of Note attached hereto as Exhibit A.
“Form of Note” means the “Form of Note” attached hereto as Exhibit A.
“Form of Notice of Conversion”
means the “Form of Notice of Conversion” attached as Attachment 1 to the Form of Note attached hereto as Exhibit A.
“Fundamental Change” shall be
deemed to have occurred at the time after the Notes are originally issued if any of the following occurs prior to the Maturity Date:
(a) a “person” or “group” within the meaning of Section 13(d) of the
Exchange Act, other than the Company and its Wholly Owned Subsidiaries, files a Schedule TO (or any successor schedule, form or report) or any schedule, form or report under the Exchange Act disclosing that such person or group has become the
direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of the Common Stock representing more than 50% of the voting power of the Common Stock; provided that no “person” or “group” shall be deemed to be the
beneficial owner of any securities tendered pursuant to a tender or exchange offer made by or on behalf of such “person” or “group” until such tendered securities are accepted for purchase or exchange under such offer;
(b) the consummation of (A) any recapitalization, reclassification
or change of the Common Stock (other than changes resulting from a subdivision or combination or changes solely in par value) as a result of which the Common Stock would be converted into, or exchanged for, stock, other securities, other
property or assets; (B) any share exchange, consolidation or merger of the Company pursuant to which the Common Stock will be converted into cash, securities or other property or assets; or (C) any sale, lease or other transfer in one
transaction or a series of transactions of all or substantially all of the consolidated assets of the Company and its Subsidiaries, taken as a whole, to any Person other than one or more of the Company’s direct or indirect Wholly Owned
Subsidiaries; provided, however, that neither (x) a transaction described in clause (A) or (B) in which the holders of all classes of the Common Equity
immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of Common Equity of the continuing or surviving corporation or transferee or the parent thereof immediately after such transaction in substantially
the same proportions (relative to each other) as such ownership immediately prior to such transaction nor (y) any merger of the Company solely for the purpose of changing its jurisdiction of incorporation that results in a reclassification,
conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock of the surviving entity shall be a Fundamental Change pursuant to this clause (b);
(c) the Company’s stockholders approve any plan or proposal for the
liquidation or dissolution of the Company; or
(d) the Common Stock (or other Common Equity underlying the Notes)
ceases to be listed or quoted on any of The New York Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ Capital Market (or any of their respective successors);
provided, however, that a transaction or transactions described in clauses (a) or (b) above shall not constitute a Fundamental Change, if at least 90% of the consideration received or to be received by the common stockholders of
the Company, excluding cash payments for fractional shares and cash payments made in respect of dissenters’ appraisal rights, in connection with such transaction or transactions consists of shares of common stock that are listed or quoted on
any of The New York Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ Capital Market (or any of their respective successors) or will be so listed or quoted when issued or exchanged in connection with such
transaction or transactions and as a result of such transaction or transactions such consideration becomes Reference Property for the Notes, excluding cash
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payments for fractional shares and cash payments made in respect of dissenters’
appraisal rights (subject to the provisions of Section 14.02(a)).Any event, transaction or series of related transactions that constitute a Fundamental Change under both clause (a) and clause (b) above (determined without regard to the proviso
in clause (b) above) shall be deemed to be a Fundamental Change solely under clause (b) above (and, for the avoidance of doubt, shall be subject to the proviso in clause (b) above). If any transaction in which the Common Stock is replaced by
the equity securities of another entity occurs, references to the Company in this definition shall instead be references to such other entity.
“Fundamental Change Company Notice”
shall have the meaning specified in Section 15.02(c).
“Fundamental Change Repurchase
Date” shall have the meaning specified in Section 15.02(a).
“Fundamental Change Repurchase
Notice” shall have the meaning specified in Section 15.02(b)(i).
“Fundamental Change Repurchase
Price” shall have the meaning specified in Section 15.02(a).
“GAAP” means generally
accepted accounting principles in the United States of America set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time; provided that all terms of an accounting
or financial nature used in the Indenture shall be construed, and all computations of amounts and ratios referred to in the Indenture shall be made (a) without giving effect to any election under Accounting Standards Codification Topic
825—Financial Instruments, or any successor thereto or comparable accounting principle (including pursuant to the Accounting Standards Codification), to value any Indebtedness of the Company or any Subsidiary at “fair value,” as defined therein
and (b) the amount of any Indebtedness under GAAP with respect to Capitalized Lease Obligations shall be determined in accordance with the definition of Capitalized Lease Obligations.
“Global Note” shall have
the meaning specified in Section 2.05(b).
“Group” means a “group” as
that term is used in Section 13(d) of the 1934 Act and as defined in Rule 13d-5 thereunder.
“guarantee” means a guarantee
other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, through letters of credit or reimbursement agreements in respect thereof, of
all or any part of any Indebtedness or other obligations. When used as a verb, “guarantee” shall have a corresponding meaning.
“Guarantee” means any
guarantee of the obligations of the Company under this Indenture and the Notes by a Guarantor in accordance with Article 13. When used as a verb, “Guarantee” shall have a corresponding meaning.
“Guarantor” means any Person
that incurs a Guarantee of the Notes; provided that upon the release and discharge of such Person from its Guarantee in accordance with Section 11.6, such Person shall cease to be a Guarantor.
“Holder”, as applied to any
Note, or other similar terms, means any Person in whose name at the time a particular Note is registered on the Note Register (and in the case of a Global Note and solely with respect to Section 6.11, the indirect holder of Notes held through
its participant).
“Indebtedness” of any Person,
means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all guarantee obligations by such Person of Indebtedness of
others, and (d) the principal component of all obligations, contingent or otherwise, of such Person (i) as an account party in respect of letters of credit and (ii) in respect of bankers’ acceptances and (e) indebtedness of another Person
secured by a Lien on any asset owned by such Person (whether or not such indebtedness is assumed by such Person); provided, however, that the amount of such Indebtedness will be the lesser of: (i) the fair market value of such asset at such
date of determination, and (ii) the amount of such indebtedness of such other Person; provided, that Indebtedness shall not include (A) Contingent Obligations incurred in the ordinary course of business or consistent with past practice,
other than Guarantees or other assumptions of Indebtedness, (B) Cash Management Obligations, (C) any lease, concession or license of property (or Guarantee thereof) which would be considered an operating lease
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under GAAP as in effect on the Closing Date, Non-Financing Lease Obligations or any
prepayments of deposits received from clients or customers in the ordinary course of business or consistent with past practice, (D) in connection with the purchase by the Company or any Subsidiary of any business, any deferred or prepaid
revenue, post-closing payment adjustments to which the seller may become entitled to the extent such payment is determined by a final closing balance sheet or such payment depends on the performance of such business after the closing; provided, however, that, if at the time of closing, the amount of any such payment is not determinable and, to the extent such payment thereafter becomes fixed and
determined, the amount is paid in a timely manner, (E) any obligations in respect of workers’ compensation claims, early retirement or termination obligations, pension fund obligations or contributions or similar claims, obligations or
contributions or social security or wage taxes or (F) Indebtedness of any direct or indirect parent of the Company appearing on the balance sheet of the Company solely by reason of push down accounting under GAAP.
“Indenture” means this
instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented.
“Interest Payment Date” means
each [ ] and [ ] of each year, beginning on [ ], 2022.
“Last Reported Sale Price” of
the Common Stock (or other security for which a closing sale price must be determined) on any date means the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in
either case, the average of the average bid and the average ask prices) on that date as reported in composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock (or such other security) is
traded. If the Common Stock (or such other security) is not listed for trading on a U.S. national or regional securities exchange on the relevant date, the “Last Reported Sale Price” shall be the last
quoted bid price per share for the Common Stock (or such other security) in the over-the-counter market on the relevant date as reported by OTC Markets Group Inc. or a similar organization. If the Common Stock (or such other security) is not so
quoted, the “Last Reported Sale Price” shall be the average of the mid-point of the last bid and ask prices per share for the Common Stock (or such other security) on the relevant date from each of at
least three nationally recognized independent investment banking firms selected by the Company for this purpose. The “Last Reported Sale Price” shall be determined without regard to after-hours trading or
any other trading outside of regular trading session hours.
“Make-Whole Fundamental Change”
means any transaction or event that constitutes a Fundamental Change (as defined above and determined after giving effect to any exceptions to or exclusions from such definition, but without regard to the proviso
in clause (b) of the definition thereof).
“Make-Whole Fundamental Change
Period” shall have the meaning specified in Section 14.14(a).
“Mandatory Conversion” means
a conversion pursuant to Section 14.03(a).
“Mandatory Conversion Date”
means the Conversion Date for a Mandatory Conversion, as provided in Section 14.03(c).
“Market Disruption Event”
means, for the purposes of determining amounts due upon conversion (a) a failure by the primary U.S. national or regional securities exchange or market on which the Common Stock is listed or admitted for trading to open for trading during its
regular trading session or (b) the occurrence or existence prior to 1:00 p.m., New York City time, on any Scheduled Trading Day for the Common Stock for more than one half-hour period in the aggregate during regular trading hours of any
suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant stock exchange or otherwise) in the Common Stock or in any options contracts or futures contracts relating to the Common
Stock.
“Maturity Date” means [•],
2025.
“Non-Financing Lease Obligation”
means a lease obligation that is not required to be accounted for as a financing or capital lease in accordance with GAAP. For the avoidance of doubt, a straight-line or operating lease shall be considered a Non-Financing Lease Obligation.
“Note” or “Notes” shall have the meaning specified in the first paragraph of the recitals of this Indenture.
“Note Register” shall have
the meaning specified in Section 2.05(a).
“Note Registrar” shall have
the meaning specified in Section 2.05(a).
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“Notice of Conversion”
shall have the meaning specified in Section 14.02(b).
“Observation Period” with
respect to any Note surrendered for conversion means the 30 consecutive Trading Day period beginning on, and including, the second Trading Day immediately succeeding such Conversion Date.
“Officer” means, with respect
to the Company, the President, the Chief Executive Officer, the Chief Financial Officer, the Treasurer, the Secretary, any assistant Treasurer, any assistant Secretary, General Counsel, any Assistant General Counsel, any Executive or Senior
Vice President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title “Vice President”).
“Officer’s Certificate,” when
used with respect to the Company, means a certificate that is delivered to the Trustee and that is signed on behalf of the Company by an Officer of the Company that meets the requirements of Section 17.05.
“open of business” means
9:00 a.m. (New York City time).
“Opinion of Counsel” means an
opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company, that is delivered to the Trustee.
“outstanding,” when used with
reference to Notes, shall, subject to the provisions of Section 8.04, mean, as of any particular time, all Notes authenticated and delivered by the Trustee under this Indenture, except:
(a) Notes theretofore canceled by the Trustee or accepted by the
Trustee for cancellation;
(b) Notes, or portions thereof, that have become due and payable and
in respect of which monies in the necessary amount shall have been deposited in trust with the Trustee or with any Paying Agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall
act as its own Paying Agent);
(c) Notes that have been paid pursuant to Section 2.06 or Notes in
lieu of which, or in substitution for which, other Notes shall have been authenticated and delivered pursuant to the terms of Section 2.06 unless proof satisfactory to the Trustee is presented that any such Notes are held by protected
purchasers in due course;
(d) Notes surrendered for purchase in accordance with Article 15 for
which Paying Agent holds money sufficient to pay the Fundamental Change Repurchase Price, in accordance with Section 15.04(b);
(e) Notes converted pursuant to Article 14 and required to be
cancelled pursuant to Section 2.08; and
(f) Notes repurchased by the Company pursuant to the last sentence
of Section 2.10 after the Company surrenders them to the Trustee for cancellation in accordance with Section 2.08.
“Paying Agent” shall have the
meaning specified in Section 4.02.
“Person” means an individual,
a corporation, a limited liability company, an association, a partnership, a joint venture, a joint stock company, a trust, an unincorporated organization or a government or an agency or a political subdivision thereof.
“PIK Election” shall have the
meaning specified in Section 2.10.
“PIK Interest” shall have the
meaning specified in Section 2.10.
“PIK Notes” shall have the
meaning specified in Section 2.10.
“PIK Notice” shall have the
meaning specified in Section 2.10.
“PIK Payment” shall have the
meaning specified in Section 2.10.
“Physical Notes” means
permanent certificated Notes in registered form issued in minimum denominations of $1,000 principal amount and integral multiples in excess thereof (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple
of $1.00 in excess thereof).
“Physical Settlement” shall
have the meaning specified in Section 14.02(a).
“Physical Settlement Method”
means, with respect to any conversion of Notes, the Physical Settlement.
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“Predecessor Note” of any
particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 2.06 in lieu of or in
exchange for a mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note that it replaces.
“Preferred Stock” means any
Capital Stock with preferential right of payment of dividends or upon liquidation, dissolution, winding up or some other event.
“Qualified Capital Stock”
means any Capital Stock other than Disqualified Capital Stock.
“Record Date” means, with
respect to any dividend, distribution or other transaction or event in which the holders of Common Stock (or other applicable security) have the right to receive any cash, securities or other property or in which the Common Stock (or such other
security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of holders of the Common Stock (or such other security) entitled to receive such cash, securities or other
property (whether such date is fixed by the Board of Directors, by statute, by contract or otherwise).
“Reference Property” shall
have the meaning specified in Section 14.07(a).
“Registrable Securities”
shall have the meaning set forth in the Registration Rights Agreement.
“Registration Rights Agreement”
means, collectively, the Registration Rights Agreement, dated as of the Closing Date, each between the Company and each [Holder] defined therein.
“Regular Record Date,” with
respect to any Interest Payment Date, means the [ ] or [ ] (whether or not such day is a Business Day) immediately preceding the applicable [ ] or [ ] Interest Payment Date, respectively.
“Responsible Officer” means,
when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the
Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter relating to this Indenture is referred because of such person’s
knowledge of and familiarity with the particular subject and, in each case, who shall have direct responsibility for the administration of this Indenture.
“Restricted Securities”
shall have the meaning specified in Section 2.05(c).
“Restrictive Legend” shall
have the meaning specified in Section 2.05(d).
“Rule 144” means Rule 144
as promulgated under the Securities Act.
“Rule 144A” means Rule 144A
as promulgated under the Securities Act.
“Scheduled Trading Day” means
a day that is scheduled to be a Trading Day on the principal U.S. national or regional securities exchange or market on which the Common Stock is listed or admitted for trading. If the Common Stock is not so listed or admitted for trading, “Scheduled Trading Day” means a Business Day.
“Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Senior Indebtedness” shall
have the meaning specified in Section 4.13.
“Settlement Amount” has the
meaning specified in Section 14.02(a)(iv).
“Settlement Method” means,
with respect to any conversion of Notes, Physical Settlement, Cash Settlement or Combination Settlement, as elected (or deemed to have been elected) by the Company.
“Share Exchange Event” has
the meaning specified in Section 14.07(a).
“Significant Subsidiary”
means a Subsidiary of the Company that meets the definition of “significant subsidiary” in Article 1, Rule 1-02(w) of Regulation S-X under the Exchange Act as in effect on the date of this Indenture.
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“Specified Dollar Amount”
means the maximum cash amount per $1,000 principal amount of Notes and $1,000 of interest thereon to be received upon conversion as specified in the Settlement Notice related to any converted Notes (or if a PIK Payment has been made, in minimum
denominations of $1.00 and any integral multiple of $1.00 in excess thereof).
“Spin-Off” shall have the
meaning specified in Section 14.04(c).
“Stock Price” shall have
the meaning specified in Section 14.14(c).
“Subsidiary” means, with
respect to any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard
to the occurrence of any contingency) to vote in the election of directors, managers, general partners or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person; (ii) such Person and one or more
Subsidiaries of such Person; or (iii) one or more Subsidiaries of such Person.
“Successor Company” shall
have the meaning specified in Section 11.01(a).
“Successor Guarantor” shall
have the meaning specified in Section 13.05(a).
“Trading Day” means a day on
which (i) trading in the Common Stock (or other security for which a closing sale price must be determined) generally occurs on the New York Stock Exchange or, if the Common Stock (or such other security) is not then listed on the New York
Stock Exchange, on the principal other U.S. national or regional securities exchange on which the Common Stock (or such other security) is then listed or, if the Common Stock (or such other security) is not then listed on a U.S. national or
regional securities exchange, on the principal other market on which the Common Stock (or such other security) is then traded and (ii) a Last Reported Sale Price for the Common Stock (or closing sale price for such other security) is available
on such securities exchange or market; provided that if the Common Stock (or such other security) is not so listed or traded, “Trading Day” means a Business Day;
and provided, further, that for purposes of determining amounts due upon conversion only, “Trading Day” means a day on
which (x) there is no Market Disruption Event and (y) trading in the Common Stock generally occurs on the New York Stock Exchange or, if the Common Stock is not then listed on the New York Stock Exchange, on the principal other U.S. national or
regional securities exchange on which the Common Stock is then listed or, if the Common Stock is not then listed on a U.S. national or regional securities exchange, on the principal other market on which the Common Stock is then listed or
admitted for trading, except that if the Common Stock is not so listed or admitted for trading, “Trading Day” means a Business Day.
“Transactions” means the
transactions contemplated by the Business Combination Agreement. For the avoidance of doubt, the Transactions shall not constitute a Fundamental Change, Article 11 shall not apply to the Transactions and the Transactions shall not result in an
adjustment to the Conversion Rate.
“transfer” shall have the
meaning specified in Section 2.05(c).
“Trigger Event” shall have
the meaning specified in Section 14.04(c).
“Trust Indenture Act” means
the Trust Indenture Act of 1939, as amended, as it was in force at the date of execution of this Indenture; provided, however, that in the event the Trust
Indenture Act of 1939 is amended after the date hereof, the term “Trust Indenture Act” shall mean, to the extent required by such amendment, the Trust Indenture Act of 1939, as so amended.
“Trustee” means the Person
named as the “Trustee” in the first paragraph of this Indenture until a successor trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean or include each Person who is then a Trustee hereunder.
“unit of Reference Property”
shall have the meaning specified in Section 14.07(a).
“Valuation Period” shall have
the meaning specified in Section 14.04(c).
“Volume Failure” means, with
respect to a particular date of determination, the average trading volume (as reported on Bloomberg) of the Common Stock on the Principal Market during the consecutive twenty (20) Trading Days ending on the Trading Day immediately preceding
such date of determination (such period, the “Volume Failure Measuring Period”), is less than $2 million (as adjusted for any stock splits, stock dividends,
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stock combinations, recapitalizations or other similar transactions occurring after
the Closing Date). All such determinations to be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions during such Volume Failure Measuring Period.
“Wholly Owned Subsidiary”
means, with respect to any Person, any direct or indirect Subsidiary of such Person, except that, solely for purposes of this definition, the reference to “more than 50%” in the definition of “Subsidiary”
shall be deemed replaced by a reference to “100%”, the calculation of which shall exclude nominal amounts of the voting power of shares of Capital Stock or other interests in the relevant Subsidiary not held by such person to the extent
required to satisfy local minority interest requirements outside of the United States.
Section 1.02 Divisions. For all purposes under this Indenture, in connection with any division or plan of division under Delaware law (or any comparable event under a different jurisdiction’s laws): (a) if any asset,
right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the subsequent Person, and (b) if any new Person
comes into existence, such new Person shall be deemed to have been organized on the first date of its existence by the holders of its equity interests at such time.
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES
Section 2.01 Designation and Amount. The Notes shall be designated as the “7.00%/8.75% Convertible Senior Cash/PIK Toggle Notes due 2025.” The aggregate principal amount of Notes that may be authenticated and delivered
under this Indenture is limited to $150,000,000, subject to Section 2.10 and except for Notes authenticated and delivered upon registration or transfer of, or in exchange for, or in lieu of other Notes to the extent expressly permitted
hereunder.
Section 2.02 Form of Notes. The Notes and the Trustee’s certificate of authentication to be borne by such Notes shall be substantially in the respective forms set forth in Exhibit A, the terms and provisions of which
shall constitute, and are hereby expressly incorporated in and made a part of this Indenture. To the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions
and to be bound thereby. In the case of any conflict between this Indenture and a Note, the provisions of this Indenture shall control and govern to the extent of such conflict.
Any Global Note may be endorsed with or have incorporated in the text
thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the Custodian or the Depositary, or as may be required to comply with any applicable law or any regulation thereunder or
with the rules and regulations of any securities exchange or automated quotation system upon which the Notes may be listed or traded or designated for issuance or to conform with any usage with respect thereto, or to indicate any special
limitations or restrictions to which any particular Notes are subject.
Any of the Notes may have such letters, numbers or other marks of
identification and such notations, legends or endorsements as the Officer executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture, or as may
be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange or automated quotation system on which the Notes may be listed or designated for issuance, or to
conform to usage or to indicate any special limitations or restrictions to which any particular Notes are subject.
Each Global Note shall represent such principal amount of the
outstanding Notes as shall be specified therein and shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes
represented thereby may from time to time be increased or reduced to reflect redemptions, repurchases, cancellations, conversions, transfers or exchanges permitted hereby. Any endorsement of a Global Note to reflect the amount of any increase
or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in such manner and upon instructions given by the Holder of such Notes in accordance with this
Indenture. Payment of principal (including the Fundamental Change Repurchase Price, if applicable) of, and accrued and unpaid interest on, a Global Note shall be made to the Holder of such Note on the date of payment, unless a record date or
other means of determining Holders eligible to receive payment is provided for herein.
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Section 2.03 Date and Denomination of Notes; Payments of Interest and Defaulted Amounts. (a) The Notes shall be issuable in registered form without coupons in minimum denominations of $1,000 principal amount and
integral multiples in excess thereof, subject to the issuance of PIK Notes or the increase in the principal amount of a Global Note in order to evidence PIK Interest, which PIK Notes or increased principal amount of a Global Note will be in
denominations of $1.00 and integral multiples of $1.00 in excess thereof. Each Note shall be dated the date of its authentication and shall bear interest from the date specified on the face of such Note. Accrued interest on the Notes shall be
computed on the basis of a 360-day year composed of twelve 30-day months and, for partial months, on the basis of the number of days actually elapsed in a 30-day month.
(b) The Person in whose name any Note (or its Predecessor Note) is
registered on the Note Register at the close of business on any Regular Record Date with respect to any Interest Payment Date shall be entitled to receive the interest payable on such Interest Payment Date. The principal amount of any Note
(x) in the case of any Physical Note, shall be payable at the office or agency of the Company maintained by the Company for such purposes in the contiguous United States, which shall initially be the Corporate Trust Office and (y) in the case
of any Global Note, shall be payable by wire transfer of immediately available funds to the account of the Depositary or its nominee. The Company shall pay, or cause the Paying Agent to pay, interest (i) on any Physical Notes (A) to Holders
holding Physical Notes having an aggregate principal amount of $5,000,000 or less, by check mailed to the Holders of these Notes at their address as it appears in the Note Register and (B) to Holders holding Physical Notes having an aggregate
principal amount of more than $5,000,000, either by check mailed to each Holder or, upon application by such a Holder to the Note Registrar not later than the relevant Regular Record Date, by wire transfer in immediately available funds to that
Holder’s account within the United States, which application shall remain in effect until the Holder notifies, in writing, the Note Registrar to the contrary or (ii) on any Global Note by wire transfer of immediately available funds to the
account of the Depositary or its nominee.
(c) Any Defaulted Amounts shall forthwith cease to be payable to the
Holder on the relevant payment date but shall accrue interest per annum at the rate borne by the Notes plus 2.00% per annum, subject to the enforceability thereof under applicable law, from, and including, such relevant payment date, and such
Defaulted Amounts together with such interest thereon shall be paid by the Company, at its election in each case, as provided in clause (i) or (ii) below:
(i) The Company may elect to make payment of any Defaulted Amounts
to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a special record date for the payment of such Defaulted Amounts, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of the Defaulted Amounts proposed to be paid on each Note and the date of the proposed payment (which shall be not less than 25 days after the receipt by the Trustee of such notice,
unless the Trustee shall consent to an earlier date), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount to be paid in respect of such Defaulted Amounts or shall make arrangements
satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Amounts as in this clause provided. Thereupon
the Company shall fix a special record date for the payment of such Defaulted Amounts which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment, and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Company shall promptly notify the Trustee in writing of such special record date and the Trustee, in the name and at the expense of the Company, shall cause notice of the proposed payment of
such Defaulted Amounts and the special record date therefor to be delivered to each Holder not less than 10 days prior to such special record date. Notice of the proposed payment of such Defaulted Amounts and the special record date therefor
having been so delivered, such Defaulted Amounts shall be paid to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on such special record date and shall no longer be payable
pursuant to the following clause (ii) of this Section 2.03(c). The Trustee shall have no responsibility for the calculation of the Defaulted Amounts.
(ii) The Company may make payment of any Defaulted Amounts in any
other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which
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the Notes may be listed or designated for issuance, and upon such notice as may be
required by such exchange or automated quotation system, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee.
Section 2.04 Execution, Authentication and Delivery of Notes. The Notes shall be signed in the name and on behalf of the Company by the manual, facsimile or other electronic signature of one of its Officers.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Notes, and the Trustee in accordance with such Company Order
shall authenticate and deliver such Notes and increase the principal amount of any Global Note as a result of a PIK Payment in the amount set forth in the applicable notice, without any further action by the Company hereunder. Each Company
Order will specify the amount of Notes to be authenticated, the date on which the Notes are to be authenticated, whether the securities are to be PIK Notes and the aggregate principal amount of Notes outstanding on the date of authentication,
and will further specify the amount of such Notes to be issued as Global Notes. Such Notes will initially be the form of one or more Global Notes, which (i) will represent, and will be denominated in an amount equal to the aggregate principal
amount of, the Notes to be Issued, (ii) will be registered in the name of the Depositary or its nominee and (iii) will be held by the Trustee as Custodian.
Only such Notes as shall bear thereon a certificate of authentication
substantially in the form set forth on the Form of Note attached as Exhibit A hereto, executed manually by an authorized signatory of the Trustee (or an authenticating agent appointed by the Trustee as provided by Section 17.10), shall be
entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee (or such an authenticating agent) upon any Note executed by the Company shall be conclusive evidence that the Note so
authenticated has been duly authenticated and delivered hereunder and that the Holder is entitled to the benefits of this Indenture.
In case any Officer of the Company who shall have signed any of the
Notes shall cease to be such Officer before the Notes so signed shall have been authenticated and delivered by the Trustee, or disposed of by the Company, such Notes nevertheless may be authenticated and delivered or disposed of as though the
person who signed such Notes had not ceased to be such Officer of the Company; and any Note may be signed on behalf of the Company by such persons as, at the actual date of the execution of such Note, shall be the Officers of the Company,
although at the date of the execution of this Indenture any such person was not such an Officer.
Section 2.05 Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary. The Company shall cause to be kept at the Corporate Trust Office a register (the register maintained in such office or in
any other office or agency of the Company designated pursuant to Section 4.02, the “Note Register”) in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. Such register shall be in written form or in any form capable of being converted into written form within a reasonable period of time. The Trustee is hereby initially appointed the “Note Registrar” for the purpose of registering Notes and transfers of Notes as herein provided. The Company may appoint one or more co-Note Registrars in accordance with Section 4.02.
Upon surrender for registration of transfer of any Note to the Note
Registrar or any co-Note Registrar, and satisfaction of the requirements for such transfer set forth in this Section 2.05, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of any authorized denominations and of a like aggregate principal amount and bearing such legends as may be required by this Indenture.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note other than to require delivery of such certificates and other documentation
or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.
Notes may be exchanged for other Notes of any authorized
denominations and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at any such office or agency maintained by the Company
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pursuant to Section 4.02. Whenever any Notes are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the Notes that the Holder making the exchange is entitled to receive, bearing registration numbers not contemporaneously outstanding.
All Notes presented or surrendered for registration of transfer or
for exchange, repurchase or conversion shall (if so required by the Company, the Trustee, the Note Registrar or any co-Note Registrar) be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form satisfactory
to the Trustee or Note Registrar and duly executed, by the Holder thereof or its attorney-in-fact duly authorized in writing.
No service charge shall be imposed on a Holder by the Company, the
Trustee, the Note Registrar, any co-Note Registrar or the Paying Agent for any exchange or registration of transfer of Notes, but the Company may require a Holder to pay a sum sufficient to cover any documentary, stamp or similar issue or
transfer tax required in connection therewith as a result of the name of the Holder of new Notes issued upon such exchange or registration of transfer being different from the name of the Holder of the old Notes surrendered for exchange or
registration of transfer.
None of the Company, the Trustee, the Note Registrar or any co-Note
Registrar shall be required to exchange or register a transfer of (i) any Notes surrendered for conversion or, if a portion of any Note is surrendered for conversion, such portion thereof surrendered for conversion or (ii) any Notes, or a
portion of any Note, surrendered for repurchase (and not withdrawn) in accordance with Article 15.
All Notes issued upon any registration of transfer or exchange of
Notes in accordance with this Indenture shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture as the Notes surrendered upon such registration of transfer or exchange.
(b) So long as the Notes are eligible for book-entry settlement with
the Depositary, unless otherwise required by law, subject to the fourth paragraph from the end of Section 2.05(c), all Notes shall be represented by one or more Notes in global form (each, a “Global Note”)
registered in the name of the Depositary or the nominee of the Depositary. Each Global Note shall bear the legend required on a Global Note set forth in Exhibit A hereto. The transfer and exchange of beneficial interests in a Global Note that
does not involve the issuance of a Physical Note shall be effected through the Depositary (but not the Trustee or the Custodian) in accordance with this Indenture (including the restrictions on transfer set forth herein) and the Applicable
Procedures.
(c) Every Note that bears or is required under this Section 2.05(c)
to bear the Restrictive Legend (together with any Common Stock issued upon conversion of the Notes that is required to bear the legend set forth in Section 2.05(d), collectively, the “Restricted Securities”)
shall be subject to the restrictions on transfer set forth in this Section 2.05(c) (including the legend set forth below), unless such restrictions on transfer shall be eliminated or otherwise waived by written consent of the Company, and the
Holder of each such Restricted Security, by such Holder’s acceptance thereof, agrees to be bound by all such restrictions on transfer. As used in this Section 2.05(c) and Section 2.05(c), the term “transfer”
encompasses any sale, pledge, transfer or other disposition whatsoever of any Restricted Security.
(d) Each Global Note shall bear a legend in substantially the
following form (the “Restrictive Legend”) (or any similar legend, not inconsistent with this Indenture, required by the Depositary for such Global Note):
THIS SECURITY AND THE COMMON STOCK, IF ANY, ISSUABLE UPON CONVERSION
OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
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TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER:
(1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS A “QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT, AND
(2) AGREES FOR THE BENEFIT OF ZEROFOX HOLDINGS, INC. (THE “COMPANY”) THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN PRIOR TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LAST ORIGINAL CLOSING DATE
HEREOF OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THERETO AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW, EXCEPT:
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BECOME EFFECTIVE
UNDER THE SECURITIES ACT AND IS EFFECTIVE AT THE TIME OF SUCH TRANSFER, OR
(C) TO A PERSON THAT YOU REASONABLY BELIEVE TO BE A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, OR
(D) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH CLAUSE
(2)(D) ABOVE, THE COMPANY AND THE TRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN
COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
NO AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE
COMPANY OR PERSON THAT HAS BEEN AN AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY DURING THE IMMEDIATELY PRECEDING THREE MONTHS MAY PURCHASE, OTHERWISE ACQUIRE OR HOLD THIS SECURITY OR A BENEFICIAL INTEREST HEREIN.
Any Note (or security issued in exchange or substitution therefor)
(i) as to which such restrictions on transfer shall have expired in accordance with their terms, (ii) that has been transferred pursuant to a registration statement that has become effective or been declared effective under the Securities Act
and that continues to be effective at the time of such transfer or (iii) that has been sold pursuant to the exemption from registration provided by Rule 144 or any similar provision then in force under the Securities Act, may, upon surrender of
such Note for exchange to the Note Registrar in accordance with the provisions of this Section 2.05, be exchanged for a new Note or Notes, of like tenor and aggregate principal amount, which shall not bear the Restrictive Legend required by
this Section 2.05(c) and shall not be assigned (or deemed assigned) a restricted CUSIP number. The Restrictive Legend set forth above and affixed on any Note will be deemed, in accordance with the terms of the certificate representing such
Note, to be removed therefrom upon the Company’s delivery to the Trustee of written notice to such effect, without further action by the Company, the Trustee, the Holder(s) thereof or any other Person; at such time, such Note will be deemed to
be assigned an unrestricted CUSIP number as provided in the certificate representing such Note, it being understood that the Depositary of any Global Note may require a mandatory exchange or other process to cause such Global Note to be
identified by an unrestricted CUSIP number in the facilities of such Depositary. Without limiting the generality of any other provision of this Indenture, the Trustee will be entitled to receive an instruction letter from the Company before
taking any action with respect to effecting any such mandatory exchange or other process. The Company and the
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Trustee reserve the right to require the delivery of such legal opinions,
certifications or other evidence as may reasonably be required in order to determine that any proposed transfer of any Note is being made in compliance with the Securities Act and applicable state securities laws.
The Company shall be entitled to instruct the Custodian in writing to
so surrender any Global Note as to which any of the conditions set forth in clause (i) through (iii) of the first sentence of the immediately preceding paragraph have been satisfied, and, upon such instruction, the Custodian shall so surrender
such Global Note for exchange; and any new Global Note so exchanged therefor shall not bear the Restrictive Legend specified in this Section 2.05(c) and shall not be assigned (or deemed assigned) a restricted CUSIP number.
Notwithstanding any other provisions of this Indenture (other than
the provisions set forth in this Section 2.05(c)), a Global Note may not be transferred as a whole or in part except (i) by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of
the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary and (ii) for exchange of a Global Note or a portion thereof for one or more Physical Notes in accordance with the second
immediately succeeding paragraph.
The Depositary shall be a clearing agency registered under the
Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to each Global Note. Initially, each Global Note shall be issued to the Depositary, registered in the name of Cede & Co., as the
nominee of the Depositary, and deposited with the Trustee as custodian for Cede & Co.
If (i) the Depositary notifies the Company at any time that the
Depositary is unwilling or unable to continue as depositary for the Global Notes and a successor depositary is not appointed within 90 days, (ii) the Depositary ceases to be registered as a clearing agency under the Exchange Act and a successor
depositary is not appointed within 90 days or (iii) an Event of Default with respect to the Notes has occurred and is continuing and a beneficial owner of any Note requests that its beneficial interest therein be issued as a Physical Note, the
Company shall execute, and the Trustee, upon receipt of an Officer’s Certificate and a Company Order for the authentication and delivery of Notes, shall authenticate and deliver (x) in the case of clause (iii), a Physical Note to such
beneficial owner in a principal amount equal to the principal amount of such Note corresponding to such beneficial owner’s beneficial interest and (y) in the case of clause (i) or (ii), Physical Notes to each beneficial owner of the related
Global Notes (or a portion thereof) in an aggregate principal amount equal to the aggregate principal amount of such Global Notes in exchange for such Global Notes, and upon delivery of the Global Notes to the Trustee such Global Notes shall be
canceled.
Physical Notes issued in exchange for all or a part of the Global
Note pursuant to this Section 2.05(c) shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, or, in the case of clause (iii) of
the immediately preceding paragraph, the relevant beneficial owner, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such Physical Notes to the Persons in whose names such Physical Notes are so
registered.
At such time as all interests in a Global Note have been converted,
canceled, repurchased or transferred, such Global Note shall be, upon receipt thereof, canceled by the Trustee in accordance with standing procedures and existing instructions between the Depositary and the Custodian. At any time prior to such
cancellation, if any interest in a Global Note is exchanged for Physical Notes, converted, canceled, repurchased or transferred to a transferee who receives Physical Notes therefor or any Physical Note is exchanged or transferred for part of
such Global Note, the principal amount of such Global Note shall, in accordance with the standing procedures and instructions existing between the Depositary and the Custodian, be appropriately reduced or increased, as the case may be, and an
endorsement shall be made on such Global Note, by the Trustee or the Custodian, at the direction of the Trustee, to reflect such reduction or increase.
None of the Company, the Trustee, the Paying Agent, the Conversion
Agent or any other agent of the Company or the Trustee shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Note or maintaining,
supervising or reviewing any records relating to such beneficial ownership interests.
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Neither the Company nor the Trustee shall have any responsibility
or liability for any act or omission of the Depositary. All notices and communications to be given to the Holders and all payments to be made to Holders in respect of the Notes shall be given or made only to, or upon the order of, the
registered Holder(s) (which shall be the Depositary or its nominee in the case of a Global Note).
The rights of beneficial owners in any Global Note shall be exercised
only through the Depositary subject to the Applicable Procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any
beneficial owners.
(e) Any stock certificate representing Common Stock issued upon
conversion of a Note shall bear a legend in substantially the following form (unless such Common Stock has been transferred pursuant to a registration statement that has become or been declared effective under the Securities Act and that
continues to be effective at the time of such transfer, or pursuant to the exemption from registration provided by Rule 144 or any similar provision then in force under the Securities Act, or such Common Stock has been issued upon conversion of
a Note that has been transferred pursuant to a registration statement that has become or been declared effective under the Securities Act and that continues to be effective at the time of such transfer, or pursuant to the exemption from
registration provided by Rule 144 or any similar provision then in force under the Securities Act, or unless otherwise agreed by the Company with written notice thereof to the Trustee and any transfer agent for the Common Stock):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL
INTEREST HEREIN, THE ACQUIRER:
(1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS A “QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT, AND
(2) AGREES FOR THE BENEFIT OF ZEROFOX HOLDINGS, INC. (THE “COMPANY”) THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN PRIOR TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LAST ORIGINAL CLOSING DATE OF
THE SERIES OF NOTES UPON THE CONVERSION OF WHICH THIS SECURITY WAS ISSUED OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THERETO AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY
APPLICABLE LAW, EXCEPT:
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BECOME EFFECTIVE
UNDER THE SECURITIES ACT AND IS EFFECTIVE AT THE TIME OF SUCH TRANSFER, OR
(C) TO A PERSON THAT YOU REASONABLY BELIEVE TO BE A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, OR
(D) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH CLAUSE
(2)(D) ABOVE, THE COMPANY AND THE TRANSFER AGENT FOR THE COMPANY’S COMMON STOCK RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN ORDER FOR THE COMPANY TO
DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
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Any such Common Stock (i) as to which such restrictions on
transfer shall have expired in accordance with their terms, (ii) that has been transferred pursuant to a registration statement that has become or been declared effective under the Securities Act and that continues to be effective at the time
of such transfer or (iii) that has been sold pursuant to the exemption from registration provided by Rule 144 or any similar provision then in force under the Securities Act, may, upon surrender of the certificates representing such shares of
Common Stock for exchange in accordance with the procedures of the transfer agent for the Common Stock, be exchanged for a new certificate or certificates for a like aggregate number of shares of Common Stock, which shall not bear the
restrictive legend required by this Section 2.05(d).
(f) Any Note or Common Stock issued upon conversion or exchange of a
Note that is repurchased or owned by the Company or any Affiliate of the Company (or any Person who was an Affiliate of the Company at any time during the three months immediately preceding) may not be resold by the Company or such Affiliate
(or such Person, as the case may be) unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction that results in such Note or Common Stock, as the case
may be, no longer being a “restricted security” (as defined under Rule 144).
(g) Notwithstanding anything contained herein to the contrary,
neither the Trustee nor the Note Registrar shall be responsible for ascertaining whether any transfer complies with the registration provisions of, or exemptions from, the Securities Act, applicable state securities laws or other applicable
law.
Section 2.06 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note shall become mutilated or be destroyed, lost or stolen, the Company in its discretion may execute, and upon receipt of a Company Order, the
Trustee or an authenticating agent appointed by the Trustee shall authenticate and deliver, a new Note, bearing a registration number not contemporaneously outstanding, in exchange and substitution for the mutilated Note, or in lieu of and in
substitution for the Note so destroyed, lost or stolen. In every case the applicant for a substituted Note shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be
required by them to save each of them harmless from any loss, liability, cost or expense caused by or connected with such substitution, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company, to the
Trustee and, if applicable, to such authenticating agent evidence to their satisfaction of the destruction, loss or theft of such Note and of the ownership thereof.
The Trustee or such authenticating agent may authenticate any such
substituted Note and deliver the same upon the receipt of such security or indemnity as the Trustee, the Company and, if applicable, such authenticating agent may require. No service charge shall be imposed by the Company, the Trustee, the Note
Registrar, any co-Note Registrar or the Paying Agent upon the issuance of any substitute Note, but the Company may require a Holder to pay a sum sufficient to cover any documentary, stamp or similar issue or transfer tax required in connection
therewith as a result of the name of the Holder of the new substitute Note being different from the name of the Holder of the old Note that became mutilated or was destroyed, lost or stolen. In case any Note that has matured or is about to
mature or has been surrendered for required repurchase or is about to be converted in accordance with Article 14 shall become mutilated or be destroyed, lost or stolen, the Company may, in its sole discretion, instead of issuing a substitute
Note, pay or authorize the payment of or convert or authorize the conversion of the same (without surrender thereof except in the case of a mutilated Note), as the case may be, if the applicant for such payment or conversion shall furnish to
the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless for any loss, liability, cost or expense caused by or connected with such
substitution, and, in every case of destruction, loss or theft, evidence satisfactory to the Company, the Trustee and, if applicable, any Paying Agent or Conversion Agent of the destruction, loss or theft of such Note and of the ownership
thereof.
Every substitute Note issued pursuant to the provisions of this
Section 2.06 by virtue of the fact that any Note is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note shall be found at any time, and shall be
entitled to all the benefits of (but shall be subject to all the limitations set forth in) this Indenture equally and proportionately with any and all other Notes duly issued hereunder. To the extent permitted by law, all Notes shall be held
and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement, payment,
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conversion or repurchase of mutilated, destroyed, lost or stolen Notes and shall
preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement, payment, conversion or repurchase of negotiable instruments or other securities
without their surrender.
Section 2.07 Temporary Notes. Pending the preparation of Physical Notes, the Company may execute and the Trustee or an authenticating agent appointed by the Trustee shall, upon receipt of a Company Order, authenticate
and deliver temporary Notes (printed or lithographed). Temporary Notes shall be issuable in any authorized denomination, and substantially in the form of the Physical Notes but with such omissions, insertions and variations as may be
appropriate for temporary Notes, all as may be determined by the Company. Every such temporary Note shall be executed by the Company and authenticated by the Trustee or such authenticating agent upon the same conditions and in substantially the
same manner, and with the same effect, as the Physical Notes. Without unreasonable delay, the Company shall execute and deliver to the Trustee or such authenticating agent Physical Notes (other than any Global Note) and thereupon any or all
temporary Notes (other than any Global Note) may be surrendered in exchange therefor, at each office or agency maintained by the Company pursuant to Section 4.02 and the Trustee or such authenticating agent shall authenticate and deliver in
exchange for such temporary Notes an equal aggregate principal amount of Physical Notes upon the written request of the Company. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged,
the temporary Notes shall in all respects be entitled to the same benefits and subject to the same limitations under this Indenture as Physical Notes authenticated and delivered hereunder.
Section 2.08 Cancellation of Notes Paid, Converted, Etc. The Company shall cause all Notes surrendered for the purpose of payment at maturity, repurchase upon a Fundamental Change, registration of transfer or exchange or
conversion (other than any Notes exchanged pursuant to Section 14.12), if surrendered to any Person that the Company controls other than the Trustee, to be surrendered to the Trustee for cancellation and they will no longer be considered
outstanding under this Indenture upon their payment at maturity, registration of transfer or exchange or conversion. All Notes delivered to the Trustee shall be canceled promptly by it. Except for any Notes surrendered for registration of
transfer or exchange, or as otherwise expressly permitted by any of the provisions of this Indenture, no Notes shall be authenticated in exchange for any Notes surrendered to the Trustee for cancellation. The Trustee shall dispose of canceled
Notes in accordance with its customary procedures. After such cancellation, the Trustee shall deliver a certificate of such cancellation to the Company, at the Company’s written request in a Company Order.
Section 2.09 CUSIP Numbers. The Company in issuing the Notes may use CUSIP numbers (if then generally in use), and, if so, the Trustee shall use CUSIP numbers in all notices issued to Holders as a convenience to such
Holders; provided that the Trustee shall have no liability for any defect in the CUSIP numbers as they appear on any Note, notice or elsewhere and that any such notice may state that no representation
is made as to the correctness of such numbers either as printed on the Notes or on such notice and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall promptly notify the Trustee in
writing of any change in the CUSIP numbers.
(a) Subject to the limitation in the next succeeding sentence,
interest may, at the Company’s option (a “PIK Election”), be paid by increasing the principal amount of the outstanding Notes or if, and in the limited circumstances where, the Notes are no longer held in
global form, by issuing Notes (“PIK Notes”) (rounded up to the nearest $ 1.00) under this Indenture, having the same terms and conditions as the Notes (“PIK Interest”)
(in each case, a “PIK Payment”) at a rate of 8.75% per annum.
(b) PIK Interest on the Notes, if elected to be paid, will be
payable (x) with respect to Notes represented by one or more Global Notes registered in the name of, or held by, the Custodian or its nominee on the relevant Record Date, by increasing the principal amount of the outstanding Global Note by an
amount equal to the amount of PIK Interest for the applicable interest period (rounded up to the nearest whole dollar) as directed by the Company in Company Order and (y) with respect to Notes represented by certificated notes, by issuing PIK
Notes in certificated form in an aggregate principal amount equal to the amount of PIK Interest for the applicable period (rounded up to the nearest whole dollar), and the Trustee will, at the written request of the Company, authenticate and
deliver on the applicable Interest Payment Date such PIK Notes for original issuance to the Holders of record on the relevant Record Date, as shown by the
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records of the register of Holders. Following an increase in the principal amount of
the outstanding Global Notes as a result of a PIK Payment, the Global Notes will bear interest on such increased principal amount from and after the date of such PIK Payment and an adjustment will be made on the books and records of the Trustee
with respect to such Global Note to reflect such increase. Any PIK Notes issued in certificated form will be dated as of the applicable Interest Payment Date and will bear interest from and after such date. All Notes issued pursuant to a PIK
Payment will mature on the Maturity Date and will be governed by, and subject to the terms, provisions and conditions of this Indenture and shall have the same rights and benefits as the Notes issued on the Issue Date. Any certificated PIK
Notes will be issued with the description “PIK” on the face of such PIK Note, and references to the “principal” or “principal amount” of the PIK Notes shall include any increase in the principal amount of the outstanding Notes as a result of
any PIK Payment.
(c) PIK Interest will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the Closing Date. The calculation of PIK Interest will be made by the Company or on behalf of the Company by such Person as the Company shall designate, and such calculation and the
correctness thereof shall not be a duty or obligation of the Trustee. PIK Interest on the Notes will be paid in the denominations specified in Section 2.03.
(d) If the Company makes a PIK Election for any Interest Payment
Period, then the Company shall deliver a written notice (“PIK Notice”) to the Trustee and the Holders at least five (5) Business Days before the Record Date for such Interest Payment Date, which notice
shall state the form of interest payment with respect to such interest period and the total amount of interest to be paid on the applicable Interest Payment Date.
SATISFACTION AND DISCHARGE
Section 3.01 Satisfaction and Discharge. This Indenture and the Notes shall upon request of the Company contained in an Officer’s Certificate cease to be of further effect, and the Trustee, at the expense of the
Company, shall execute proper instruments reasonably requested by the Company acknowledging satisfaction and discharge of this Indenture and the Notes, when (a) (i) all Notes theretofore authenticated and delivered (other than Notes which have
been destroyed, lost or stolen and which have been replaced, paid or converted as provided in Section 2.06) have been delivered to the Trustee for cancellation; or (ii) after the Notes have (x) become due and payable, whether on the Maturity
Date, on any Fundamental Change Repurchase Date or otherwise and/or (y) been converted (and the related consideration due upon conversion has been determined), the Company has deposited with the Trustee cash and/or has delivered to Holders
shares of Common Stock, as applicable, (in the case of Common Stock, solely to satisfy the Company’s Conversion Obligation) sufficient, without consideration of reinvestment, to pay all of the outstanding Notes and all other sums due and
payable under this Indenture or the Notes by the Company; and (b) the Company has delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture and the Notes have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 7.06 shall survive.
PARTICULAR COVENANTS OF THE COMPANY
Section 4.01 Payment of Principal and Interest. The Company covenants and agrees that it will pay or cause to be paid the principal (including the Fundamental Change Repurchase Price, if applicable) and premium, if any,
of the Settlement Amounts owed upon conversion of, and accrued and unpaid interest on (including any Cash Interest or PIK Interest), each of the Notes at the places, at the respective times and in the manner provided herein and in the Notes.
Principal, premium, if any, and Cash Interest or PIK Interest, as applicable, will be considered paid on the date due if by [11:00] a.m. (New York City time) on such date the Trustee or the Paying Agent holds in accordance with this Indenture
money sufficient to pay all principal, premium, if any, and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Holders on that date pursuant to the terms of this Indenture.
Interest will be payable, at the election of the Company, in whole
(i) as Cash Interest or (ii) by increasing the principal amount of the outstanding Global Notes, if any, and by issuing PIK Notes. For the avoidance of
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doubt, interest on the Notes in respect of any interest period for which a PIK Notice
is not delivered must be paid entirely in cash; provided, that the Company shall provide a Company Order to the Trustee on each Interest Payment Date on which the Company will pay PIK Interest.
Notwithstanding anything to the contrary contained in this Indenture,
the Company or Paying Agent may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal, premium or Interest or Defaulted Amounts payments hereunder.
Section 4.02 Maintenance of Office or Agency. The Company will maintain in the contiguous United States an office or agency (which may be an office of the Trustee or an Affiliate of the Trustee) where the Notes may be
surrendered for registration of transfer or exchange or for presentation for payment or repurchase (“Paying Agent”) or for conversion (“Conversion Agent”) and where
notices and demands to or upon the Company in respect of the Notes and this Indenture may be made. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made at the Corporate Trust Office.
The Company may also from time to time designate as co-Note
Registrars one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such
designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the contiguous United States for such purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other office or agency. The terms “Paying Agent” and “Conversion Agent” include any such
additional or other offices or agencies, as applicable.
The Company hereby initially designates the Trustee as the Paying
Agent, Note Registrar, Custodian and Conversion Agent and the Corporate Trust Office as a place where Notes may be surrendered for registration of transfer or exchange or for presentation for payment or repurchase (if applicable) or for
conversion and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be made; provided that no office of the Trustee shall be a place for service of legal
process on the Company.
Section 4.03 Appointments to Fill Vacancies in Trustee’s Office. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 7.09, a Trustee, so
that there shall at all times be a Trustee hereunder.
Section 4.04 Provisions as to Paying Agent. (a) If the Company shall appoint a Paying Agent other than the Trustee, the Company will cause such Paying Agent to execute and deliver to the Trustee an instrument in which
such agent shall agree with the Trustee, subject to the provisions of this Section 4.04:
(i) that it will hold all sums held by it as such agent for the
payment of the principal (including the Fundamental Change Repurchase Price, if applicable) of, and accrued and unpaid interest on, the Notes in trust for the benefit of the Holders;
(ii) that it will give the Trustee prompt written notice of any
failure by the Company to make any payment of the principal (including the Fundamental Change Repurchase Price, if applicable) and premium, if any of, and accrued and unpaid interest on, the Notes when the same shall be due and payable; and
(iii) that at any time during the continuance of an Event of
Default, upon request of the Trustee, it will forthwith pay to the Trustee all sums so held in trust;
provided that a
Paying Agent appointed as contemplated under Section 15.02(f) shall not be required to deliver any such instrument.
The Company shall, on or before each due date of the principal
(including the Fundamental Change Repurchase Price, if applicable) of, or accrued and unpaid interest on, the Notes, deposit with the Paying Agent a sum sufficient to pay such principal (including the Fundamental Change Repurchase Price, if
applicable) or such accrued and unpaid interest, if any, and/or, if the Company is entitled to pay PIK Interest with respect to the interest payment period as provided for in Section 2.10, increase the principal amount of the Notes to pay any
PIK Interest pursuant to a written direction delivered to the Trustee specifying the increase in the Global Note, or in the limited circumstances where the Notes are no longer held in global form, issue PIK Notes to pay any PIK Interest
pursuant to a certificate of authentication with respect to the PIK Interest to be issued on the applicable
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Interest Payment Date, when so becoming due, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee in writing of any failure to take such action; provided that if such deposit is made on the due date, such deposit must be made in immediately
available funds and received by the Paying Agent by 11:00 a.m., New York City time, on such date.
(b) If the Company shall act as its own Paying Agent, it will, on or
before each due date of the principal (including the Fundamental Change Repurchase Price, if applicable) of, and accrued and unpaid interest on, the Notes, set aside, segregate and hold in trust for the benefit of the Holders of the Notes a sum
sufficient to pay such principal (including the Fundamental Change Repurchase Price, if applicable) and accrued and unpaid interest, if any, and/or, if the Company is entitled to pay PIK Interest with respect to the interest payment period as
provided for in Section 2.10, increase the principal amount of the Notes to pay any PIK Interest pursuant to a written direction delivered to the Trustee specifying the increase in the Global Note, or in the limited circumstances where the
Notes are no longer held in global form, issue PIK Notes to pay any PIK Interest pursuant to a certificate of authentication with respect to the PIK Interest to be issued on the applicable Interest Payment Date, so becoming due and will
promptly notify the Trustee in writing of any failure to take such action and of any failure by the Company to make any payment of the principal (including the Fundamental Change Repurchase Price, if applicable) of, or accrued and unpaid
interest on, the Notes when the same shall become due and payable.
(c) Anything in this Section 4.04 to the contrary notwithstanding,
the Company may, at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture, or for any other reason, pay, cause to be paid or deliver to the Trustee all sums or amounts held in trust by the Company or any Paying
Agent hereunder as required by this Section 4.04, such sums or amounts to be held by the Trustee upon the trusts herein contained and upon such payment or delivery by the Company or any Paying Agent to the Trustee, the Company or such Paying
Agent shall be released from all further liability but only with respect to such sums or amounts.
(d) Subject to applicable law, any money deposited with the Trustee,
the Conversion Agent or any Paying Agent, or any money and shares of Common Stock then held by the Company, in trust for the payment of the principal (including the Fundamental Change Repurchase Price, if applicable) of, accrued and unpaid
interest on and the consideration due upon conversion of any Note and remaining unclaimed for two years after such principal (including the Fundamental Change Repurchase Price, if applicable), interest or consideration due upon conversion has
become due and payable shall be paid to the Company on request of the Company contained in an Officer’s Certificate, or (if then held by the Company) shall be discharged from such trust and the Trustee shall have no further liability with
respect to such funds; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee, the Conversion Agent or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee with respect to such trust money and shares of Common Stock, shall thereupon cease.
Section 4.05 Corporate Existence. Subject to Article 11, the Company shall do or cause to be done, at its own cost and expense, all things necessary to preserve and keep in full force and effect its corporate existence
in accordance with the organizational documents (as the same may be amended from time to time) of the Company.
Section 4.06 Rule 144A Information Requirement and Annual Reports. (a) At any time the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company shall, so long as any of the Notes or any shares of
Common Stock issuable upon conversion thereof shall, at such time, constitute “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, promptly provide without cost to the Trustee and, upon written request, any
Holder, beneficial owner or prospective purchaser of such Notes or any shares of Common Stock issuable upon conversion of such Notes, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act to facilitate
the resale of such Notes or shares of Common Stock pursuant to Rule 144A.
(b) The Company shall deliver to the Trustee, within 15 days after
the same are required to be filed with the Commission, copies of any documents or reports that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act (giving effect to any grace period provided
by Rule 12b-25 under the Exchange Act (or any successor thereto)). Notwithstanding the foregoing, the Company shall in no event be required to deliver to, or otherwise provide or disclose to, the
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Trustee or any Holder any information for which the Company is requesting (assuming
such request has not been denied), or has received, confidential treatment from the Commission, or any correspondence with the Commission. Any such document or report that the Company files with the Commission via the Commission’s EDGAR system
(or any successor thereto) shall be deemed to be delivered to the Trustee for purposes of this Section 4.06(b) at the time such documents are filed via the EDGAR system (or such successor); provided that
the Trustee shall have no obligation to determine whether such documents or reports have been filed via the EDGAR system.
(c) Delivery of the reports, information and documents described in
subsection (b) above to the Trustee is for informational purposes only, and the information and the Trustee’s receipt of such shall not constitute actual or constructive notice of any information contained therein or determinable from
information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to conclusively rely on an Officer’s Certificate).
Section 4.07 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal or premium of or interest on the Notes as contemplated herein, wherever enacted, now or at
any time hereafter in force, or that may affect the covenants or the performance of this Indenture; and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it
will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
Section 4.08 Compliance Certificate; Statements as to Defaults. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company (beginning with the fiscal year ending on
January 31, 2023) an Officer’s Certificate stating whether the signers thereof have knowledge of any failure by the Company to comply with all conditions and covenants then required to be performed under this Indenture and, if so, specifying
each such failure and the nature thereof.
In addition, the Company shall deliver to the Trustee within 30 days
after an officer of the Company becomes aware of the occurrence of any Event of Default or Default, an Officer’s Certificate setting forth the details of such Event of Default or Default, its status and the action that the Company is taking or
proposing to take in respect thereof; provided that the Company is not required to deliver such notice if such Event of Default or Default has been cured.
Section 4.09 Registration Rights. The Company agrees that the Holders from time to time of Registrable Securities are entitled to the benefits of Section 5 of the Registration Rights Agreement. By its acceptance thereof,
the Holder of Registrable Securities will have agreed to be bound by the terms of the applicable Registration Rights Agreement relating to such Registrable Securities.
Section 4.10 Compliance with Laws. The Company shall comply with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any
governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of its respective businesses and the ownership of its respective properties, except for such
non-compliances as could not singly or in the aggregate reasonably be expected to have a material adverse effect on the financial condition or results of operations of the Company.
Section 4.11 Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges
(including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or properties of it and (ii) all material lawful claims for labor, materials and supplies that, if unpaid, might by law become a lien
upon the property of the Company.
Section 4.12 Further Instruments and Acts. Upon request of the Trustee, Paying Agent or Conversion Agent, the Company will execute and deliver such further instruments and do such further acts, at its sole expense, as
may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture.
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indirectly liable, contingently or otherwise, with respect to or permit to exist any
Indebtedness that is (x) secured, (y) senior in right of payment to the Notes or (z) structurally senior to the Notes (collectively “Senior Indebtedness”) and will not permit any of its Subsidiaries to
issue any Disqualified Capital Stock or issue any shares of Preferred Stock other than Senior Indebtedness, Disqualified Capital Stock or Preferred Stock in an aggregate principal amount not to exceed $50,000,000.
Section 4.14 Additional Note Guarantees. After the Closing Date, the Company will cause each of its Subsidiaries reasonably promptly (and no later than thirty (30) days) after the acquisition or formation of such
Subsidiary to execute and deliver to the Trustee (a) a Guarantee, which shall be a notational guarantee, the form of which is attached as Exhibit B hereto, pursuant to which such Subsidiary will unconditionally Guarantee, on a joint and
several basis, the full and prompt payment of the principal of, premium, if any and interest, if any, on the Notes and all other Obligations under this Indenture on the same terms and conditions as those set forth in Article XIII. On the
Closing Date, the Subsidiaries listed on Schedule [xx] hereto will enter into a notational guarantee and will become Guarantors.
LISTS OF HOLDERS AND REPORTS BY THE COMPANY AND THE TRUSTEE
Section 5.01 Lists of Holders. The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee, semi-annually, not more than 10 days after each [ ] and [ ] in each year beginning with
[ ], 2022, and at such other times as the Trustee may request in writing, within 30 days after receipt by the Company of any such request (or such lesser time as the Trustee may reasonably request in order to enable it to timely provide any
notice to be provided by it hereunder), a list in such form as the Trustee may reasonably require of the names and addresses of the Holders as of a date not more than 10 days (or such other date as the Trustee may reasonably request in order to
so provide any such notices) prior to the time such information is furnished, except that no such list need be furnished so long as the Trustee is acting as Note Registrar.
Section 5.02 Preservation and Disclosure of Lists. The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the Holders contained in the most recent
list furnished to it as provided in Section 5.01 or maintained by the Trustee in its capacity as Note Registrar, if so acting. The Trustee may destroy any list furnished to it as provided in Section 5.01 upon receipt of a new list so furnished.
DEFAULTS AND REMEDIES
Section 6.01 Events of Default. Each of the following events shall be an “Event of Default” with respect to the Notes:
(a) default in any payment of interest on any Note when due and
payable, and the default continues for a period of thirty (30) days;
(b) default in the payment of principal or premium, if any, of any
Note when due and payable on the Maturity Date, upon any required repurchase, upon declaration of acceleration or otherwise;
(c) failure by the Company to comply with its obligation to convert
the Notes in accordance with this Indenture upon exercise of a Holder’s conversion right, and such failure continues for three (3) Business Days;
(d) failure by the Company to issue (i) comply with its obligation
to repurchase Notes at the option of any Holder in accordance with Section 15.02, and such failure continues for three (3) Business Days or (ii) a Fundamental Change Company Notice in accordance with Section 15.02(c) when due, and such failure
continues for two (2) Business Days;
(e) failure by the Company to comply with its obligations under
Article 11;
(f) failure by the Company for sixty (60) days after receipt by the
Company of written notice from the Trustee or the Holders of at least 20% in aggregate principal amount of the Notes then outstanding has been received by the Company to comply with any of its other agreements contained in the Notes or this
Indenture;
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(g) default by the Company or any Significant Subsidiary of the
Company with respect to any mortgage, agreement or other instrument under which there may be outstanding, or by which there may be secured or evidenced, any indebtedness for money borrowed in excess of $20,000,000 (or its foreign currency
equivalent) in the aggregate of the Company and/or any such Significant Subsidiary, whether such indebtedness now exists or shall hereafter be created (i) resulting in such indebtedness becoming or being declared due and payable prior to its
stated maturity or (ii) constituting a failure to pay the principal or interest of any such debt when due and payable at its stated maturity, upon required repurchase, upon declaration of acceleration or otherwise, in each case, after the
expiration of any applicable grace period, if such acceleration shall not have been rescinded or annulled or such failure to pay or default shall not have been cured or waived, or such indebtedness shall not have been paid or discharged, as the
case may be, within thirty (30) days after written notice to the Company by the Trustee or to the Company and the Trustee by Holders of at least 20% in aggregate principal amount of Notes then outstanding in accordance with this Indenture;
(h) a final judgment or judgments for the payment of $20,000,000 (or
its foreign currency equivalent) or more (excluding any amounts covered by insurance) in the aggregate rendered against the Company or any Subsidiary of the Company, which judgment is not discharged or stayed within 60 days after (i) the date
on which all rights to appeal have been extinguished;
(i) the Company or any Significant Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to the Company or any such Significant Subsidiary or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of the Company or any such Significant Subsidiary or any substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become
due; or
(j) an involuntary case or other proceeding shall be commenced
against the Company or any Significant Subsidiary seeking liquidation, reorganization or other relief with respect to the Company or such Significant Subsidiary or its debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of the Company or such Significant Subsidiary or any substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60) consecutive days.
Section 6.02 Acceleration; Rescission and Annulment. If one or more Events of Default shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary
or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), then, and in each and every such case (other than an Event of Default
specified in Section 6.01(i) or Section 6.01(j) with respect to the Company), unless the principal of all of the Notes shall have already become due and payable, either the Trustee or the Holders of at least 20% in aggregate principal amount of
the Notes then outstanding determined in accordance with Section 8.04, by notice in writing to the Company (and to the Trustee if given by Holders), may declare 100% of the principal of, premium, if any, of and accrued and unpaid interest on,
all the Notes to be due and payable immediately, and upon any such declaration the same shall become and shall automatically be immediately due and payable, anything contained in this Indenture or in the Notes to the contrary notwithstanding.
If an Event of Default specified in Section 6.01(i) or Section 6.01(j) with respect to the Company occurs and is continuing, 100% of the principal of, and accrued and unpaid interest, if any, on, all Notes shall become and shall automatically
be immediately due and payable.
The immediately preceding paragraph, however, is subject to the
conditions that if, at any time after the principal or interest of the Notes shall have been so declared due and payable, and before any judgment or decree for the payment of the monies due shall have been obtained or entered as hereinafter
provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay installments of accrued and unpaid interest upon all Notes and the principal of any and all Notes that shall have become due otherwise than by
acceleration (with interest on overdue installments of accrued and unpaid interest to the extent that payment of such interest is enforceable under applicable law, and on such principal at the rate borne by the Notes at such
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time plus 2.00% per annum) and amounts due to the Trustee pursuant to Section 7.06,
and if (1) rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (2) any and all existing Events of Default under this Indenture, other than the uncured nonpayment of the principal of and accrued and
unpaid interest, if any, on Notes that shall have become due solely by such acceleration, shall have been cured or waived pursuant to Section 6.09, then and in every such case (except as provided in the immediately succeeding sentence) the
Holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Company and to the Trustee, may waive all Defaults or Events of Default with respect to the Notes and rescind and annul such declaration
and its consequences and such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver or rescission and annulment shall extend to or
shall affect any subsequent Default or Event of Default, or shall impair any right consequent thereon. Notwithstanding anything to the contrary herein, no such waiver or rescission and annulment shall extend to or shall affect any Default or
Event of Default resulting from (i) the nonpayment of the principal (including the Fundamental Change Repurchase Price, if applicable) of, or accrued and unpaid interest on, any Notes, (ii) a failure to repurchase any Notes when required or
(iii) a failure to pay and/or deliver, as the case may be, the consideration due upon conversion of the Notes.
Section 6.04 Payments of Notes on Default; Suit Therefor. If an Event of Default described in clause (a) or (b) of Section 6.01 shall have occurred and be continuing, the Company shall, upon demand of the Trustee, pay to
the Trustee, for the benefit of the Holders of the Notes, the whole amount then due and payable on the Notes for principal and interest, if any, with interest on any overdue principal and interest, if any, at the rate borne by the Notes at such
time plus 2.00% per annum, and, in addition thereto, such further amount as shall be sufficient to cover any amounts due to the Trustee under Section 7.06. If the Company shall fail to pay such amounts forthwith upon such demand, the Trustee,
in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or
any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Notes, wherever situated.
In the event there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company or any other obligor on the Notes under Title 11 of the United States Code, or any other applicable law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator
or similar official shall have been appointed for or taken possession of the Company or such other obligor, the property of the Company or such other obligor, or in the event of any other judicial proceedings relative to the Company or such
other obligor, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 6.04, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole
amount of principal and accrued and unpaid interest, if any, in respect of the Notes, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents and to take such other actions as it may deem necessary
or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceedings
relative to the Company or any other obligor on the Notes, its’ or their creditors, or its or their property, and to collect and receive any monies or other property payable or deliverable on any such claims, and to distribute the same after
the deduction of any amounts due to the Trustee under Section 7.06; and any receiver, assignee or trustee in bankruptcy or reorganization, liquidator, custodian or similar official is hereby authorized by each of the Holders to make such
payments to the Trustee, as administrative expenses, and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for reasonable compensation, expenses,
advances and disbursements, including agents and counsel fees, and including any other amounts due to the Trustee under Section 7.06, incurred by it up to the date of such distribution. To the extent that such payment of reasonable
compensation, expenses, advances and disbursements out of the estate in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends,
monies, securities and other property that the Holders of the Notes may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise.
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Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting such Holder or the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Trustee without the possession of any of the Notes, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes.
In any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the Holders of the Notes, and it shall not be necessary to make any Holders of the Notes parties
to any such proceedings.
In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned because of any waiver pursuant to Section 6.09 or any rescission and annulment pursuant to Section 6.02 or for any other reason or shall have been determined
adversely to the Trustee, then and in every such case the Company, the Holders and the Trustee shall, subject to any determination in such proceeding, be restored respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the Holders and the Trustee shall continue as though no such proceeding had been instituted.
Section 6.05 Application of Monies Collected by Trustee. Any monies collected by the Trustee pursuant to this Article 6 with respect to the Notes shall be applied in the following order, at the date or dates fixed by the
Trustee for the distribution of such monies, upon presentation of the several Notes, and stamping thereon the payment, if only partially paid, and upon surrender thereof, if fully paid:
First, to the
payment of all amounts due the Trustee, including its agents and counsel, under Section 7.06;
Second, in case
the principal of the outstanding Notes shall not have become due and be unpaid, to the payment of any interest on, and any cash due upon conversion of, the Notes in default in the order of the date due of the payments of such interest and
cash due upon conversion, as the case may be, with interest (to the extent that such interest has been collected by the Trustee) payable upon such overdue payments at the rate borne by the Notes at such time plus 2.00% per annum, such
payments to be made ratably to the Holders based on the aggregate principal amount of Notes held thereby;
Third, in case
the principal of the outstanding Notes shall have become due, by declaration or otherwise, and be unpaid to the payment of the whole amount (including, if applicable, the payment of the Fundamental Change Repurchase Price and any cash due
upon conversion) then owing and unpaid upon the Notes for principal and interest, if any, with interest on the overdue principal and, to the extent that such interest has been collected by the Trustee, upon overdue installments of interest at
the rate borne by the Notes at such time plus 2.00% per annum, and in case such monies shall be insufficient to pay in full the whole amounts so due and unpaid upon the Notes, then to the payment of such principal (including, if applicable,
the Fundamental Change Repurchase Price and any cash due upon conversion) and interest without preference or priority of principal over interest, or of interest over principal or of any installment of interest over any other installment of
interest, or of any Note over any other Note, ratably to the aggregate of such principal (including, if applicable, the Fundamental Change Repurchase Price and any cash due upon conversion) and accrued and unpaid interest; and
Fourth, to
the payment of the remainder, if any, to the Company.
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Section 6.06 Proceedings by Holders. Except to enforce (x) the right to receive payment of principal (including, if applicable, the Fundamental Change Repurchase Price), premium or interest when due, or (y) the right to
receive payment or delivery of the consideration due upon conversion and/or the conversion mechanics, no Holder of any Note shall have any right by virtue of or by availing of any provision of this Indenture to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Indenture, or for the appointment of a receiver, trustee, liquidator, custodian or other similar official, or for any other remedy hereunder, unless:
(a) such Holder previously shall have given to the Trustee written
notice of an Event of Default and of the continuance thereof, as herein provided;
(b) Holders of at least 20% in aggregate principal amount of the
Notes then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder;
(c) such Holders shall have offered, and, if requested, provided, to
the Trustee such security or indemnity satisfactory to the Trustee against any loss, liability or expense to be incurred therein or thereby;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of such security or indemnity, shall have neglected or refused to institute any such action, suit or proceeding; and
(e) no direction that, in the opinion of the Trustee, is
inconsistent with such written request shall have been given to the Trustee by the Holders of a majority of the aggregate principal amount of the Notes then outstanding within such 60-day period pursuant to Section 6.09,
it being understood and intended, and being expressly covenanted by
the taker and Holder of every Note with every other taker and Holder and the Trustee that no one or more Holders shall have any right in any manner whatever by virtue of or by availing of any provision of this Indenture to affect, disturb or
prejudice the rights of any other Holder (it being understood that the Trustee does not have an affirmative duty to ascertain whether or not such actions or forbearances are prejudicial to any other Holder), or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all Holders (except as otherwise provided herein). For the
protection and enforcement of this Section 6.06, each and every Holder and the Trustee shall be entitled to such relief as can be given either at law or in equity.
Notwithstanding any other provision of this Indenture and any
provision of any Note, each Holder shall have the contractual right to receive payment or delivery, as the case may be, of (x) the principal (including the Fundamental Change Repurchase Price, if applicable) of, (y) accrued and unpaid interest,
if any, on, and (z) the consideration due upon conversion of, such Note, on or after the respective due dates expressed or provided for in such Note or in this Indenture, and the contractual right to institute suit for the enforcement of any
such payment or delivery, as the case may be, on or after such respective dates, shall not be amended without the consent of each Holder.
Section 6.07 Proceedings by Trustee. In case of an Event of Default, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as
are necessary to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or
in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law.
Section 6.08 Remedies Cumulative and Continuing. Except as provided in the last paragraph of Section 2.06, all powers and remedies given by this Article 6 to the Trustee or to the Holders shall, to the extent permitted
by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the Trustee or the Holders of the Notes, by judicial proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture, and no delay or omission of the Trustee or of any Holder of any of the Notes to exercise any right or power accruing upon any Default or Event of Default shall impair any such right or
power, or shall be construed to be a waiver of any such Default or Event of Default or any acquiescence therein; and, subject to the provisions of Section 6.06,
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every power and remedy given by this Article 6 or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Holders. The Trustee may maintain a proceeding even if it does not possess any Notes or does not produce any Notes in the
proceeding.
Section 6.09 Direction of Proceedings and Waiver of Defaults by Majority of Holders. The Holders of a majority of the aggregate principal amount of the Notes at the time outstanding determined in accordance with Section
8.04 shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Notes; provided, however, that (a) such direction shall not be in conflict with any rule of law or with this Indenture, and (b) the Trustee may take any other action deemed proper by the
Trustee that is not inconsistent with such direction. The Trustee may refuse to follow any direction that it determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability or for which
it has not received indemnity or security satisfactory to the Trustee against loss, liability or expense (it being understood that the Trustee does not have an affirmative duty to determine whether any direction is prejudicial to any Holder).
The Holders of a majority in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 8.04 may on behalf of the Holders of all of the Notes (x) waive any past Default or Event of Default hereunder
and its consequences except any continuing defaults relating to (i) a default in the payment of accrued and unpaid interest, if any, on, or the principal (including any Fundamental Change Repurchase Price) of, the Notes when due that has not
been cured pursuant to the provisions of Section 6.01, (ii) a failure by the Company to pay or deliver, as the case may be, the consideration due upon conversion of the Notes or (iii) a default in respect of a covenant or provision hereof which
under Article 10 cannot be modified or amended without the consent of each Holder of an outstanding Note affected; and (y) rescind any resulting acceleration of the Notes and its consequences if (i) such rescission would not conflict with any
judgment or decree of a court of competent jurisdiction and (ii) all existing Events of Default (other than nonpayment of the principal of, and interest on, the Notes that have become due solely by such acceleration) have been cured or waived.
Upon any such waiver the Company, the Trustee and the Holders of the Notes shall be restored to their former positions and rights hereunder; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon. Whenever any Default or Event of Default hereunder shall have been waived as permitted by this Section 6.09, said Default or Event of Default shall for all purposes of the Notes and this Indenture be deemed to have
been cured and to be not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. The Company will not, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of Notes or as an inducement to any consent, waiver or amendment of any of the terms of provisions of this Indenture or the Notes unless such consideration is offered to be paid and is paid to
all Holders of the Notes that consent, waiver or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or amendment.
Section 6.10 Notice of Defaults. The Trustee shall, after the occurrence and continuance of a Default of which a Responsible Officer has actual knowledge, deliver to all Holders notice of such Default within 90 days
after such Responsible Officer obtains such knowledge, unless such Defaults shall have been cured or waived before the giving of such notice; provided that, except in the case of a Default in the payment of the principal of (including the
Fundamental Change Repurchase Price, if applicable), or accrued and unpaid interest on, any of the Notes or a Default in the payment or delivery of the consideration due upon conversion, the Trustee shall be protected in withholding such notice
if and so long as a Responsible Officer of the Trustee in good faith determines that the withholding of such notice is in the interests of the Holders.
Section 6.11 Undertaking to Pay Costs. All parties to this Indenture agree, and each Holder of any Note by its acceptance thereof shall be deemed to have agreed, that any court may, in its discretion, require, in any
suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such
suit and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by
such party litigant; provided that the provisions of this Section 6.11 (to the extent permitted by law) shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding at least 20% in
aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 8.04, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or accrued and unpaid interest, if any,
on any Note (including,
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but not limited to, the Fundamental Change Repurchase Price, if applicable) on or
after the due date expressed or provided for in such Note or to any suit for the enforcement of the right to convert any Note, or receive the consideration due upon conversion, in accordance with the provisions of Article 14.
CONCERNING THE TRUSTEE
Section 7.01 Duties and Responsibilities of Trustee. The Trustee, prior to the occurrence of an Event of Default and after the curing or waiver of all Events of Default that may have occurred, undertakes to perform such
duties and only such duties as are specifically set forth in this Indenture. If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree
of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs; provided that the Trustee will be under no obligation to
exercise any of the rights or powers under this Indenture at the request or direction of any of the Holders unless such Holders have offered, and if requested, provided to the Trustee indemnity or security satisfactory to the Trustee against
any loss, liability or expense that might be incurred by it in compliance with such request or direction.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own grossly negligent action, its own grossly negligent failure to act or its own willful misconduct, except that:
(a) prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default that may have occurred:
(i) the duties and obligations of the Trustee shall be determined
solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and
(ii) in the absence of gross negligence and willful misconduct on
the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements
of this Indenture; but, in the case of any such certificates or opinions that by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not
they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of any mathematical calculations or other facts stated therein);
(b) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer or Officers of the Trustee, unless it shall be proved that the Trustee was grossly negligent in ascertaining the pertinent facts;
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority of the aggregate principal amount of the Notes at the time outstanding determined as provided in Section 8.04 relating to the
time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture;
(d) whether or not therein provided, every provision of this
Indenture relating to the conduct or affecting the liability of, or affording protection to, the Trustee shall be subject to the provisions of this Section;
(e) the Trustee shall not be liable in respect of any payment (as to
the correctness of amount, entitlement to receive or any other matters relating to payment) or notice effected by the Company or any Paying Agent or any records maintained by any co-Note Registrar with respect to the Notes;
(f) if any party fails to deliver a notice relating to an event the
fact of which, pursuant to this Indenture, requires notice to be sent to the Trustee, the Trustee may conclusively rely on its failure to receive such notice as reason to act as if no such event occurred;
(g) in the absence of written investment direction from the Company,
all cash received by the Trustee shall be placed in a non-interest bearing trust account, and in no event shall the Trustee be liable for the
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selection of investments or for investment losses incurred thereon or for losses
incurred as a result of the liquidation of any such investment prior to its maturity date or the failure of the party directing such investments prior to its maturity date or the failure of the party directing such investment to provide timely
written investment direction, and the Trustee shall have no obligation to invest or reinvest any amounts held hereunder in the absence of such written investment direction from the Company; and
(h) in the event that the Trustee is also acting as Custodian, Note
Registrar, Paying Agent, Conversion Agent or transfer agent hereunder, the rights and protections afforded to the Trustee pursuant to this Article 7 shall also be afforded to such Custodian, Note Registrar, Paying Agent, Conversion Agent or
transfer agent.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers.
Section 7.02 Reliance on Documents, Opinions, Etc. (a) Except as otherwise provided in Section 7.01: The Trustee may conclusively rely and shall be fully protected in acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, judgment, order, bond, note, coupon or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties.
(b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officer’s Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any Board Resolution may be evidenced to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company. Before the Trustee acts or refrains from acting, it may require an Officer’s Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to
take in good faith in reliance on such Officer’s Certificate or Opinion of Counsel.
(c) The Trustee may consult with counsel and require an Opinion of
Counsel and any advice of such counsel or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith and in reliance on such advice or Opinion of Counsel.
(d) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, judgment, bond, debenture or other paper or document, but the Trustee, in its discretion, may make
such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine in its reasonable judgment to make such further inquiry or investigation, it shall be entitled, at a reasonable time on any
Business Day after reasonable notice, to examine the books, records and premises of the Company, personally or by agent or attorney at the expense of the Company and shall incur no liability of any kind by reason of such inquiry or
investigation.
(e) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents, custodians, nominees or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent, custodian, nominee or attorney appointed
by it with due care hereunder, and the permissive rights of the Trustee enumerated herein shall not be construed as duties.
(f) The Trustee shall not be required to give any bond or surety in
respect of the execution of the trusts and powers under this Indenture.
(g) The Trustee may request that the Company deliver an Officer’s
Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officer’s Certificate may be signed by any Person authorized to sign an Officer’s
Certificate, including any Person specified as so authorized in any such certificate previously delivered and not superseded.
(h) The Trustee shall not be deemed to have notice of any Default or
Event of Default (except in the case of a Default or Event of Default in payment of scheduled principal of, premium, if any, or interest on, any Note) unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written
notice
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of any event which is in fact such a Default or Event of Default (and stating the
occurrence of a Default or Event of Default) is actually received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture and states that it is a “Notice of Default”.
(i) The Trustee shall not be responsible or liable for any action it
takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers.
(j) The Trustee shall not be responsible or liable for any action
taken or omitted by it in good faith at the direction of the holders of not less than a majority in principal amount of the Notes as to the time, method and place of conducting any proceedings for any remedy available to the Trustee or the
exercising of any power conferred by this Indenture.
(k) Neither the Trustee nor any of its directors, officers,
employees, agents or Affiliates shall be responsible for nor have any duty to monitor the performance or any action of the Company, or any of their respective directors, members, officers, agents, Affiliates or employee, nor shall it have any
liability in connection with the malfeasance or nonfeasance by such party. The Trustee shall not be responsible for any inaccuracy in the information obtained from the Company or for any inaccuracy or omission in the records which may result
from such information or any failure by the Trustee to perform its duties as set forth herein as a result of any inaccuracy or incompleteness.
(l) In no event shall the Trustee be responsible or liable for
punitive, special, indirect, incidental or any consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Trustee has been advised of the likelihood of such loss or damage and regardless of the
form of action other than any such loss or damage caused by the Trustee’s willful misconduct or gross negligence as determined by a final order of a court of competent jurisdiction. The Trustee shall not be charged with knowledge of any Default
or Event of Default with respect to the Notes, unless either (1) a Responsible Officer shall have actual knowledge of such Default or Event of Default or (2) written notice of such Default or Event of Default shall have been actually received
by the Trustee at the Corporate Trust Office of the Trustee, from the Company or any Holder of the Notes, and such notice references the Notes and this Indenture and states that is a “Notice of Default.”
(m) Neither the Trustee nor any agent shall have any responsibility
or liability for any actions taken or not taken by the Depositary.
Section 7.03 No Responsibility for Recitals, Etc. The recitals contained herein and in the Notes (except in the Trustee’s certificate of authentication) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes or other transaction documents relating to the Notes and this Indenture. The
Trustee shall not be accountable for the use or application by the Company of any Notes or the proceeds of any Notes authenticated and delivered by the Trustee in conformity with the provisions of this Indenture or any money paid to the Company
or upon the Company’s direction under any provision of this Indenture.
Section 7.04 Trustee, Paying Agents, Conversion Agents or Note Registrar May Own Notes. The Trustee, any Paying Agent, any Conversion Agent or Note Registrar (in each case, if other than an Affiliate of the Company), in
its individual or any other capacity, may become the owner or pledgee of Notes with the same rights it would have if it were not the Trustee, Paying Agent, Conversion Agent or Note Registrar.
Section 7.05 Monies and Shares of Common Stock to Be Held in Trust. All monies and shares of Common Stock received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for
which they were received. Money and shares of Common Stock held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as may be agreed from time to time by the Company and the Trustee.
Section 7.06 Compensation and Expenses of Trustee. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, compensation for all services rendered by it hereunder in
any capacity (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) as mutually agreed to in writing between the Trustee and the Company, and the Company will pay or reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
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advances incurred or made by the Trustee in accordance with any of the provisions of
this Indenture in any capacity hereunder (including the compensation and the reasonable expenses and disbursements of its agents and counsel and of all Persons not regularly in its employ) except any such expense, disbursement or advance as
shall have been caused by its gross negligence or willful misconduct as determined by a final order of a court of competent jurisdiction. The Company also covenants to indemnify the Trustee in any capacity under this Indenture and any other
document or transaction entered into in connection herewith and its agents and any authenticating agent for, and to hold them harmless against, any loss, claim, damage, liability or expense (including attorneys’ fees) incurred without gross
negligence or willful misconduct on the part of the Trustee, its officers, directors, agents or employees, or such agent or authenticating agent, as the case may be, as determined by a final order of a court of competent jurisdiction, and
arising out of or in connection with the acceptance or administration of this Indenture or in any other capacity hereunder (whether such claims arise by or against the Company or a third person), including the reasonable costs and expenses of
defending themselves against any claim of liability in the premises or enforcing the Company’s obligations hereunder. The obligations of the Company under this Section 7.06 to compensate or indemnify the Trustee and to pay or reimburse the
Trustee for expenses, disbursements and advances shall be secured by a senior lien to which the Notes are hereby made subordinate on all money or property held or collected by the Trustee, except, subject to the effect of Section 6.05, funds
held in trust herewith for the benefit of the Holders of particular Notes. The Trustee’s right to receive payment of any amounts due under this Section 7.06 shall not be subordinate to any other liability or indebtedness of the Company. The
obligation of the Company under this Section 7.06 shall survive the satisfaction and discharge of this Indenture, the payment or conversion of the Notes and the earlier resignation or removal of the Trustee. The Company need not pay for any
settlement made without its consent, which consent shall not be unreasonably withheld. The indemnification provided in this Section 7.06 shall extend to the officers, directors, agents and employees of the Trustee.
Without prejudice to any other rights available to the Trustee under
applicable law, when the Trustee and its agents and any authenticating agent incur expenses or render services after an Event of Default specified in Section 6.01(h) or Section 6.01(i) occurs, the expenses and the compensation for the services
are intended to constitute expenses of administration under any bankruptcy, insolvency or similar laws.
Section 7.07 Officer’s Certificate as Evidence. Except as otherwise provided in Section 7.01, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a
matter be proved or established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of gross negligence or willful misconduct on the part
of the Trustee, be deemed to be conclusively proved and established by an Officer’s Certificate delivered to the Trustee, and such Officer’s Certificate, in the absence of gross negligence or willful misconduct on the part of the Trustee, shall
be full warrant to the Trustee for any action taken or omitted by it under the provisions of this Indenture upon the faith thereof.
Section 7.08 Eligibility of Trustee. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act (as if the Trust Indenture Act were applicable hereto) to
act as such and has a combined capital and surplus of at least $50,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
Section 7.09 Resignation or Removal of Trustee. (a) The Trustee may at any time resign by giving written notice of such resignation to the Company. Upon receiving such notice of resignation, the Company shall promptly
notify all Holders and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee.
If no successor trustee shall have been so appointed and have accepted appointment within 60 days after the giving of such notice of resignation to the Company, the resigning Trustee may, upon ten Business Days’ notice to the Company and the
Holders and at the expense of the Company, petition any court of competent jurisdiction for the appointment of a successor trustee, or any Holder who has been a bona
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fide holder of a Note or Notes for at least six months (or since the date of this
Indenture) may, subject to the provisions of Section 6.11, on behalf of himself or herself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if
any, as it may deem proper and prescribe, appoint a successor trustee.
(a) In case at any time any of the following shall occur:
(i) the Trustee shall cease to be eligible in accordance with the
provisions of Section 7.08 and shall fail to resign after written request therefor by the Company or by any such Holder, or
(ii) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in either case, the Company may by a Board Resolution remove
the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or,
subject to the provisions of Section 6.11, any Holder who has been a bona fide holder of a Note or Notes for at least six months (or since the date of this Indenture) may, on behalf of himself or herself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a
successor trustee.
(b) The Holders of a majority in aggregate principal amount of the
Notes at the time outstanding, as determined in accordance with Section 8.04, may at any time remove the Trustee and nominate a successor trustee that shall be deemed appointed as successor trustee unless within ten days after notice to the
Company of such nomination the Company objects thereto, in which case the Trustee so removed or any Holder, upon the terms and conditions and otherwise as in Section 7.09(a) provided, may petition any court of competent jurisdiction for an
appointment of a successor trustee.
(c) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 7.09 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 7.10.
Section 7.10 Acceptance by Successor Trustee. Any successor trustee appointed as provided in Section 7.09 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties
and obligations of its predecessor hereunder, with like effect as if originally named as Trustee herein; but, nevertheless, on the written request of the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any
amounts then due it pursuant to the provisions of Section 7.06, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon request of any such successor trustee, the
Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a senior lien to which
the Notes are hereby made subordinate on all money or property held or collected by such trustee as such, except for funds held in trust for the benefit of Holders of particular Notes, to secure any amounts then due it pursuant to the
provisions of Section 7.06.
No successor trustee shall accept appointment as provided in this
Section 7.10 unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 7.08.
Upon acceptance of appointment by a successor trustee as provided in
this Section 7.10, each of the Company and the successor trustee, at the written direction and at the expense of the Company shall deliver or cause to be delivered notice of the succession of such trustee hereunder to the Holders. If the
Company fails to deliver such notice within ten days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be delivered at the expense of the Company.
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Section 7.11 Succession by Merger, Etc. Any corporation or other entity into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation or other entity resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or any corporation or other entity succeeding to all or substantially all of the corporate trust business of the Trustee (including the administration of this
Indenture), shall be the successor to the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided that in the case of any corporation or other entity succeeding to all
or substantially all of the corporate trust business of the Trustee such corporation or other entity shall be eligible under the provisions of Section 7.08.
In case at the time such successor to the Trustee shall succeed to
the trusts created by this Indenture, any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee or authenticating agent appointed
by such predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee or an authenticating agent appointed by such successor trustee may
authenticate such Notes either in the name of any predecessor trustee hereunder or in the name of the successor trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor trustee
or to authenticate Notes in the name of any predecessor trustee shall apply only to its successor or successors by merger, conversion or consolidation.
Section 7.12 Trustee’s Application for Instructions from the Company. Any application by the Trustee for written instructions from the Company (other than with regard to any action proposed to be taken or omitted to be
taken by the Trustee that affects the rights of the Holders of the Notes under this Indenture) may, at the option of the Trustee, set forth in writing any action proposed to be taken or omitted by the Trustee under this Indenture and the date
on and/or after which such action shall be taken or such omission shall be effective. The Trustee shall not be liable to the Company for any action taken by, or omission of, the Trustee in accordance with a proposal included in such application
on or after the date specified in such application (which date shall not be less than three (3) Business Days after the date any officer that the Company has indicated to the Trustee should receive such application actually receives such
application, unless any such officer shall have consented in writing to any earlier date), unless, prior to taking any such action (or the effective date in the case of any omission), the Trustee shall have received written instructions in
accordance with this Indenture in response to such application specifying the action to be taken or omitted.
CONCERNING THE HOLDERS
Section 8.01 Action by Holders. Whenever in this Indenture it is provided that the Holders of a specified percentage of the aggregate principal amount of the Notes may take any action (including the making of any demand
or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action, the Holders of such specified percentage have joined therein may be evidenced (a) by any instrument
or any number of instruments of similar tenor executed by Holders in person or by agent or proxy appointed in writing, or (b) by the record of the Holders voting in favor thereof at any meeting of Holders duly called and held in accordance with
the provisions of Article 9, or (c) by a combination of such instrument or instruments and any such record of such a meeting of Holders. Whenever the Company or the Trustee solicits the taking of any action by the Holders of the Notes, the
Company or the Trustee may, but shall not be required to, fix in advance of such solicitation, a date as the record date for determining Holders entitled to take such action. The record date if one is selected shall be not more than fifteen
days prior to the date of commencement of solicitation of such action.
Section 8.02 Proof of Execution by Holders. Subject to the provisions of Section 7.01, Section 7.02 and Section 9.05, proof of the execution of any instrument by a Holder or its agent or proxy shall be sufficient if made
in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The holding of Notes shall be proved by the Note Register or by a certificate of the Note
Registrar. The record of any Holders’ meeting shall be proved in the manner provided in Section 9.06.
Section 8.03 Who Are Deemed Absolute Owners. The Company, the Trustee, any authenticating agent, any Paying Agent, any Conversion Agent and any Note Registrar may deem the Person in whose name a Note shall be registered
upon the Note Register to be, and may treat it as, the absolute owner of such Note (whether or not
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such Note shall be overdue and notwithstanding any notation of ownership or other
writing thereon made by any Person other than the Company or any Note Registrar) for the purpose of receiving payment of or on account of the principal (including any Fundamental Change Repurchase Price) of and (subject to Section 2.03) accrued
and unpaid interest on such Note, for conversion of such Note and for all other purposes; and neither the Company nor the Trustee nor any Paying Agent nor any Conversion Agent nor any Note Registrar shall be affected by any notice to the
contrary. The sole registered holder of a Global Note shall be the Depositary or its nominee. All such payments or deliveries so made to any Holder for the time being, or upon its order, shall be valid, and, to the extent of the sums or shares
of Common Stock so paid or delivered, effectual to satisfy and discharge the liability for monies payable or shares deliverable upon any such Note. Notwithstanding anything to the contrary in this Indenture or the Notes following an Event of
Default, any holder of a beneficial interest in a Global Note may directly enforce against the Company, without the consent, solicitation, proxy, authorization or any other action of the Depositary or any other Person, such holder’s right to
exchange such beneficial interest for a Note in certificated form in accordance with the provisions of this Indenture.
Section 8.04 Company-Owned Notes Disregarded. In determining whether the Holders of the requisite aggregate principal amount of Notes have concurred in any direction, consent, waiver or other action under this Indenture,
Notes that are owned by the Company, by any Subsidiary thereof or by any Affiliate of the Company or any Subsidiary thereof shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that for the
purposes of determining whether the Trustee shall be protected in relying on any such direction, consent, waiver or other action only Notes that a Responsible Officer actually knows are so owned shall be so disregarded. Notes so owned that have
been pledged in good faith may be regarded as outstanding for the purposes of this Section 8.04 if the pledgee shall establish to the satisfaction of the Trustee the pledgee’s right to so act with respect to such Notes and that the pledgee is
not the Company, a Subsidiary thereof or an Affiliate of the Company or a Subsidiary thereof. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon
request of the Trustee, the Company shall furnish to the Trustee promptly an Officer’s Certificate listing and identifying all Notes, if any, known by the Company to be owned or held by or for the account of any of the above described Persons;
and, subject to Section 7.01, the Trustee shall be entitled to accept such Officer’s Certificate as conclusive evidence of the facts therein set forth and of the fact that all Notes not listed therein are outstanding for the purpose of any such
determination.
Section 8.05 Revocation of Consents; Future Holders Bound. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 8.01, of the taking of any action by the Holders of the percentage of
the aggregate principal amount of the Notes specified in this Indenture in connection with such action, any Holder of a Note that is shown by the evidence to be included in the Notes the Holders of which have consented to such action may, by
filing written notice with the Trustee at its Corporate Trust Office and upon proof of holding as provided in Section 8.02, revoke such action so far as concerns such Note. Except as aforesaid, any such action taken by the Holder of any Note
shall be conclusive and binding upon such Holder and upon all future Holders and owners of such Note and of any Notes issued in exchange or substitution therefor or upon registration of transfer thereof, irrespective of whether any notation in
regard thereto is made upon such Note or any Note issued in exchange or substitution therefor or upon registration of transfer thereof.
HOLDERS’ MEETINGS
Section 9.01 Purpose of Meetings. A meeting of Holders may be called at any time and from time to time pursuant to the provisions of this Article 9 for any of the following purposes:
(a) to give any notice to the Company or to the Trustee or to give
any directions to the Trustee permitted under this Indenture, or to consent to the waiving of any Default or Event of Default hereunder (in each case, as permitted under this Indenture) and its consequences, or to take any other action
authorized to be taken by Holders pursuant to any of the provisions of Article 6;
(b) to remove the Trustee and nominate a successor trustee pursuant
to the provisions of Article 7;
(c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 10.02; or
(d) to take any other action authorized to be taken by or on behalf
of the Holders of any specified aggregate principal amount of the Notes under any other provision of this Indenture or under applicable law.
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Section 9.02 Call of Meetings by Trustee. The Trustee may at any time call a meeting of Holders to take any action specified in Section 9.01, to be held at such time and at such place as the Trustee shall determine.
Notice of every meeting of the Holders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting and the establishment of any record date pursuant to Section 8.01, shall be
delivered to Holders of such Notes. Such notice shall also be delivered to the Company. Such notices shall be delivered not less than 20 nor more than 90 days prior to the date fixed for the meeting.
Any meeting of Holders shall be valid without notice if the Holders
of all Notes then outstanding are present in person or by proxy or if notice is waived before or after the meeting by the Holders of all Notes then outstanding, and if the Company and the Trustee are either present by duly authorized
representatives or have, before or after the meeting, waived notice.
Section 9.03 Call of Meetings by Company or Holders. In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 10% of the aggregate principal amount of the Notes then outstanding, shall
have requested the Trustee to call a meeting of Holders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have delivered the notice of such meeting within 20 days
after receipt of such request, then the Company or such Holders may determine the time and the place for such meeting and may call such meeting to take any action authorized in Section 9.01, by delivering notice thereof as provided in Section
9.02.
Section 9.04 Qualifications for Voting. To be entitled to vote at any meeting of Holders a Person shall (a) be a Holder of one or more Notes on the record date pertaining to such meeting or (b) be a Person appointed by
an instrument in writing as proxy by a Holder of one or more Notes on the record date pertaining to such meeting. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote
at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel.
Section 9.05 Regulations. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders, in regard to proof of the holding of
Notes and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the Company or by Holders as provided in Section 9.03, in which case the Company or the Holders calling the meeting, as the case may be, shall in like manner appoint a
temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of a majority in aggregate principal amount of the Notes represented at the meeting and entitled to vote at the meeting.
Subject to the provisions of Section 8.04, at any meeting of Holders
each Holder or proxyholder shall be entitled to one vote for each $1,000 principal amount of Notes held or represented by him or her; provided, however, that no
vote shall be cast or counted at any meeting in respect of any Note challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of
Notes held by it or instruments in writing as aforesaid duly designating it as the proxy to vote on behalf of other Holders. Any meeting of Holders duly called pursuant to the provisions of Section 9.02 or Section 9.03 may be adjourned from
time to time by the Holders of a majority of the aggregate principal amount of Notes represented at the meeting, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice.
Section 9.06 Voting. The vote upon any resolution submitted to any meeting of Holders shall be by written ballot on which shall be subscribed the signatures of the Holders or of their representatives by proxy and the
outstanding aggregate principal amount of the Notes held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders shall be prepared by the secretary of the
meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the
meeting and showing that said notice was
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delivered as provided in Section 9.02. The record shall show the aggregate principal
amount of the Notes voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and
the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 9.07 No Delay of Rights by Meeting. Nothing contained in this Article 9 shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Holders or any rights expressly or impliedly
conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Holders under any of the provisions of this Indenture or of the Notes.
SUPPLEMENTAL INDENTURES
Section 10.01 Supplemental Indentures Without Consent of Holders. Without the consent of any Holder, the Company, when authorized by the resolutions of the Board of Directors and the Trustee, at the Company’s sole
expense, may from time to time and at any time amend or supplement this Indenture or the Notes in writing for one or more of the following purposes:
(a) to cure any ambiguity, omission, defect or inconsistency;
(b) to provide for the assumption by a Successor Company of the
obligations of the Company under this Indenture pursuant to Article 11;
(c) to add guarantees with respect to the Notes;
(d) to secure the Notes;
(e) to add to the covenants or Events of Default of the Company for
the benefit of the Holders or surrender any right or power conferred upon the Company;
(f) to make any change that, as determined by the Board of Directors
in good faith, does not adversely affect the rights of any Holder;
(g) in connection with any Share Exchange Event, to provide that the
Notes are convertible into Reference Property, subject to the provisions of Section 14.02, and make such related changes to the terms of the Notes to the extent expressly required by Section 14.07;
(h) to comply with any requirement of the Commission in connection
with the qualification of this Indenture under the Trust Indenture Act to the extent this Indenture is qualified thereunder;
(i) to provide for the appointment of a successor Trustee, Note
Registrar, Paying Agent or Conversion Agent;
(j) to comply with the rules of any applicable securities depositary
in a manner that does not adversely affect the rights of any Holder;
(k) to irrevocably elect or eliminate a Settlement Method and/or
irrevocably elect a minimum Specified Dollar Amount;
(l) to increase the Conversion Rate as provided in this Indenture;
(m) to make any change to comply with rules of the Depositary, so
long as such change does not adversely affect the rights of any Holder, as certified in good faith by the Company in an Officer’s Certificate; or
(n) to make any amendment to the provisions of the Indenture
relating to the transfer or legending of the Notes; provided, however, that (i) compliance with such Supplemental Indenture as so amended would not result in Notes being transferred in violation of the Securities Act, or any applicable
securities law and (ii) such amendment does not adversely affect the rights of Holders to transfer Notes.
Upon the written request of the Company and subject to Section 10.05,
the Trustee is hereby authorized to, and shall, join with the Company in the execution of any such supplemental indenture, to make any further
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appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to, but may in its discretion, enter into any supplemental indenture that affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this
Section 10.01 may be executed by the Company and the Trustee without the consent of the Holders of any of the Notes at the time outstanding, notwithstanding any of the provisions of Section 10.02.
Section 10.02 Supplemental Indentures with Consent of Holders. With the consent (evidenced as provided in Article 8) of the Holders of at least a majority of the aggregate principal amount of the Notes then outstanding
(determined in accordance with Article 8 and including, without limitation, consents obtained in connection with a repurchase of, or tender or exchange offer for, Notes), the Company, when authorized by the resolutions of the Board of Directors
and the Trustee, at the Company’s sole expense, may from time to time and at any time enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture, any supplemental indenture or the Notes or of modifying in any manner the rights of the Holders;
provided, however, that, without the consent of each Holder of an outstanding Note affected, no such supplemental indenture shall:
(a) reduce the principal amount of Notes whose Holders must consent
to an amendment;
(b) reduce the rate of or extend the stated time for payment of
interest, including any default interest, on any Note;
(c) reduce the principal amount of any Notes, reduce the premium
payable upon the redemption of the Notes, or extend the Maturity Date of any Note;
(d) increase the aggregate principal amount of Notes that may be
authenticated and delivered under this Indenture;
(e) make any change that adversely affects the conversion rights
(including changing the Conversion Price or Conversion Rate) of any Notes other than as expressly permitted or required by this Indenture;
(f) reduce the Fundamental Change Repurchase Price of any Note or
amend or modify in any manner adverse to the Holders the Company’s obligation to make such payments, whether through an amendment or waiver of provisions in the covenants, definitions or otherwise;
(g) make any Note payable in a currency, in a form, or at a place of
payment, other than that stated in the Note;
(h) change the ranking or priority of the Notes;
(i) impair the right of any Holder to institute suit for the
enforcement right to receive payment or delivery, as the case may be, of the principal (including the Fundamental Change Repurchase Price, if applicable) of, accrued and unpaid interest, if any, on, and the consideration due upon conversion of,
its Notes, on or after the respective due dates expressed or provided for in the Notes or this Indenture; or
(j) (1) make any change in this Article 10 that requires each
Holder’s consent or in the waiver provisions in Section 6.02 or Section 6.09 or (2) change the 20% threshold for holder actions set forth in Sections 6.01(f), 6.01(g), 6.02(b), 6.06 and 6.11.
Upon the written request of the Company, and upon the delivery to the
Trustee of evidence of the consent of Holders as aforesaid and subject to Section 10.05, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee’s own
rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture.
Holders do not need under this Section 10.02 to approve the
particular form of any proposed supplemental indenture. It shall be sufficient if such Holders approve the substance thereof. After any such supplemental indenture becomes effective, the Company shall deliver to the Holders a notice briefly
describing such supplemental indenture. However, the failure to give such notice to all the Holders, or any defect in the notice, will not impair or affect the validity of the supplemental indenture.
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Section 10.03 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture pursuant to the provisions of this Article 10, this Indenture shall be and be deemed to be modified and amended in
accordance therewith and the respective rights, limitation of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the Holders shall thereafter be determined, exercised and enforced hereunder subject
in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes.
Section 10.04 Notation on Notes. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article 10 may, at the Company’s expense, bear a notation as to any
matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Notes so modified as to conform, in the opinion of the Board of Directors, to any modification of this Indenture contained in any such
supplemental indenture may, at the Company’s expense, be prepared and executed by the Company, authenticated, upon receipt of a Company Order, by the Trustee (or an authenticating agent duly appointed by the Trustee pursuant to Section 17.10)
and delivered in exchange for the Notes then outstanding, upon surrender of such Notes then outstanding.
Section 10.05 Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee. In addition to the documents required by Section 17.05, the Trustee shall receive an Officer’s Certificate and an Opinion of Counsel
as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article 10 and is permitted or authorized by this Indenture and such Opinion of Counsel shall include a customary legal
opinion stating that such supplemental indenture is the valid and binding obligation of the Company, subject to customary exceptions and qualifications.
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 11.01 Company May Consolidate, Etc. on Certain Terms. Subject to the provisions of Section 11.02, the Company shall not consolidate with, merge with or into, or sell, convey, transfer or lease all or substantially
all of the consolidated assets of the Company and the Company’s Subsidiaries, taken as a whole, to another Person, unless:
(a) the resulting, surviving or transferee Person (the “Successor Company”), if not the Company, shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, and the Successor Company
(if not the Company) shall expressly assume, by supplemental indenture all of the obligations of the Company under the Notes and this Indenture;
(b) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing under this Indenture; and
(c) if the Company is not the Successor Company, the Successor
Company shall have delivered to the Trustee an Officer’s Certificate and Opinion of Counsel, each stating that such consolidation, merger, sale, conveyance, transfer or lease complies with this Indenture and that such supplemental indenture is
authorized or permitted by this Indenture and an Opinion of Counsel stating that the supplemental indenture is the valid and binding obligation of the Successor Company, subject to customary exceptions and qualifications.
For purposes of this Section 11.01, the sale, conveyance, transfer or
lease of all or substantially all of the properties and assets of one or more Subsidiaries of the Company to another Person, which properties and assets, if held by the Company instead of such Subsidiaries, would constitute all or substantially
all of the properties and assets of the Company on a consolidated basis, shall be deemed to be the sale, conveyance, transfer or lease of all or substantially all of the properties and assets of the Company to another Person.
Section 11.02 Successor Corporation to Be Substituted. In case of any such consolidation, merger, sale, conveyance, transfer or lease and upon the assumption by the Successor Company (if other than the Company), by
supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and accrued and unpaid interest on all of the Notes, the due and punctual delivery and/or
payment, as the case may be, of any consideration due upon conversion of the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed
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by the Company, such Successor Company (if not the Company) shall succeed to and,
except in the case of a lease of all or substantially all of the consolidated assets of the Company and the Company’s Subsidiaries, taken as a whole, shall be substituted for the Company, with the same effect as if it had been named herein as
the party of the first part, and the Company shall be discharged from its obligations under the Notes and this Indenture (except in the case of a lease of all or substantially all of the consolidated assets of the Company and the Company’s
Subsidiaries, taken as a whole). Such Successor Company thereupon may cause to be signed, and may issue either in its own name or in the name of the Company any or all of the Notes issuable hereunder which theretofore shall not have been signed
by the Company and delivered to the Trustee; and, upon the order of such Successor Company instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall
deliver, or cause to be authenticated and delivered, any Notes that previously shall have been signed and delivered by the Officers of the Company to the Trustee for authentication, and any Notes that such Successor Company thereafter shall
cause to be signed and delivered to the Trustee for that purpose. All the Notes so issued shall in all respects have the same legal rank and benefit under this Indenture as the Notes theretofore or thereafter issued in accordance with the terms
of this Indenture as though all of such Notes had been issued at the date of the execution hereof. In the event of any such consolidation, merger, sale, conveyance or transfer (but not in the case of a lease), upon compliance with this Article
11 the Person named as the “Company” in the first paragraph of this Indenture (or any successor that shall thereafter have become such in the manner prescribed in this Article 11) may be dissolved, wound
up and liquidated at any time thereafter and, except in the case of a lease, such Person shall be released from its liabilities as obligor and maker of the Notes and from its obligations under this Indenture and the Notes.
In case of any such consolidation, merger, sale, conveyance, transfer
or lease, such changes in phraseology and form (but not in substance) may be made in the Notes thereafter to be issued as may be appropriate.
Section 11.03 Opinion of Counsel to Be Given to Trustee. If a supplemental indenture is required pursuant to this Article 11, no such consolidation, merger, sale, conveyance, transfer or lease shall be effective unless
the Trustee shall receive an Officer’s Certificate and an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or lease and any such assumption complies with the provisions of this Article 11
and that all conditions precedent herein provided for relating to such transactions have been complied with.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
Section 12.01 Indenture and Notes Solely Corporate Obligations. No recourse for the payment of the principal of or accrued and unpaid interest on, or the payment or delivery of consideration due upon conversion of, any
Note, nor for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture or in any Note, nor because of the
creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, Officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or
through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby
expressly waived and released as a condition of, and as a consideration for, the Section 10.01 execution of this Indenture and the issue of the Notes.
GUARANTEES
(a) Each Guarantor hereby jointly and severally, fully,
unconditionally and irrevocably guarantees the Notes and obligations of the Company hereunder and thereunder, and guarantees to each Holder of a Note authenticated and delivered by the Trustee, to the Trustee on behalf of such Holder, that:
(i) the principal of and premium, if any, and interest, if any, on the Notes shall be paid in full when due, whether at the Maturity Date, by acceleration or otherwise (including, without limitation, the amount that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Law), together with interest on the overdue principal, if any, and interest on any overdue interest, if any, to the extent lawful, and all other obligations of the Company
to the Holders or the Trustee hereunder or thereunder shall be paid
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in full or performed, all in accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of any Notes or of any such other obligations, the same shall be paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Maturity Date,
by acceleration or otherwise. Each of the Guarantees shall be a guarantee of payment and not of collection.
(b) Each Guarantor hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor.
(c) Each Guarantor hereby waives the benefits of diligence,
presentment, demand for payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company or any other Person, protest, notice and all demands whatsoever
and covenants that the Guarantee of such Guarantor shall not be discharged as to any Note except by complete performance of the obligations contained in such Note and such Guarantee or as provided for in this Indenture. Each Guarantor hereby
agrees that, in the event of a default in payment of principal or premium, if any, or interest on such Note, whether at its Maturity Date, by acceleration, purchase or otherwise, legal proceedings may be instituted by the Trustee on behalf of,
or by, the Holder of such Note, subject to the terms and conditions set forth in this Indenture, directly against each of the Guarantors to enforce each such Guarantor’s Guarantee without first proceeding against the Company or any other
Guarantor. Each Guarantor agrees that if, after the occurrence and during the continuance of an Event of Default, the Trustee or any of the Holders are prevented by applicable law from exercising their respective rights to accelerate the
maturity of the Notes, to collect interest on the Notes, or to enforce or exercise any other right or remedy with respect to the Notes, such Guarantor shall pay to the Trustee for the account of the Holders, upon demand therefor, the amount
that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Trustee or any of the Holders.
(d) If any Holder or the Trustee is required by any court or
otherwise to return to the Company or any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Guarantor, any amount paid by any of them to the Trustee or such Holder, the Guarantee
of each of the Guarantors, to the extent theretofore discharged, shall be reinstated in full force and effect. This paragraph (d) shall remain effective notwithstanding any contrary action which may be taken by the Trustee or any Holder in
reliance upon such amount required to be returned. This paragraph (d) shall survive the termination of this Indenture.
(e) Each Guarantor further agrees that, as between each Guarantor,
on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VI for the purposes of the Guarantee of such Guarantor, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article VI, such obligations (whether or not due and
payable) shall forthwith become due and payable by each Guarantor for the purpose of the Guarantee of such Guarantor.
To evidence its Guarantee set forth in Section 13.01, each
Guarantor agrees that this Indenture shall be executed on behalf of such Guarantor by an officer of such Guarantor (or, if an officer is not available, by a board member or director) on behalf of such Guarantor by manual, PDF or facsimile
signature. Each Guarantor hereby agrees that its Guarantee set forth in Section 13.01 hereof shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes. In case
the officer, board member or director of such Guarantor whose signature is on this Indenture no longer holds office at the time the Trustee authenticates the Note, the Guarantee shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee set forth in this Indenture on behalf of the Guarantors.
If required by Section 4.14 hereof, the Company shall cause
each Subsidiary described in Section 4.14 hereof to comply with the provisions of Section 4.14 hereof and this Article XIII, to the extent applicable.
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In case any provision of any Guarantee shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Each Guarantor and by its acceptance hereof each Holder confirms that
it is the intention of all such parties that the Guarantee of such Guarantor does not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar federal or state law or the provisions of its local law relating to fraudulent transfer or conveyance. To effectuate the foregoing intention, the Trustee, the Holders and Guarantors hereby irrevocably agree that the obligations
of such Guarantor under its Guarantee (other than a company that is a direct or indirect parent of the Company) shall be limited to the maximum amount that will not, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee, result in the
obligations of such Guarantor under its Guarantee constituting a fraudulent transfer or conveyance.
Except as otherwise provided in this Section 13.05, a
Guarantor may not sell or otherwise dispose of all or substantially all of its assets, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person unless:
(a) (x) such Guarantor is the surviving entity; or (y) the Person
formed by or surviving any such consolidation or merger (if other than such Guarantor) or to which such sale, assignment, transfer, conveyance, lease or other disposition has been made is a corporation or limited liability company organized or
existing under the laws of the United States, any state of the United States or the District of Columbia (such Guarantor or such Person, including the Person to which such sale, assignment, transfer, conveyance, lease or other disposition has
been made, as the case may be, being herein called the “Successor Guarantor”);
(b) the Successor Guarantor (if other than such Guarantor) assumes
all the obligations of such Guarantor under the Guarantee and this Indenture pursuant to agreements reasonably satisfactory to the Trustee;
(c) immediately after giving effect to such transaction, no Default
or Event of Default exists; and
(d) the Company delivers to the Trustee an Officer’s Certificate and
an Opinion of Counsel, each stating that the consolidation, merger or sale or disposition of all or substantially all of the assets or properties of such Guarantor complies with the provisions of this Indenture.
For purposes of this Section 13.05, the sale, lease,
conveyance, assignment, transfer or other disposition of all or substantially all of the properties and assets of one or more Subsidiaries of a Guarantor, which properties and assets, if held by such Guarantor instead of such Subsidiaries,
would constitute all or substantially all of the properties and assets of such Guarantor on a consolidated basis, shall be deemed to be the sale, lease, conveyance, assignment, transfer or other disposition of all or substantially all of the
properties and assets of such Guarantor.
In case of any such consolidation, merger, sale or conveyance and
upon the assumption by the Successor Guarantor, by supplemental indenture, executed and delivered to the Trustee and reasonably satisfactory in form to the Trustee, of the Guarantee and the due and punctual performance of all of the covenants
and conditions of this Indenture to be performed by the relevant predecessor Guarantor, such Successor Guarantor shall succeed to and be substituted for such predecessor Guarantor with the same effect as if it had been named herein as a
Guarantor. All the Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all such
Guarantees had been issued at the date of the execution hereof.
This Section 13.05 will not apply to a sale,
assignment, transfer, conveyance, lease or other disposition of assets by a Guarantor to the Company or another Guarantor. In addition, clauses (c), (d) and (e) will not be applicable to any Subsidiary consolidating with, merging into or
selling, assigning, transferring, conveying, leasing or otherwise disposing of all or part of its properties and assets to the Company or to another Subsidiary.
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Any Guarantor shall be automatically released and relieved of any
obligations under this Guarantee, in the event that:
(a) the sale, disposition or other transfer (including through
merger or consolidation) of all of the Capital Stock (or any sale, disposition or other transfer of Capital Stock following which the applicable Guarantor is no longer a Subsidiary) or all of the assets of the applicable Guarantor if such sale,
disposition or other transfer is made in compliance with the provisions of this Indenture; or
(b) upon the merger or consolidation of any Guarantor with and into
the Company or another Guarantor that is the surviving Person in such merger or consolidation, or upon the liquidation of such Guarantor following the transfer of all of its assets to the Company or another Guarantor;
(c) if the Company discharges the obligations under this Indenture
in accordance with Section 3.01.
Upon delivery to the Trustee of an Officer’s Certificate and an
Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of
any Guarantor from its obligations under its Guarantee.
Any Guarantor not released from its obligations under this Guarantee
shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article XIII.
Section 13.07 Benefits Acknowledged. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that its guarantee and waivers
pursuant to its Guarantee are knowingly made in contemplation of such benefits.
CONVERSION OF NOTES
Section 14.01 Conversion Privilege. Subject to and upon compliance with the provisions of this Article 14, each Holder of a Note shall have the right, at such Holder’s option, to convert all or any portion (if the portion
to be converted is $1,000 principal amount or an integral multiple thereof (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof)) of such Note (including the accrued and
unpaid interest thereon) at any time prior to the close of business on the second Scheduled Trading Day immediately preceding the Maturity Date, at an initial conversion rate of [86.9565] shares of Common Stock (subject to adjustment as
provided in this Article 14, the “Conversion Rate”) per $1,000 of principal amount of Notes and [86.9565] shares of Common Stock (subject to adjustment as provided in this Article 14) per $1,000 of
accrued and unpaid interest on any Notes (subject to, and in accordance with, the settlement provisions of Section 14.02, the “Conversion Obligation”).
(a) Subject to this Section 14.02, Section 14.07(a) and Section
14.14(b), upon conversion of any Note, the Company shall pay or deliver, as the case may be, to the converting Holder no later than two (2) Business Days following the applicable conversion of the Notes, in respect of each $1,000 amount of
principal and accrued and unpaid interest on the Notes being converted (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof), at the election of the Company, (x) cash (“Cash Settlement”), (y) shares of Common Stock, together with cash, if applicable, in lieu of delivering any fractional share of Common Stock in accordance with subsection (j) of this Section 14.02 (“Physical Settlement”) or (z) a combination of cash and shares of Common Stock, together with cash, if applicable, in lieu of delivering any fractional share of Common Stock in accordance with subsection (j)
of this Section 14.02 (“Combination Settlement”), as set forth in this Section 14.02.
(i) The Company shall use the same Settlement Method for all
conversions occurring on the same Conversion Date, but the Company shall not have any obligation to use the same Settlement Method with respect to conversions that occur on different Conversion Dates.
(ii) If, in respect of any Conversion Date, the Company elects to
deliver a notice (the “Settlement Notice”) of the relevant Settlement Method in respect of such Conversion Date (or such
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period, as the case may be), the Company, through the Trustee, shall deliver such
Settlement Notice to converting Holders no later than the close of business on the Trading Day immediately following the relevant Conversion Date.2 If the Company does not elect a Settlement Method prior to the deadline set forth in
the immediately preceding sentence, the Company shall no longer have the right to elect Cash Settlement or Physical Settlement during such period or with respect to such conversion and the Company shall be deemed to have elected Physical
Settlement. Such Settlement Notice shall specify the relevant Settlement Method and in the case of an election of Combination Settlement, the relevant Settlement Notice shall indicate the Specified Dollar Amount per $1,000 principal amount of
Notes and interest thereon. If the Company delivers a Settlement Notice electing Combination Settlement in respect of its Conversion Obligation but does not indicate a Specified Dollar Amount per $1,000 principal amount of Notes and interest
thereon in such Settlement Notice, the Specified Dollar Amount per $1,000 principal amount of Notes and interest thereon shall be deemed to be $1,000 (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral
multiple of $1.00 in excess thereof).
(iii) The shares of Common Stock and cash the Company shall pay
and/or deliver, as the case may be, in respect of any conversion of Notes (the “Settlement Amount”) shall be computed as follows:
(A) if the Company elects (or is deemed to have elected) to satisfy
its Conversion Obligation in respect of such conversion by Physical Settlement, in respect of each $1,000 amount of principal and accrued and unpaid interest on the Notes being converted (or if a PIK Payment has been made, in minimum
denominations of $1.00 and any integral multiple of $1.00 in excess thereof): a number of shares of Common Stock equal to the Conversion Rate in effect on the Conversion Date (plus cash in lieu of any fractional share of Common Stock issuable
upon conversion);
(B) if the Company elects to satisfy its Conversion Obligation in
respect of such conversion by Cash Settlement, in respect of each $1,000 amount of principal and accrued and unpaid interest on the Notes being converted, the Company shall pay to the converting Holder in respect of each $1,000 principal amount
of Notes and accrued and unpaid interest thereon (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof) being converted cash in an amount equal to the sum of the Daily
Conversion Values for each of the 30 consecutive Trading Days during the related Observation Period; and
(C) if the Company elects to satisfy its Conversion Obligation in
respect of such conversion by Combination Settlement, the Company shall pay or deliver, as the case may be, in respect of each $1,000 principal amount of Notes and accrued and unpaid interest thereon being converted (or if a PIK Payment has
been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof), a Settlement Amount equal to the sum of the Daily Settlement Amounts for each of the 30 consecutive Trading Days during the related Observation
Period.
(iv) The Daily Settlement Amounts (if applicable) and the Daily
Conversion Values (if applicable) shall be determined by the Company promptly following the last day of the Observation Period. Promptly after such determination of the Daily Settlement Amounts or the Daily Conversion Values, as the case may
be, and the amount of cash payable in lieu of delivering any fractional share of Common Stock, the Company shall notify the Trustee and the Conversion Agent (if other than the Trustee) of the Daily Settlement Amounts or the Daily Conversion
Values, as the case may be, and the amount of cash payable in lieu of delivering fractional shares of Common Stock. The Trustee and the Conversion Agent (if other than the Trustee) shall have no responsibility for any such determination.
(b) Subject to Section 14.02(e), before any Holder of a Note shall
be entitled to convert a Note as set forth above, such Holder shall (i) in the case of a Global Note, comply with the Applicable Procedures of the Depositary in effect at that time and, if required, pay all transfer or similar taxes, if any,
pursuant to Section 14.02(e) and (ii) in the case of a Physical Note (1) complete, manually sign and deliver an irrevocable notice to the Conversion Agent as set forth in the Form of Notice of Conversion (or a facsimile
|
2
|
NTD: Confirm that one Trading Day election notification works if there are Physical Notes.
|
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thereof) (a “Notice of Conversion”) at the
office of the Conversion Agent and state in writing therein the principal amount of Notes to be converted and the name or names (with addresses) in which such Holder wishes the certificate or certificates for any shares of Common Stock to be
delivered upon settlement of the Conversion Obligation to be registered, (2) surrender such Notes, duly endorsed to the Company or in blank (and accompanied by appropriate endorsement and transfer documents), at the office of the Conversion
Agent, (3) if required, furnish appropriate endorsements and transfer documents, (4) if required, pay funds equal to interest payable on the next Interest Payment Date to which such Holder is not entitled as set forth in Section 14.02(h) and
(5) if required, pay all transfer or similar taxes, if any, pursuant to Section 14.02(e). The Trustee (and if different, the Conversion Agent) shall notify the Company of any conversion pursuant to this Article 14 on the Conversion Date for
such conversion. No Notice of Conversion with respect to any Notes may be surrendered by a Holder thereof if such Holder has also delivered a Fundamental Change Repurchase Notice to the Company in respect of such Notes and has not validly
withdrawn such Fundamental Change Repurchase Notice in accordance with Section 15.03. Notwithstanding anything to the contrary contained herein, to the extent that an indirect holder of a Global Note held indirectly through a participant
submits irrevocable instructions to convert any portion of such Note, such Holder shall be deemed for purposes of Regulation SHO to have converted the applicable portion of such Note at the time of delivery of such instructions, regardless of
when shares of Common Stock are delivered to such Holder or its participant.
If more than one Note shall be surrendered for conversion at one time
by the same Holder, the Conversion Obligation with respect to such Notes shall be computed on the basis of the aggregate principal amount of the Notes (or specified portions thereof to the extent permitted thereby) so surrendered.
(c) A Note shall be deemed to have been converted immediately prior
to the close of business on the date (the “Conversion Date”) that the Holder has complied with the requirements set forth in subsection (b) above. Except as set forth in Section 14.07(a) and Section
14.14(b), the Company shall pay or deliver, as the case may be, the consideration due in respect of the Conversion Obligation on the second Business Day immediately following the relevant Conversion Date, if the Company elects Physical
Settlement, or on the third Business Day immediately following the last Trading Day of the relevant Observation Period, in the case of any other Settlement Method. Notwithstanding the foregoing, with respect to the Company’s satisfaction of its
Conversion Obligation through Physical Settlement for which the relevant Conversion Date occurs after the Regular Record Date immediately preceding the Maturity Date, the settlement shall occur on the Maturity Date. If any shares of Common
Stock are due to a converting Holder, the Company shall issue or cause to be issued, and deliver (if applicable) to the Conversion Agent or to such Holder, or such Holder’s nominee or nominees, the full number of shares of Common Stock to which
such Holder shall be entitled, in book-entry format through the Depositary, in satisfaction of the Company’s Conversion Obligation.
(d) In case any Note shall be surrendered for partial conversion,
the Company shall execute and the Trustee shall authenticate and deliver to or upon the written order of the Holder of the Note so surrendered a new Note or Notes in authorized denominations in an aggregate principal amount equal to the
unconverted portion of the surrendered Note, without payment of any service charge by the converting Holder but, if required by the Company or Trustee, with payment of a sum sufficient to cover any documentary, stamp or similar issue or
transfer tax or similar governmental charge required by law or that may be imposed in connection therewith as a result of the name of the Holder of the new Notes issued upon such conversion being different from the name of the Holder of the old
Notes surrendered for such conversion.
(e) If a Holder submits a Note for conversion, the Company shall pay
any documentary, stamp or similar issue or transfer tax due on the issue of any shares of Common Stock upon conversion, unless the tax is due because the Holder requests such shares to be issued in a name other than the Holder’s name, in which
case the Holder shall pay that tax. The Conversion Agent may refuse to deliver the certificates representing the shares of Common Stock being issued in a name other than the Holder’s name until the Trustee receives a sum sufficient to pay any
tax that is due by such Holder in accordance with the immediately preceding sentence.
(f) Except as provided in Section 14.04, no adjustment shall be made
for dividends on any shares of Common Stock issued upon the conversion of any Note as provided in this Article 14.
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(g) Upon the conversion of an interest in a Global Note, the
Trustee, or the Custodian at the direction of the Trustee, shall make a notation on such Global Note as to the reduction in the principal amount represented thereby. The Company shall notify the Trustee in writing of any conversion of Notes
effected through any Conversion Agent other than the Trustee.
(h) The Company’s settlement of the full Conversion Obligation shall
be deemed to satisfy in full its obligation to pay the principal amount of the Note and accrued and unpaid interest, if any, to, but excluding, the relevant Conversion Date. Accrued and unpaid interest, if any, to, but excluding, the relevant
Conversion Date shall be converted into shares of Common Stock at the Conversion Rate. If Notes are converted after the close of business on a Regular Record Date but prior to the open of business on the immediately following Interest Payment
Date, Holders of such Notes as of the close of business on such Regular Record Date (in addition to having the value of such interest converted in connection with such conversion) will receive the full amount of interest payable on such Notes
in cash on such Interest Payment Date notwithstanding the conversion. Therefore, Notes surrendered for conversion during the period from the close of business on any Regular Record Date to the open of business on the immediately following
Interest Payment Date must be accompanied by funds equal to the amount of interest payable on the Notes so converted on the corresponding Interest Payment Date (regardless of whether the converting Holder was the Holder of record on the
corresponding Regular Record Date); provided that no such payment shall be required (1) for conversions following the close of business on the Regular Record Date immediately preceding the Maturity Date; (2) if the Company has specified a
Fundamental Change Repurchase Date that is after a Regular Record Date and on or prior to the Business Day immediately following the corresponding Interest Payment Date; or (3) to the extent of any Defaulted Amounts, if any Defaulted Amounts
exist at the time of conversion with respect to such Note.
(i) The Person in whose name the shares of Common Stock shall be
issuable upon conversion shall be treated as a stockholder of record as of the close of business on the relevant Conversion Date (if the Company elects to satisfy the related Conversion Obligation by Physical Settlement) or the last Trading Day
of the relevant Observation Period (if the Company elects to satisfy the related Conversion Obligation by Combination Settlement), as the case may be. Upon a conversion of Notes, such Person shall no longer be a Holder of such Notes surrendered
for conversion.
(j) The Company shall not issue any fractional share of Common Stock
upon conversion of the Notes and shall instead pay cash in lieu of delivering any fractional share of Common Stock issuable upon conversion based on the Daily VWAP for the relevant Conversion Date. For each Note surrendered for conversion, if
the Company has elected (or is deemed to have elected) Combination Settlement, the full number of shares that shall be issued upon conversion thereof shall be computed on the basis of the aggregate Daily Settlement Amounts for the relevant
Observation Period and any fractional shares remaining after such computation shall be paid in cash.
(a) (i) On or after [ ], 2023 and prior to the close of business on
[ ], 202[4],3 the Company may, at its option, elect to convert the original principal amount of the Notes, as well as accrued and unpaid interest thereon, in whole but not in part if the Daily VWAP of the Common Stock for at least
20 Trading Days (whether or not consecutive) during the period of 30 consecutive Trading Days ending on, and including, the last Trading Day of the immediately preceding calendar quarter is greater than or equal to 150% of the Conversion Price
on each applicable Trading Day or (ii) on or after [ ], 2024 and prior to the close of business on [ ], 202[5],4 the Company may, at its option, elect (together with clause (a)(i) above, the “Company
Mandatory Conversion Right”) to convert the original principal amount of the Notes, as well as accrued and unpaid interest thereon, in whole but not in part if the Daily VWAP of the Common Stock for at least 20 Trading Days (whether or
not consecutive) during the period of 30 consecutive Trading Days ending on, and including, the last Trading Day of the immediately preceding calendar quarter is greater than or equal to 130% of the Conversion Price on each applicable Trading
Day (the “Company Mandatory Conversion Condition”).
|
3
|
NTD: To be the fifth Business Day after the last quarter end before the second anniversary
of issuance.
|
|
4
|
NTD: To be the fifth Business Day after the last quarter end before the Maturity Date.
|
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(b) To exercise the Company Mandatory Conversion Right, the
Company will send notice of the Company’s election (a “Mandatory Conversion Notice”) to Holders, the Trustee and the Conversion Agent no later than the fifth (5th) Business Day after the last Trading Day
of such 30 consecutive Trading Day period.
Such Mandatory Conversion Notice must state:
(i) that the Notes have been called for Mandatory Conversion,
briefly describing the Company Mandatory Conversion Right under this Indenture;
(ii) the Mandatory Conversion Date;
(iii) the current Conversion Rate;
(iv) the name and address of the Paying Agent and the Conversion
Agent; and
(v) the CUSIP and ISIN numbers, if any, of the Notes.
(c) If the Company exercises the Company Mandatory Conversion Right
in accordance with this Section 14.03, then a Conversion Date will automatically, and without the need for any action on the part of any Holder (subject to Section 14.02 herein), the Trustee or the Conversion Agent, be deemed to occur, with
respect to each Note then outstanding, on the Mandatory Conversion Date. The Mandatory Conversion Date will be a Business Day of the Company’s choosing that is no more than thirty (30), nor less than ten (10), Business Days after the Company
sends the Mandatory Conversion Notice; provided that the Mandatory Conversion Date shall be no later than the second Scheduled Trading Day prior to the Maturity Date. The Company shall pay or deliver, as the case may be, the consideration due
in respect of the Conversion Obligation on the second Business Day immediately following the Mandatory Conversion Date.
(d) Each share of Common Stock delivered upon a Mandatory Conversion
of any Note will be a newly issued or treasury share and will be duly and validly issued, fully paid, non-assessable, free from preemptive rights and free of any lien or adverse claim. If the Common Stock is then listed on any securities
exchange, or quoted on any inter-dealer quotation system, and has been registered on an effective registration statement with the Commission, then the Company will cause each shares of Common Stock, when delivered upon a Mandatory Conversion of
any Note, to be admitted for listing on such exchange or quotation on such system. Notwithstanding anything herein to the contrary, the Company shall not be permitted to effect any Company Mandatory Conversion hereunder unless as of such
Mandatory Conversion Date no Equity Conditions Failure then exists.
Section 14.04 Adjustment of Conversion Rate. The Conversion Rate shall be adjusted from time to time by the Company if any of the following events occurs, except that the Company shall not make any adjustments to the
Conversion Rate if Holders of the Notes participate (other than in the case of (x) a share split or share combination or (y) a tender or exchange offer), at the same time and upon the same terms as holders of the Common Stock and solely as a
result of holding the Notes, in any of the transactions described in this Section 14.04, without having to convert their Notes, as if they held a number of shares of Common Stock equal to the Conversion Rate, multiplied by the principal amount
(expressed in thousands) of Notes held by such Holder.
(a) If the Company exclusively issues shares of Common Stock as a
dividend or distribution on shares of the Common Stock, or if the Company effects a share split or share combination, the Conversion Rate shall be adjusted based on the following formula:
where,
|
CR0 =
|
the Conversion Rate in effect immediately prior to the open of business on the Ex-Dividend Date of such dividend or
distribution, or immediately prior to the open of business on the Effective Date of such share split or share combination, as applicable;
|
|
CR’ =
|
the Conversion Rate in effect immediately after the open of business on such Ex-Dividend Date or Effective Date, as applicable;
|
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|
OS0 =
|
the number of shares of Common Stock outstanding immediately prior to the open of business on such Ex-Dividend Date or Effective
Date, as applicable, before giving effect to such dividend, distribution, share split or share combination; and
|
|
OS’ =
|
the number of shares of Common Stock outstanding immediately after giving effect to such dividend, distribution, share split or
share combination.
|
Any adjustment made under this Section 14.04(a) shall become
effective immediately after the open of business on the Ex-Dividend Date for such dividend or distribution, or immediately after the open of business on the Effective Date for such share split or share combination, as applicable. If any
dividend or distribution of the type described in this Section 14.04(a) is declared but not so paid or made or any share split or combination of the type described in this Section 14.04(a) is announced but the outstanding shares of Common Stock
are not split or combined, as the cash may be, the Conversion Rate shall be immediately readjusted, effective as of the date the Board of Directors determines in good faith not to pay such dividend or distribution or not to split or combine the
outstanding shares of Common Stock, as the case may be, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared or such split or combination had not been announced.
(b) If the Company issues to all or substantially all holders of the
Common Stock any rights, options or warrants (other than pursuant to a stockholders rights plan) entitling them to subscribe for or purchase shares of the Common Stock at a price per share that is less than the average of the Last Reported Sale
Prices of the Common Stock for the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of such issuance, the Conversion Rate shall be increased based on the following
formula:
where,
|
CR0 =
|
the Conversion Rate in effect immediately prior to the open of business on the Ex-Dividend Date for such issuance;
|
|
CR’ =
|
the Conversion Rate in effect immediately after the open of business on such Ex-Dividend Date;
|
|
OS0 =
|
the number of shares of Common Stock outstanding immediately prior to the open of business on such Ex-Dividend Date;
|
|
X =
|
the total number of shares of Common Stock issuable pursuant to such rights, options or warrants; and
|
|
Y =
|
the number of shares of Common Stock equal to the aggregate price payable to exercise such rights, options or warrants, divided by the average of the Last Reported Sale Prices of the Common Stock over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of
announcement of the issuance of such rights, options or warrants.
|
Any increase made under this Section 14.04(b) shall be made
successively whenever any such rights, options or warrants are issued and shall become effective immediately after the open of business on the Ex-Dividend Date for such issuance. To the extent that shares of the Common Stock are not delivered
after the expiration of such rights, options or warrants, the Conversion Rate shall be decreased to the Conversion Rate that would then be in effect had the increase with respect to the issuance of such rights, options or warrants been made on
the basis of delivery of only the number of shares of Common Stock actually delivered. If such rights, options or warrants are not so issued, the Conversion Rate shall be decreased to the Conversion Rate that would then be in effect if such
Ex-Dividend Date for such issuance had not occurred.
For purposes of this Section 14.04(b), in determining whether any
rights, options or warrants entitle the holders to subscribe for or purchase shares of the Common Stock at a price per share that is less than such average of the Last Reported Sale Prices of the Common Stock for the 10 consecutive Trading Day
period ending on, and including, the Trading Day immediately preceding the date of announcement of such issuance,
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and in determining the aggregate offering price of such shares of Common Stock, there
shall be taken into account any consideration received by the Company for such rights, options or warrants and any amount payable on exercise or conversion thereof, the value of such consideration, if other than cash, to be determined by the
Board of Directors in good faith.
(c) If the Company distributes shares of its Capital Stock,
evidences of its indebtedness, other assets or property of the Company or rights, options or warrants to acquire its Capital Stock or other securities, to all or substantially all holders of the Common Stock, excluding (i) dividends,
distributions or issuances (including share splits) as to which an adjustment was effected pursuant to Section 14.04(a), Section 14.04(b) or Section 14.04(e), (ii) except as otherwise described in Section 14.11, rights issued pursuant to any
stockholders rights plan of the Company then in effect, (iii) dividends or distributions paid exclusively in cash as to which the provisions set forth in Section 14.04(d) shall apply, (iv) dividends or distributions of Reference Property in
exchange for or upon conversion of the Common Stock in a Share Exchange Event, and (v) Spin-Offs as to which the provisions set forth below in this Section 14.04(c) shall apply (any of such shares of Capital Stock, evidences of indebtedness,
other assets or property or rights, options or warrants to acquire Capital Stock or other securities, the “Distributed Property”), then the Conversion Rate shall be increased based on the following
formula:
where,
|
CR0 =
|
the Conversion Rate in effect immediately prior to the open of business on the Ex-Dividend Date for such distribution;
|
|
CR’ =
|
the Conversion Rate in effect immediately after the open of business on such Ex-Dividend Date;
|
|
SP0 =
|
the average of the Last Reported Sale Prices of the Common Stock over the 10 consecutive Trading Day period ending on, and
including, the Trading Day immediately preceding the Ex-Dividend Date for such distribution; and
|
|
FMV =
|
the fair market value (as determined by the Board of Directors in good faith) of the Distributed Property with respect to each
outstanding share of the Common Stock on the Ex-Dividend Date for such distribution.
|
Any increase made under the portion of this Section 14.04(c) above
shall become effective immediately after the open of business on the Ex-Dividend Date for such distribution. If such distribution is not so paid or made, the Conversion Rate shall be decreased to the Conversion Rate that would then be in effect
if such distribution had not been declared. If the Company issues rights, options or warrants to acquire Capital Stock or other securities that are exercisable only upon the occurrence of certain triggering events, the Company shall not adjust
the conversion rate pursuant to the clauses above until the earliest of these triggering events occurs. Notwithstanding the foregoing, if “FMV” (as defined above) is equal to or greater than “SP0” (as defined above), in lieu of the foregoing increase, each Holder of a Note shall receive, in respect of each $1,000 of principal and accrued and unpaid interest (or if a PIK Payment has been made, in
minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof), at the same time and upon the same terms as holders of the Common Stock receive the Distributed Property, the amount and kind of Distributed Property such
Holder would have received if such Holder owned a number of shares of Common Stock equal to the Conversion Rate in effect immediately prior to the open of business on the Ex-Dividend Date for the distribution. If the Board of Directors
determines in good faith the “FMV” (as defined above) of any distribution for purposes of this Section 14.04(c) by reference to the actual or when-issued trading market for any securities, it shall in
doing so consider the prices in such market over the same period used in computing the Last Reported Sale Prices of the Common Stock over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the
Ex-Dividend Date for such distribution.
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With respect to an adjustment pursuant to this Section 14.04(c)
where there has been a payment of a dividend or other distribution on the Common Stock of shares of Capital Stock of any class or series, or similar equity interest, of or relating to a Subsidiary or other business unit of the Company, that
are, or, when issued, will be, listed or admitted for trading on a U.S. national securities exchange (a “Spin-Off”), the Conversion Rate shall be increased based on the following formula:
where,
|
CR0 =
|
the Conversion Rate in effect immediately prior to the end of the Valuation Period;
|
|
CR’ =
|
the Conversion Rate in effect immediately after the end of the Valuation Period;
|
|
FMV0 =
|
the average of the Last Reported Sale Prices of the Capital Stock or similar equity interest distributed to holders of the
Common Stock applicable to one share of the Common Stock (determined by reference to the definition of Last Reported Sale Price as set forth in Section 1.01 as if references therein to Common Stock were to such Capital Stock or similar
equity interest) over the first 10 consecutive Trading Day period after, and including, the Ex-Dividend Date of the Spin-Off (the “Valuation Period”); and
|
|
MP0 =
|
the average of the Last Reported Sale Prices of the Common Stock over the Valuation Period.
|
The increase to the Conversion Rate under the preceding paragraph
shall occur at the close of business on the last Trading Day of the Valuation Period; provided that if the relevant Conversion Date occurs during the Valuation Period, references to “10” in the
preceding paragraph shall be deemed to be replaced with such lesser number of Trading Days as have elapsed between the Ex-Dividend Date of such Spin-Off and the Conversion Date in determining the Conversion Rate. If any dividend or distribution
that constitutes a Spin-Off is declared but not so paid or made, the Conversion Rate shall be immediately decreased, effective as of the date the Board of Directors determines in good faith not to pay or make such dividend or distribution, to
the Conversion Rate that would then be in effect if such dividend or distribution had not been declared or announced.
For purposes of this Section 14.04(c) (and subject in all respect to
Section 14.11), rights, options or warrants distributed by the Company to all holders of the Common Stock entitling them to subscribe for or purchase shares of the Company’s Capital Stock, including Common Stock (either initially or under
certain circumstances), which rights, options or warrants, until the occurrence of a specified event or events (“Trigger Event”): (i) are deemed to be transferred with such shares of the Common Stock;
(ii) are not exercisable; and (iii) are also issued in respect of future issuances of the Common Stock, shall be deemed not to have been distributed for purposes of this Section 14.04(c) (and no adjustment to the Conversion Rate under this
Section 14.04(c) will be required) until the occurrence of the earliest Trigger Event, whereupon such rights, options or warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Rate
shall be made under this Section 14.04(c). If any such right, option or warrant, including any such existing rights, options or warrants distributed prior to the date of this Indenture, are subject to events, upon the occurrence of which such
rights, options or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and
Ex-Dividend Date with respect to new rights, options or warrants with such rights (in which case the existing rights, options or warrants shall be deemed to terminate and expire on such date without exercise by any of the holders thereof). In
addition, in the event of any distribution (or deemed distribution) of rights, options or warrants, or any Trigger Event or other event (of the type described in the immediately preceding sentence) with respect thereto that was counted for
purposes of calculating a distribution amount for which an adjustment to the Conversion Rate under this Section 14.04(c) was made, (1) in the case of any such rights, options or warrants that shall all have been redeemed or purchased without
exercise by any holders thereof, upon such final redemption or purchase (x) the Conversion Rate shall be readjusted as if such rights, options or warrants had not been issued and the Conversion Rate shall then again be readjusted to give effect
to such distribution, deemed distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or purchase price received by a holder or holders of Common Stock with respect to such
rights, options or warrants (assuming such holder had retained such rights, options or warrants), made to all holders of
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Common Stock as of the date of such redemption or purchase, and (2) in the case of
such rights, options or warrants that shall have expired or been terminated without exercise by any holders thereof, the Conversion Rate shall be readjusted as if such rights, options and warrants had not been issued.
For purposes of Section 14.04(a), Section 14.04(b) and this Section
14.04(c), if any dividend or distribution to which this Section 14.04(c) is applicable also includes one or both of:
(A) a dividend or distribution of shares of Common Stock to which
Section 14.04(a) is applicable (the “Clause A Distribution”); or
(B) a dividend or distribution of rights, options or warrants to
which Section 14.04(b) is applicable (the “Clause B Distribution”),
then, in either case, (1) such dividend or distribution, other than the Clause A
Distribution and the Clause B Distribution, shall be deemed to be a dividend or distribution to which this Section 14.04(c) is applicable (the “Clause C Distribution”) and any Conversion Rate adjustment
required by this Section 14.04(c) with respect to such Clause C Distribution shall then be made, and (2) the Clause A Distribution and Clause B Distribution shall be deemed to immediately follow the Clause C Distribution and any Conversion Rate
adjustment required by Section 14.04(a) and Section 14.04(b) with respect thereto shall then be made, except that, if determined by the Company (I) the “Ex-Dividend Date” of the Clause A Distribution and
the Clause B Distribution shall be deemed to be the Ex-Dividend Date of the Clause C Distribution and (II) any shares of Common Stock included in the Clause A Distribution or Clause B Distribution shall be deemed not to be “outstanding
immediately prior to the open of business on such Ex-Dividend Date or Effective Date” within the meaning of Section 14.04(a) or “outstanding immediately prior to the open of business on such Ex-Dividend Date” within the meaning of Section
14.04(b).
(d) If the Company pays or makes any cash dividend or distribution
to all or substantially all holders of the Common Stock, the Conversion Rate shall be increased based on the following formula:
where,
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CR0 =
|
the Conversion Rate in effect immediately prior to the open of business on the Ex-Dividend Date for such dividend or
distribution;
|
|
CR’ =
|
the Conversion Rate in effect immediately after the open of business on the Ex-Dividend Date for such dividend or distribution;
|
|
SP0 =
|
the average of the Last Reported Sale Prices of the Common Stock over the ten consecutive Trading Day period immediately
preceding the Ex-Dividend Date for such dividend or distribution; and
|
|
C =
|
the amount in cash per share the Company distributes to all or substantially all holders of the Common Stock.
|
Any increase pursuant to this Section 14.04(d) shall become effective
immediately after the open of business on the Ex-Dividend Date for such dividend or distribution. If such dividend or distribution is not so paid, the Conversion Rate shall be decreased, effective as of the date the Board of Directors
determines in good faith not to make or pay such dividend or distribution, to be the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. Notwithstanding the foregoing, if “C” (as defined above)
is equal to or greater than “SP0” (as defined above), in lieu of the foregoing increase, each Holder of a Note shall receive, for each $1,000 of principal of, and accrued and unpaid interest on (or if a
PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof), Notes, at the same time and upon the same terms as holders of shares of the Common Stock, the amount of cash that such Holder
would have received if such Holder owned a number of shares of Common Stock equal to the Conversion Rate on the Ex-Dividend Date for such cash dividend or distribution.
(e) If the Company or any of its Subsidiaries make a payment in
respect of a tender or exchange offer for the Common Stock (other than an odd lot tender offer), to the extent that the cash and value of any other consideration included in the payment per share of the Common Stock exceeds the average of the
Last
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Reported Sale Prices of the Common Stock over the 10 consecutive Trading Day period
commencing on, and including, the Trading Day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer, the Conversion Rate shall be increased based on the following formula:
where,
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CR0 =
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the Conversion Rate in effect immediately prior to the close of business on the 10th Trading Day immediately following, and
including, the Trading Day next succeeding the date such tender or exchange offer expires (the date such tender offer or exchange offer expires, the “Expiration Date”);
|
|
CR’ =
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the Conversion Rate in effect immediately after the close of business on the 10th Trading Day immediately following, and
including, the Trading Day next succeeding the Expiration Date;
|
|
AC =
|
the aggregate value of all cash and any other consideration (as determined by the Board of Directors in good faith) paid or
payable for shares of Common Stock purchased in such tender or exchange offer;
|
|
OS0 =
|
the number of shares of Common Stock outstanding immediately prior to the Expiration Date (prior to giving effect to the
purchase of all shares of Common Stock accepted for purchase or exchange in such tender or exchange offer);
|
|
OS’ =
|
the number of shares of Common Stock outstanding immediately after the Expiration Date (after giving effect to the purchase of
all shares of Common Stock accepted for purchase or exchange in such tender or exchange offer); and
|
|
SP’ =
|
the average of the Last Reported Sale Prices of the Common Stock over the 10 consecutive Trading Day period commencing on, and
including, the Trading Day next succeeding the Expiration Date.
|
The increase to the Conversion Rate under this Section 14.04(e) shall
occur at the close of business on the 10th Trading Day immediately following, and including, the Trading Day next succeeding the date such tender or exchange offer expires; provided that if the
relevant Conversion Date occurs during the 10 Trading Days immediately following, and including, the Trading Day next succeeding the Expiration Date of any tender or exchange offer, references to “10” or “10th” in the preceding paragraph shall
be deemed replaced with such lesser number of Trading Days as have elapsed between the Expiration Date of such tender or exchange offer and the Conversion Date in determining the Conversion Rate. In addition, if the Trading Day next succeeding
the date such tender or exchange offer expires is after the 10th Trading Day immediately preceding, and including, the date immediately preceding the relevant Conversion Date in respect of a conversion of Notes, references to “10” or “10th” in
the preceding paragraph and this paragraph shall be deemed to be replaced, solely in respect of that conversion of Notes, with such lesser number of Trading Days as have elapsed from, and including, the Trading Day next succeeding the date such
tender or exchange offer expires to, and including, the last Trading Day immediately preceding the relevant Conversion Date.
In the event that the Company or one of its Subsidiaries is obligated
to purchase shares of Common Stock pursuant to any such tender offer or exchange offer, but the Company is, or such Subsidiary is, permanently prevented by applicable law from consummating any such purchases, or all such purchases are
rescinded, then the Conversion Rate shall be decreased to be the Conversion Rate that would then be in effect if such tender offer or exchange offer had not been made or had been made only in respect of the purchases that have been consummated.
(f) Notwithstanding this Section 14.04 or any other provision of
this Indenture or the Notes, if a Conversion Rate adjustment becomes effective on any Ex-Dividend Date, and a Holder that has converted its Notes on or after such Ex-Dividend Date and on or prior to the related Record Date would be treated as
the record holder of the shares of Common Stock as of the related Conversion Date as described under Section 14.02(i) based on an adjusted Conversion Rate for such Ex-Dividend Date, then, notwithstanding the Conversion Rate adjustment
provisions in this Section 14.04, the Conversion Rate adjustment relating to
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such Ex-Dividend Date shall not be made for such converting Holder. Instead, such
Holder shall be treated as if such Holder were the record owner of the shares of Common Stock on an unadjusted basis and participate in the related dividend, distribution or other event giving rise to such adjustment.
(g) Except as stated herein, the Company shall not adjust the
Conversion Rate for the issuance of shares of the Common Stock or any securities convertible into or exchangeable for shares of the Common Stock or the right to purchase shares of the Common Stock or such convertible or exchangeable securities.
In no event will the Conversion Rate be adjusted such that the Conversion Price shall be less than the par value per share of Common Stock. Notwithstanding anything in this Article 14 to the contrary, the Company shall not be required to adjust
the Conversion Rate unless the adjustment would result in an increase or decrease of at least 1.0% of the applicable Conversion Rate. However, the Company shall carry forward any adjustments that are less than 1% of the Conversion Rate, take
such carried-forward adjustments into account in any subsequent adjustment, and make such carried-forward adjustments regardless of whether the aggregate amount of such adjustments is less than 1% (a) on the Conversion Date for any Notes (in
the case of Physical Settlement), (b) on each Trading Day of any Observation Period (in the case of Cash Settlement or Combination Settlement) and (c) on the effective date of any Fundamental Change or the Effective Date of a Make-Whole
Fundamental Change.
(h) In addition to those adjustments required by clauses (a), (b),
(c), (d) and (e) of this Section 14.04, and to the extent permitted by applicable law and subject to the applicable rules of [NASDAQ], the Company from time to time may increase the Conversion Rate by any amount for a period of at least
20 Business Days if the Board of Directors determines in good faith that such increase would be in the Company’s best interest. In addition, to the extent permitted by applicable law and subject to the applicable rules of [NASDAQ], the Company
may (but is not required to) increase the Conversion Rate to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock in connection with a dividend or distribution of shares of Common Stock (or rights to
acquire shares of Common Stock) or similar event. Whenever the Conversion Rate is increased pursuant to either of the preceding two sentences, the Company shall deliver to the Holder of each Note a notice of the increase at least 15 days prior
to the date the increased Conversion Rate takes effect, and such notice shall state the increased Conversion Rate and the period during which it will be in effect.
(i) Except as stated in this Indenture, the Company shall not adjust
the Conversion Rate for the issuance of shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock or the right to purchase shares of Common Stock or such convertible or exchangeable securities. For
illustrative purposes only and without limiting the generality of the preceding sentence, the Conversion Rate shall not be adjusted:
(i) upon the issuance of any shares of Common Stock pursuant to any
present or future plan providing for the reinvestment of dividends or interest payable on the Company’s securities and the investment of additional optional amounts in shares of Common Stock under any plan;
(ii) upon the issuance of any shares of Common Stock or options or
rights to purchase those shares pursuant to any present or future employee, director or consultant benefit plan or program of or assumed by the Company or any of the Company’s Subsidiaries;
(iii) upon the issuance of any shares of the Common Stock pursuant
to any option, warrant, right or exercisable, exchangeable or convertible security not described in clause (ii) of this subsection and outstanding as of the date the Notes were first issued;
(iv) upon the repurchase of any shares of Common Stock pursuant to
an open market share repurchase program or other buy-back transaction, including structured or derivative transactions, that is not a tender or exchange offer of the nature described in Section 14.04(e);
(v) solely for a change in the par value (or lack of par value) of
the Common Stock; or
(vi)for accrued and unpaid interest, if any.
(j) All calculations and other determinations under this Article 14
shall be made by the Company and shall be made to the nearest one-ten thousandth (1/10,000th) of a share.
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(k) Whenever the Conversion Rate is adjusted as herein provided,
the Company shall promptly deliver to the Trustee (and the Conversion Agent if not the Trustee) an Officer’s Certificate setting forth the Conversion Rate after such adjustment and setting forth a brief statement of the facts requiring such
adjustment. Unless and until a Responsible Officer of the Trustee shall have received such Officer’s Certificate, the Trustee shall not be deemed to have knowledge of any adjustment of the Conversion Rate and may assume without inquiry that the
last Conversion Rate of which it has knowledge is still in effect. Promptly after delivery of such certificate, the Company shall prepare a written notice of such adjustment of the Conversion Rate setting forth the adjusted Conversion Rate and
the date on which each adjustment becomes effective and shall deliver such notice of such adjustment of the Conversion Rate to each Holder (with a copy to the Trustee). Failure to deliver such notice shall not affect the legality or validity of
any such adjustment.
(l) For purposes of this Section 14.04, the number of shares of
Common Stock at any time outstanding shall not include shares of Common Stock held in the treasury of the Company so long as the Company does not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the
Company, but shall include shares of Common Stock issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock.
Section 14.05 Adjustments of Prices. Whenever any provision of this Indenture requires the Company to calculate the Last Reported Sale Prices, the Daily VWAPs, the Daily Conversion Values or the Daily Settlement Amounts
over a span of multiple days, the Board of Directors shall make appropriate adjustments (without duplication in respect of any adjustment made pursuant to Section 14.04) to each to account for any adjustment to the Conversion Rate that becomes
effective, or any event requiring an adjustment to the Conversion Rate where the Ex-Dividend Date, Record Date, Effective Date or Expiration Date, as the case may be, of the event occurs, at any time during the period when the Last Reported
Sale Prices, the Daily VWAPs, the Daily Conversion Values or the Daily Settlement Amounts are to be calculated.
Section 14.06 Shares to Be Fully Paid. The Company shall reserve, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares of Common Stock to provide for
conversion of the Notes from time to time as such Notes are presented for conversion (assuming delivery of the maximum number of Additional Shares pursuant to Section 14.03).
(a) In the case of:
(i) any recapitalization, reclassification or change of the Common
Stock (other than changes in par value or resulting from a subdivision or combination),
(ii) any consolidation, merger, combination or similar transaction
involving the Company,
(iii) any sale, lease or other transfer to a third party of all or
substantially all of the consolidated assets of the Company and the Company’s Subsidiaries, taken as a whole, or
(iv) any statutory share exchange,
in each case, as a result of which the Common Stock would be
converted into, or exchanged for, stock, other securities, other property or assets (including cash or any combination thereof) (any such event, a “Share Exchange Event”), then at and after the effective
time of such Share Exchange Event, the right to convert each $1,000 amount of principal and accrued and unpaid interest of Notes shall be changed into a right to convert such principal and accrued and unpaid interest amount of Notes into the
kind and amount of shares of stock, other securities or other property or assets (including cash or any combination thereof) that a holder of a number of shares of Common Stock equal to the Conversion Rate immediately prior to such Share
Exchange Event would have owned or been entitled to receive (the “Reference Property,” with each “unit of Reference Property” meaning the kind and amount of
Reference Property that a holder of one share of Common Stock is entitled to receive) upon such Share Exchange Event and, prior to or at the effective time of such Share Exchange Event, the Company or the successor or acquiring Person, as the
case may be, shall execute with the Trustee a supplemental indenture permitted under Section 10.01(g) providing for such change in the right to convert each $1,000 amount of principal (or if a PIK Payment has been made, in minimum denominations
of $1.00 and any integral multiple of $1.00 in excess thereof) and accrued and unpaid interest on Notes; provided,
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however, that at and after the
effective time of the Share Exchange Event (I) any amount payable in cash upon conversion of the Notes in accordance with Section 14.02 shall continue to be payable in cash, (II) any shares of Common Stock that the Company would have been
required to deliver upon conversion of the Notes in accordance with Section 14.02 shall instead be deliverable in the amount and type of Reference Property that a holder of that number of shares of Common Stock would have been entitled to
receive in such Share Exchange Event and (III) the Daily VWAP shall be calculated based on the value of a unit of Reference Property.
If the Share Exchange Event causes the Common Stock to be converted
into, or exchanged for, the right to receive more than a single type of consideration (determined based in part upon any form of stockholder election), then (i) the Reference Property into which the Notes will be convertible shall be deemed to
be the weighted average of the types and amounts of consideration actually received by the holders of Common Stock, and (ii) the unit of Reference Property for purposes of the immediately preceding paragraph shall refer to the consideration
referred to in clause (i) attributable to one share of Common Stock. If the holders of the Common Stock receive only cash in such Share Exchange Event, then for all conversions for which the relevant Conversion Date occurs after the effective
date of such Share Exchange Event (A) the consideration due upon conversion of each $1,000 amount of principal and accrued and unpaid interest (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of
$1.00 in excess thereof) on Notes shall be solely cash in an amount equal to the Conversion Rate in effect on the Conversion Date (as may be increased by any Additional Shares pursuant to Section 14.14), multiplied
by the price paid per share of Common Stock in such Share Exchange Event and (B) the Company shall satisfy the Conversion Obligation by paying such cash amount to converting Holders on the second Business Day immediately following the
relevant Conversion Date. The Company shall notify in writing Holders, the Trustee and the Conversion Agent (if other than the Trustee) of such weighted average as soon as reasonably practicable after such determination is made.
If the Reference Property in respect of any Share Exchange Event
includes, in whole or in part, shares of common equity, such supplemental indenture described in the second immediately preceding paragraph shall provide for anti-dilution and other adjustments that shall be as nearly equivalent as is possible
to the adjustments provided for in this Article 14 with respect to the portion of the Reference Property consisting of such common equity. If, in the case of any Share Exchange Event, the Reference Property includes shares of stock, securities
or other property or assets (including any combination thereof), other than cash and/or cash equivalents, of a Person other than the Company or the successor or purchasing corporation, as the case may be, in such Share Exchange Event, then such
supplemental indenture shall also be executed by such other Person, if such other Person is an affiliate of the Company or the successor or acquiring company, and shall contain such additional provisions to protect the interests of the Holders
of the Notes as the Board of Directors shall reasonably consider necessary by reason of the foregoing, including the provisions providing for the purchase rights set forth in Article 15.
(b) When the Company executes a supplemental indenture pursuant to
subsection (a) of this Section 14.07, the Company shall promptly deliver to the Trustee an Officer’s Certificate briefly stating the reasons therefor, the kind or amount of cash, securities or property or asset that will comprise a unit of
Reference Property after any such Share Exchange Event, any adjustment to be made with respect thereto and that all conditions precedent have been complied with, and shall promptly deliver notice thereof to all Holders. The Company shall cause
notice of the execution of such supplemental indenture to be delivered to each Holder within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture.
(c) The Company shall not become a party to any Share Exchange Event
unless its terms are consistent with this Section 14.07. None of the foregoing provisions shall affect the right of a holder of Notes to convert its Notes into shares of Common Stock, as set forth in Section 14.01 and Section 14.02 prior to the
effective date of such Share Exchange Event.
(d) The above provisions of this Section shall similarly apply to
successive Share Exchange Events.
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(b) The Company covenants that, if any shares of Common Stock to
be provided for the purpose of conversion of Notes hereunder require registration with or approval of any governmental authority under any federal or state law before such shares of Common Stock may be validly issued upon conversion, the
Company will, to the extent then permitted by the rules and interpretations of the Commission, secure such registration or approval, as the case may be.
(c) The Company further covenants that if at any time the Common
Stock shall be listed on any national securities exchange or automated quotation system the Company will list and use its commercially reasonable efforts to keep listed, so long as the Common Stock shall be so listed on such exchange or
automated quotation system, any Common Stock issuable upon conversion of the Notes.
Section 14.09 Responsibility of Trustee. The Trustee and any other Conversion Agent shall not at any time be under any duty or responsibility to any Holder to determine the Conversion Rate (or any adjustment thereto) or
whether any facts exist that may require any adjustment (including any increase) of the Conversion Rate, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein
or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other Conversion Agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of
any securities, property or cash that may at any time be issued or delivered upon the conversion of any Note; and the Trustee and any other Conversion Agent make no representations with respect thereto.
Neither the Trustee nor any Conversion Agent shall be responsible for
any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Note for the purpose of conversion or to comply with any of the duties,
responsibilities or covenants of the Company contained in this Article. Without limiting the generality of the foregoing, neither the Trustee nor any Conversion Agent shall be under any responsibility to determine the correctness of any
provisions contained in any supplemental indenture entered into pursuant to Section 14.07 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Holders upon the conversion of their
Notes after any event referred to in such Section 14.07 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 7.01, may accept (without any independent investigation) as conclusive evidence of the
correctness of any such provisions, and shall be protected in conclusively relying upon, the Officer’s Certificate (which the Company shall be obligated to deliver to the Trustee prior to the execution of any such supplemental indenture) with
respect thereto. The Trustee and the Conversion Agent may conclusively rely upon any notice with respect to the commencement or termination of such conversion rights.
(a) action by the Company or one of its Subsidiaries that would
require an adjustment in the Conversion Rate pursuant to Section 14.04 or Section 14.11;
(b) Share Exchange Event; or
(c) voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then, in each case (unless notice of such event is otherwise
required pursuant to another provision of this Indenture) and to the extent applicable, the Company shall cause to be delivered to the Trustee and the Conversion Agent (if other than the Trustee) and to be delivered to each Holder, a notice
stating (i) the date on which a record is to be taken for the purpose of such action by the Company or one of its Subsidiaries or, if a record is not to be taken, the date as of which the holders of Common Stock of record are to be determined
for the purposes of such action by the Company or one of its Subsidiaries, or (ii) the date on which such dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such dissolution, liquidation or winding-up. Failure to give such notice, or any defect therein, shall not affect the
legality or validity of such action by the Company or one of its Subsidiaries, Share Exchange Event, dissolution, liquidation or winding-up.
Section 14.11 Stockholder Rights Plans. If the Company has a stockholder rights plan in effect upon conversion of the Notes, each share of Common Stock, if any, issued upon such conversion shall be entitled to receive the
appropriate number of rights, if any, under such stockholder rights plan and the certificates representing the Common Stock issued upon such conversion shall bear such legends, if any, in each case as may
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be provided by the terms of any such stockholder rights plan, as the same may be
amended from time to time. However, if, prior to any conversion of Notes, the rights have separated from the shares of Common Stock in accordance with the provisions of the applicable stockholder rights plan, the Conversion Rate shall be
adjusted at the time of separation as if the Company distributed to all or substantially all holders of the Common Stock Distributed Property as provided in Section 14.04(c), subject to readjustment in the event of the expiration, termination
or redemption of such rights.
Section 14.12 Exchange in Lieu of Conversion. When a Holder surrenders its Notes for conversion, the Company may, at its election (an “Exchange Election”), direct the Conversion
Agent to deliver, on or prior to the first Trading Day following the Conversion Date, such Notes to a financial institution designated by the Company for exchange in lieu of conversion.5 In order to accept any Notes surrendered for
conversion, the designated financial institution must agree to timely pay and/or deliver, in exchange for such Notes, the shares of Common Stock (plus any cash in lieu of fractional shares). If the Company makes an Exchange Election, the
Company shall, by the close of business on the first Trading Day following the relevant Conversion Date, notify in writing the Trustee, the Conversion Agent and the Holder surrendering its Notes for conversion that it has made the Exchange
Election, and the Company shall promptly notify the designated financial institution of the Physical Settlement Method with respect to such conversion and the relevant deadline for payment and/or delivery of shares of Common Stock, and any cash
in lieu of fractional shares.
Any Notes exchanged by the designated financial institution shall
remain outstanding. If the designated financial institution agrees to accept any Notes for exchange but does not timely pay and/or deliver the required shares of Common Stock and any cash in lieu of fractional shares, or if such designated
financial institution does not accept the Notes for exchange, the Company shall notify in writing the Trustee, the Conversion Agent and the Holder surrendering its Notes for conversion, and pay and/or deliver the required shares of Common
Stock, together with cash in lieu of any fractional shares, due upon conversion to the converting Holder at the time and in the manner required under this Indenture as if the Company had not made an Exchange Election.
The Company’s designation of a financial institution to which the
Notes may be submitted for exchange does not require that financial institution to accept any Notes (unless the financial institution has separately made an agreement with the Company). The Company may, but shall not be obligated to, enter into
a separate agreement with any designated financial institution that would compensate it for any such transaction.
Section 14.14 Increased Conversion Rate Applicable to Certain Notes Surrendered in Connection with Make-Whole Fundamental Changes.
If the Effective Date of a Make-Whole Fundamental Change occurs prior
to the Maturity Date and a Holder elects to convert its Notes in connection with such Make-Whole Fundamental Change the Company shall, under the circumstances described below, increase the Conversion Rate for the Notes so surrendered for
conversion by a number of additional shares of Common Stock (the “Additional Shares”), as described below. A conversion of Notes shall be deemed for these purposes to be “in connection with” such
Make-Whole Fundamental Change if the relevant Notice of Conversion is received by the Conversion Agent during the period from, and including, the Effective Date of the Make-Whole Fundamental Change up to, and including, the Business Day
immediately prior to the related Fundamental Change Repurchase Date (or, in the case of a Make-Whole Fundamental Change that would have been a Fundamental Change but for the proviso in clause (b) of the definition thereof, the 35th Trading Day
immediately following the Effective Date of such Make-Whole Fundamental Change) (such period, the “Make-Whole Fundamental Change Period”).(b)Upon surrender of Notes for conversion in connection with a
Make-Whole Fundamental Change, the Company shall satisfy the related Conversion Obligation by Physical Settlement, Cash Settlement or Combination Settlement in accordance with Section 14.02 based on the Conversion Rate as increased to reflect
the Additional Shares pursuant to the table below; provided, however, that if, at the effective time of a Make-Whole Fundamental Change described in clause (b)
of the definition of Fundamental Change, the Reference Property following such Make-Whole Fundamental Change is composed entirely of cash, for any conversion of Notes following the Effective Date of such Make-Whole Fundamental Change, the
Conversion Obligation shall be calculated based solely on the Stock Price for the transaction and
|
5
|
NTD: To be confirmed how this would work in practice for book-entry notes held through DTC and how
this would work for Physical Notes, including if it would have to be endorsed by the surrendering holder so that financial institution could have it registered in its name.
|
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shall be deemed to be an amount of cash per $1,000 amount of principal and accrued
and unpaid interest (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof) on converted Notes equal to the Conversion Rate (including any increase to reflect the Additional
Shares), multiplied by such Stock Price. In such event, the Conversion Obligation shall be determined and paid to Holders in cash on the second Business Day following the Conversion Date. The Company
shall notify in writing the Holders, the Trustee and the Conversion Agent (if other than the Trustee) of the Effective Date of any Make-Whole Fundamental Change no later than five Business Days after such Effective Date.
(c) The number of Additional Shares, if any, by which the Conversion
Rate shall be increased for conversions in connection with a Make-Whole Fundamental Change shall be determined by reference to the table below, based on the date on which the Make-Whole Fundamental Change occurs or becomes effective (in each
case, the “Effective Date”) and the price (the “Stock Price”) paid (or deemed to be paid) per share of the Common Stock in the Make-Whole Fundamental Change. If the
holders of the Common Stock receive in exchange for their Common Stock only cash in a Make-Whole Fundamental Change described in clause (b) of the definition of Fundamental Change, the Stock Price shall be the cash amount paid per share.
Otherwise, the Stock Price shall be the average of the Last Reported Sale Prices of the Common Stock over the five consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the applicable Effective Date. The
Board of Directors shall make appropriate adjustments to the Stock Price, in its good faith determination, to account for any adjustment to the Conversion Rate that becomes effective, or any event requiring an adjustment to the Conversion Rate
where the Record Date, Effective Date (as such term is used in Section 14.04) or Expiration Date of the event occurs during such five consecutive Trading Day period.
(d) The Stock Prices set forth in the column headings of the table
below shall be adjusted as of any date on which the Conversion Rate of the Notes is otherwise adjusted. The adjusted Stock Prices shall equal the Stock Prices applicable immediately prior to such adjustment, multiplied
by a fraction, the numerator of which is the Conversion Rate immediately prior to such adjustment giving rise to the Stock Price adjustment and the denominator of which is the Conversion Rate as so adjusted. The number of Additional
Shares set forth in the table below shall be adjusted in the same manner and at the same time as the Conversion Rate as set forth in Section 14.04.
(e) The following table sets forth the number of Additional Shares
of Common Stock by which the Conversion Rate shall be increased per $1,000 amount of principal and accrued and unpaid interest (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess
thereof) of Notes pursuant to this Section 14.14 for each Stock Price and Effective Date set forth below:
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Stock Price
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Effective Date
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$[ ]
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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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[ ], 2022
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[ ], 2023
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[ ], 2024
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[ ], 2025
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(f) The exact Stock Price and Effective Date may not be set forth in
the table above, in which case:
(i) if the Stock Price is between two Stock Prices in the table
above or the Effective Date is between two Effective Dates in the table, the number of Additional Shares by which the conversion rate shall be increased shall be determined by a straight-line interpolation between the number of Additional
Shares set forth for the higher and lower Stock Prices and the earlier and later Effective Dates, as applicable, based on a 365-day year;
(ii) if the Stock Price is greater than $[•] per share (subject to
adjustment in the same manner as the Stock Prices set forth in the column headings of the table above pursuant to subsection (d) above), no Additional Shares shall be added to the Conversion Rate; and
(iii) if the Stock Price is less than $[•] per share (subject to
adjustment in the same manner as the Stock Prices set forth in the column headings of the table above pursuant to subsection (d) above), no Additional Shares shall be added to the Conversion Rate.
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Notwithstanding the foregoing, in no event shall the Conversion
Rate per $1,000 principal amount (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof)of Notes exceed [•] shares of Common Stock, subject to adjustment in the same manner as
the Conversion Rate pursuant to Section 14.04.
(g) Nothing in this Section 14.14 shall prevent an adjustment to the
Conversion Rate that would otherwise be required pursuant to Section 14.04 in respect of a Make-Whole Fundamental Change.
REPURCHASE OF NOTES AT OPTION OF HOLDERS
(a) If a Fundamental Change occurs at any time prior to the Maturity
Date, each Holder shall have the right, at such Holder’s option, to require the Company to repurchase for cash all of such Holder’s Notes, or any portion of the principal amount thereof properly surrendered and not validly withdrawn pursuant to
Section 15.03 that is equal to $1,000 or an integral multiple of $1,000 (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof), on the date (the “Fundamental Change Repurchase Date”) specified by the Company that is not less than 20 Business Days or more than 35 Business Days following the date of the Fundamental Change Company Notice at a repurchase price equal to 100%
of the principal amount thereof, plus accrued and unpaid interest, if any, plus any remaining amounts that would be owed to, but excluding, the Maturity Date (the “Fundamental Change Repurchase Price”).
The Fundamental Change Repurchase Date shall be subject to postponement in order to allow the Company to comply with applicable law.
(b) Repurchases of Notes under this Section 15.02 shall be made, at
the option of the Holder thereof, upon:
(i) delivery to the paying agent by a Holder of a duly completed
notice (the “Fundamental Change Repurchase Notice”) in the form set forth in Attachment 2 to the Form of Note attached hereto as Exhibit A, if the Notes are Physical Notes, or in compliance with the
Applicable Procedures for surrendering interests in Global Notes, if the Notes are Global Notes, in each case on or before the close of business on the Business Day immediately preceding the Fundamental Change Repurchase Date; and
(ii) delivery of the Notes, if the Notes are Physical Notes, to the
paying agent at any time after delivery of the Fundamental Change Repurchase Notice (together with all necessary endorsements for transfer) at the office of the paying agent, or bookentry transfer of the Notes, if the Notes are Global Notes, in
compliance with the procedures of the Depositary, in each case such delivery being a condition to receipt by the Holder of the Fundamental Change Repurchase Price therefor.
The Fundamental Change Repurchase Notice in respect of any Notes to
be repurchased shall state:
(i) in the case of Physical Notes, the certificate numbers of the
Notes to be delivered for repurchase;
(ii) the portion of the principal amount of Notes to be repurchased,
which must be in minimum denominations of $1,000 or an integral multiple thereof (if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof); and
(iii) that the Notes are to be repurchased by the Company pursuant
to the applicable provisions of the Notes and this Indenture;
provided, however, that if the Notes are Global Notes, the Fundamental Change Repurchase Notice must comply with the Applicable Procedures.
Notwithstanding anything herein to the contrary, any Holder
delivering to the paying agent the Fundamental Change Repurchase Notice contemplated by this Section 15.02 shall have the right to withdraw, in whole or in part, such Fundamental Change Repurchase Notice at any time prior to the close of
business on the Business Day immediately preceding the Fundamental Change Repurchase Date by delivery of a written notice of withdrawal to the paying agent in accordance with Section 15.03.
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The paying agent shall promptly notify the Company of the receipt
by it of any Fundamental Change Repurchase Notice or written notice of withdrawal thereof.
(c) On or before the 20th Business Day after the occurrence of the
effective date of a Fundamental Change, the Company shall provide to all Holders of Notes, the Trustee, the Conversion Agent (if other than the Trustee) and the paying agent (in the case of a paying agent other than the Trustee) a written
notice (the “Fundamental Change Company Notice”) of the occurrence of the effective date of the Fundamental Change and of the repurchase right at the option of the Holders arising as a result thereof. In
the case of Physical Notes, such notice shall be by first class mail or, in the case of Global Notes, such notice shall be delivered in accordance with the Applicable Procedures of the Depositary. Each Fundamental Change Company Notice shall
specify:
(i) the events causing the Fundamental Change;
(ii) the effective date of the Fundamental Change;
(iii) the last date on which a Holder may exercise the repurchase
right pursuant to this Article 15;
(iv) the Fundamental Change Repurchase Price;
(v) the Fundamental Change Repurchase Date;
(vi) the name and address of the paying agent and the Conversion
Agent, if applicable;
(vii) if applicable, the Conversion Rate and any adjustments to
the Conversion Rate;
(viii) that the Notes with respect to which a Fundamental Change
Repurchase Notice has been delivered by a Holder may be converted only if the Holder withdraws the Fundamental Change Repurchase Notice in accordance with the terms of this Indenture; and
(ix) the procedures that Holders must follow to require the
Company to repurchase their Notes.
No failure of the Company to give the foregoing notices and no defect
therein shall limit the Holders’ repurchase rights or affect the validity of the proceedings for the repurchase of the Notes pursuant to this Section 15.02. Simultaneously with providing such notice, the Company will publish such information on
its website or through such other public medium as the Company may use at that time.
At the Company’s written request, given at least five days prior to
the date the Fundamental Change Company Notice is to be sent, the Trustee shall give such notice in the Company’s name and at the Company’s expense; provided, however,
that, in all cases, the text of such Fundamental Change Company Notice shall be prepared by the Company.
(d) Notwithstanding the foregoing, no Notes may be repurchased by
the Company on any date at the option of the Holders in connection with a Fundamental Change if the principal amount of the Notes has been accelerated, and such acceleration has not been rescinded, on or prior to such date (except in the case
of an acceleration resulting from a Default by the Company in the payment of the Fundamental Change Repurchase Price with respect to such Notes). The paying agent will promptly return to the respective Holders thereof any Physical Notes held by
it during the acceleration of the Notes (except in the case of an acceleration resulting from a Default by the Company in the payment of the Fundamental Change Repurchase Price with respect to such Notes), or any instructions for book-entry
transfer of the Notes in compliance with the Applicable Procedures shall be deemed to have been cancelled, and, upon such return or cancellation, as the case may be, the Fundamental Change Repurchase Notice with respect thereto shall be deemed
to have been withdrawn.
(e) For purposes of this Article 15, the paying agent may be any
agent, depositary, tender agent, paying agent or other agent appointed by the Company to accomplish the purposes set forth herein.
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Section 15.03 Withdrawal of Fundamental Change Repurchase Notice. (a) A Fundamental Change Repurchase Notice may be withdrawn (in whole or in part) by means of a written notice of withdrawal delivered to the office of the
paying agent in accordance with this Section 15.03 at any time prior to the close of business on the Business Day immediately preceding the Fundamental Change Repurchase Date, specifying:
(i) the principal amount of the Notes with respect to which such
notice of withdrawal is being submitted, which must be $1,000 or an integral multiple thereof (if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof),
(ii) if Physical Notes have been issued, the certificate number of
the Note in respect of which such notice of withdrawal is being submitted, and
(iii) the principal amount, if any, of such Note that remains
subject to the original Fundamental Change Repurchase Notice, which portion must be in principal amounts of $1,000 or an integral multiple of $1,000 (if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of
$1.00 in excess thereof);
provided, however, that if the Notes are Global Notes, the notice of withdrawal must comply with appropriate procedures of the Depositary.
(a) The Company will deposit with the Trustee (or other paying agent
appointed by the Company), or if the Company is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 4.04 on or prior to 11:00 a.m., New York City time, on the Fundamental Change Repurchase Date (subject
to extension in order to allow the Company to comply with applicable law) an amount of money sufficient to repurchase all of the Notes to be repurchased at the appropriate Fundamental Change Repurchase Price. Subject to receipt of funds and/or
Notes by the Trustee (or other paying agent appointed by the Company), payment for Notes surrendered for repurchase (and not validly withdrawn prior to the close of business on the Business Day immediately preceding the Fundamental Change
Repurchase Date) will be made on the later of (i) the Fundamental Change Repurchase Date (provided the Holder has satisfied the conditions in Section 15.02) and (ii) the time of book-entry transfer or the delivery of such Note to the Trustee
(or other paying agent appointed by the Company) by the Holder thereof in the manner required by Section 15.02 by mailing checks for the amount payable to the Holders of such Notes entitled thereto as they shall appear in the Note Register;
provided, however, that payments to the Depositary shall be made by wire transfer of immediately available funds to the account of the Depositary or its nominee. The Trustee shall, promptly after such payment and upon written demand by the
Company, return to the Company any funds in excess of the Fundamental Change Repurchase Price.
(b) If by 11:00 a.m. New York City time, on the Fundamental Change
Repurchase Date, the Trustee (or other paying agent appointed by the Company) holds money sufficient to make payment on all the Notes or portions thereof that are to be repurchased on such Fundamental Change Repurchase Date, or, if extended in
order to allow the Company to comply with applicable law, such later date, then, with respect to the Notes that have been properly surrendered for repurchase and have not been validly withdrawn in accordance with the provisions of this
Indenture and the Applicable Procedures of the Depositary, (i) such Notes will cease to be outstanding, (ii) interest will cease to accrue on such Notes on the Fundamental Change Repurchase Date or, if extended in order to allow the Company to
comply with applicable law, such later date (whether or not book-entry transfer of the Notes has been made or the Notes have been delivered to the Trustee or paying agent) and (iii) all other rights of the Holders of such Notes with respect to
the Notes will terminate on the Fundamental Change Repurchase Date or, if extended in order to allow the Company to comply with applicable law, such later date (other than (x) the right to receive the Fundamental Change Repurchase Price and (y)
to the extent not included in the Fundamental Change Repurchase Price, accrued and unpaid interest, if applicable).
(c) Upon surrender of a Physical Note that is to be repurchased in
part pursuant to Section 15.02, the Company shall execute and the Trustee shall authenticate and deliver to the Holder a new Physical Note in an authorized denomination equal in principal amount to the unrepurchased portion of the Physical Note
surrendered.
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Section 15.05 Covenant to Comply with Applicable Laws Upon Repurchase of Notes. In connection with any repurchase offer upon a Fundamental Change pursuant to this Article 15, the Company will, if required:
(a) comply with the provisions of any tender offer rules under the
Exchange Act that may then be applicable;
(b) file a Schedule TO or any other required schedule under the
Exchange Act; and
(c) otherwise comply in all material respects with all federal and
state securities laws in connection with any offer by the Company to repurchase the Notes;
in each case, so as to permit the rights and obligations under this
Article 15 to be exercised in the time and in the manner specified in this Article 15 subject to postponement in order to allow the Company to comply with applicable law. To the extent that the provisions of any securities laws or regulations
conflict with the provisions of this Indenture relating to the Company’s obligations to purchase the Notes upon a Fundamental Change, the Company will comply with the applicable securities laws and regulations and will not be deemed to have
breached its obligations under such provisions of this Indenture by virtue of such conflict.
NO REDEMPTION
Section 16.01 No Redemption. The Notes shall not be redeemable by the Company prior to the Maturity Date, and no sinking fund is provided for the Notes.
MISCELLANEOUS PROVISIONS
Section 17.01 Provisions Binding on Company’s Successors. All the covenants, stipulations, promises and agreements of the Company contained in this Indenture shall bind its successors and assigns whether so expressed or
not.
Section 17.02 Official Acts by Successor Corporation. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or Officer of the Company shall and may
be done and performed with like force and effect by the like board, committee or officer of any corporation or other entity that shall at the time be the lawful sole successor of the Company.
Section 17.03 Addresses for Notices, Etc. Any notice or demand that by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the Holders on the Company shall be deemed to have
been sufficiently given or made, for all purposes if given or served by being deposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is delivered by the Company to the Trustee) to
ZeroFox Holdings, Inc., 1834 S. Charles Street, Baltimore, Maryland 21230, Attention: Tim Bender, Chief Financial Officer, with a copy sent to [•], Attention: [•]. Any notice, direction, request or demand hereunder to or upon the Trustee shall
be deemed to have been sufficiently given or made, for all purposes, if it is in writing and actually received by the Trustee at the Corporate Trust Office. In no event shall the Trustee or the Conversion Agent be obligated to monitor any
website maintained by the Company or any press releases issued by the Company.
The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication delivered or to be delivered to a Holder
of Physical Notes shall be mailed to it by first class mail, postage prepaid, at its address as it appears on the Note Register and shall be sufficiently given to it if so mailed within the time prescribed. Any notice or communication delivered
or to be delivered to a Holder of Global Notes shall be delivered in accordance with the Applicable Procedures of the Depositary and shall be sufficiently given to it if so delivered within the time prescribed.
Failure to mail or deliver a notice or communication to a Holder or
any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed or delivered, as the case may be, in the manner provided above, it is duly given, whether or not the addressee receives it.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice to Holders by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.
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Section 17.04 Governing Law; Jurisdiction. THIS INDENTURE AND EACH NOTE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS INDENTURE AND EACH NOTE, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
The Company irrevocably consents and agrees, for the benefit of the
Holders from time to time of the Notes and the Trustee, that any legal action, suit or proceeding against it with respect to obligations, liabilities or any other matter arising out of or in connection with this Indenture or the Notes may be
brought in the courts of the State of New York or the courts of the United States located in the Borough of Manhattan, New York City, New York and, until amounts due and to become due in respect of the Notes have been paid, hereby irrevocably
consents and submits to the non-exclusive jurisdiction of each such court in personam, generally and unconditionally with respect to any action, suit or proceeding for itself in respect of its
properties, assets and revenues.
The Company irrevocably and unconditionally waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions, suits or proceedings arising out of or in connection with this Indenture brought in the courts of the State of New
York or the courts of the United States located in the Borough of Manhattan, New York City, New York and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
Section 17.05 Evidence of Compliance with Conditions Precedent; Certificates and Opinions of Counsel to Trustee. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions
of this Indenture, the Company shall furnish to the Trustee an Officer’s Certificate and an Opinion of Counsel, stating that such action is permitted by the terms of this Indenture and that all conditions precedent to such action have been
complied with. With respect to matters of fact, an Opinion of Counsel may rely on an Officer’s Certificate or certificates of public officials.
Each Officer’s Certificate and Opinion of Counsel provided for, by or
on behalf of the Company in this Indenture and delivered to the Trustee with respect to compliance with this Indenture (other than the Officer’s Certificates provided for in Section 4.08) shall include (a) a statement that the person signing
such certificate is familiar with the requested action and this Indenture; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statement contained in such certificate is based; (c) a statement
that, in the judgment of such person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed judgment as to whether or not such action is permitted by this Indenture; and (d) a statement
as to whether or not, in the judgment of such person, such action is permitted by this Indenture and that all conditions precedent to such action have been complied with.
Section 17.06 Legal Holidays. In any case where any Interest Payment Date, any Fundamental Change Repurchase Date or the Maturity Date is not a Business Day, then any action to be taken on such date need not be taken on
such date, but may be taken on the next succeeding Business Day with the same force and effect as if taken on such date, and no interest shall accrue on any such payment in respect of the delay.
Section 17.07 No Security Interest Created. Nothing in this Indenture or in the Notes, expressed or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation,
as now or hereafter enacted and in effect, in any jurisdiction.
Section 17.08 Benefits of Indenture. Nothing in this Indenture or in the Notes, expressed or implied, shall give to any Person, other than the Holders, the parties hereto, any Paying Agent, any Conversion Agent, any
Custodian, any authenticating agent, any Note Registrar and their successors hereunder, any benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 17.09 Table of Contents, Headings, Etc. The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof.
Section 17.10 Authenticating Agent. The Trustee may appoint an authenticating agent that shall be authorized to act on its behalf and subject to its direction in the authentication and delivery of Notes in connection with
the original issuance thereof and transfers and exchanges of Notes hereunder, including under Section 2.04, Section 2.05, Section 2.06, Section 2.07, Section 10.04 and Section 15.04 as fully to all intents and
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purposes as though the authenticating agent had been expressly authorized by this
Indenture and those Sections to authenticate and deliver Notes. For all purposes of this Indenture, the authentication and delivery of Notes by the authenticating agent shall be deemed to be authentication and delivery of such Notes “by the
Trustee” and a certificate of authentication executed on behalf of the Trustee by an authenticating agent shall be deemed to satisfy any requirement hereunder or in the Notes for the Trustee’s certificate of authentication. Such authenticating
agent shall at all times be a Person eligible to serve as trustee hereunder pursuant to Section 7.08.
Any corporation or other entity into which any authenticating agent
may be merged or converted or with which it may be consolidated, or any corporation or other entity resulting from any merger, consolidation or conversion to which any authenticating agent shall be a party, or any corporation or other entity
succeeding to all or substantially all of the corporate trust business of any authenticating agent, shall be the successor of the authenticating agent hereunder, if such successor corporation or other entity is otherwise eligible under this
Section 17.10, without the execution or filing of any paper or any further act on the part of the parties hereto or the authenticating agent or such successor corporation or other entity.
Any authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any authenticating agent by giving written notice of termination to such authenticating agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time any authenticating agent shall cease to be eligible under this Section, the Trustee may appoint a successor authenticating agent (which may be the Trustee), shall give
written notice of such appointment to the Company and shall deliver notice of such appointment to all Holders.
The Company agrees to pay to the authenticating agent from time to
time reasonable compensation for its services although the Company may terminate the authenticating agent, if it determines such agent’s fees to be unreasonable.
The provisions of Section 7.02, Section 7.03, Section 7.04, Section
8.03 and this Section 17.10 shall be applicable to any authenticating agent.
If an authenticating agent is appointed pursuant to this Section
17.10, the Notes may have endorsed thereon, in addition to the Trustee’s certificate of authentication, an alternative certificate of authentication in the following form:
,
as Authenticating Agent, certifies that this is one of the Notes described
in the within-named Indenture.
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By:
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Authorized Signatory
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Section 17.11 Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.
The exchange of copies of this Indenture and of signature pages by facsimile, PDF or other electronic transmission shall constitute effective execution and delivery of this Indenture as to the parties hereto and may be used in lieu of the
original Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile, PDF or other electronic means shall be deemed to be their original signatures for all purposes. Unless otherwise provided in this Indenture or in
any Note, the words “execute,” “execution,” “signed” and “signature” and words of similar import used in or related to any document to be signed in connection with this Indenture, any Note or any of the transactions contemplated hereby
(including amendments, waivers, consents and other modifications) shall be deemed to include electronic signatures and the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a
manually executed signature in ink or the use of a paper-based recordkeeping system, as applicable, to the fullest extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce
Act, the New York State Electronic Signatures and Records Act and any other similar state laws based on the Uniform Electronic Transactions Act; provided that, notwithstanding anything herein to the
contrary, the Trustee is not under any obligation to agree to accept electronic signatures in any form or in any format unless expressly agreed to by the Trustee pursuant to procedures approved by the Trustee.
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Section 17.12 Severability. In the event any provision of this Indenture or in the Notes shall be invalid, illegal or unenforceable, then (to the extent permitted by law) the validity, legality or enforceability of the
remaining provisions shall not in any way be affected or impaired.
Section 17.13 Waiver of Jury Trial. EACH OF THE COMPANY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT
OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 17.14 Force Majeure. In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces
beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, pandemics, epidemics, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or
malfunctions of utilities, communications or computer (software and hardware) services or the unavailability of the Federal Reserve Bank wire or telex write or communication facility; it being understood that the Trustee shall use reasonable
efforts that are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
Section 17.15 Calculations. The Company shall be responsible for making all calculations called for under the Notes. These calculations include, but are not limited to, determinations of the Last Reported Sale Prices, the
Daily VWAPs, the Daily Conversion Values or the Daily Settlement Amounts, accrued interest payable on the Notes and the Conversion Rate of the Notes. The Company shall make all these calculations in good faith and, absent manifest error, the
Company’s calculations shall be final and binding on Holders of Notes. The Company shall provide a schedule of its calculations to each of the Trustee and the Conversion Agent, and each of the Trustee and Conversion Agent is entitled to rely
conclusively upon the accuracy of the Company’s calculations without independent verification. The Trustee will forward the Company’s calculations to any registered Holder of Notes upon the written request of that Holder at the sole cost and
expense of the Company. Neither the Trustee nor the Conversion Agent will have any responsibility to make calculations under this Indenture, nor will either of them have any responsibility to monitor the Company’s stock or trading price,
determine whether the conditions to convertibility of the Notes have been met or determine whether the circumstances requiring changes to the Conversion Rate have occurred.
Section 17.16 USA PATRIOT Act. The parties hereto acknowledge that in accordance with Section 326 of the USA PATRIOT Act, the Trustee, like all financial institutions and in order to help fight the funding of terrorism
and money laundering, is required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Trustee. The parties to this Indenture agree that they will
provide the Trustee with such information as it may request in order for the Trustee to satisfy the requirements of the USA PATRIOT Act.
Section 17.17 Tax Withholding.6 The Company or the Trustee, as the case may be, shall be entitled to make a deduction or withholding from any payment which it makes under this Indenture for or on account of
any present or future taxes, duties or charges if and to the extent so required by any applicable law and any current or future regulations or agreements thereunder or official interpretations thereof or any law implementing an
intergovernmental approach thereto, in each case, that a Holder is subject to pursuant to the Indenture (“Applicable Tax Law”), or by virtue of the relevant Holder failing to satisfy any certification or
other requirements under Applicable Tax Law in respect of the Notes, in which event the Company or the Trustee, as the case may be, shall make such payment after such withholding or deduction has been made and shall account to the relevant
authorities for the amount so withheld or deducted and shall have no obligation to gross up any payment hereunder or pay any additional amount as a result of such withholding tax.
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6
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Subject to tax review.
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Notwithstanding any other provision of this Indenture, if the
Company or other applicable withholding agent pays withholding taxes or backup withholding on behalf of the Holder as a result of an adjustment or the nonoccurrence of an adjustment to the Conversion Rate, the Company or other applicable
withholding agent may, at its option, withhold from or set off such payments against payments of cash and shares of Common Stock on the Note (or any payments on the Common Stock) or sales proceeds received by or other funds or assets of the
Holder.
[Remainder of page intentionally left blank]
E-99
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed as of the date first written above.
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ZEROFOX HOLDINGS, INC.
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By:
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Name:
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Title:
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WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee
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By:
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E-100
[FORM OF FACE OF NOTE]
[INCLUDE FOLLOWING LEGEND IF A GLOBAL NOTE]
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREUNDER IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
[INCLUDE FOLLOWING LEGEND IF A RESTRICTED SECURITY]
[THIS SECURITY AND THE COMMON STOCK, IF ANY, ISSUABLE UPON CONVERSION
OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER:
(1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS A “QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT, AND
(2) AGREES FOR THE BENEFIT OF ZEROFOX HOLDINGS, INC. (THE “COMPANY”) THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN PRIOR TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LAST ORIGINAL CLOSING DATE
HEREOF OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THERETO AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW, EXCEPT:
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BECOME EFFECTIVE
UNDER THE SECURITIES ACT AND IS EFFECTIVE AT THE TIME OF SUCH TRANSFER, OR
(C) TO A PERSON THAT YOU REASONABLY BELIEVE TO BE A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, OR
(D) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH CLAUSE
(2)(D) ABOVE, THE COMPANY AND THE TRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN ORDER FOR THE COMPANY TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING
MADE IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
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7
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NTD: Conforming edits to the base indenture to be made once agreed.
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E-101
NO AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF
THE COMPANY OR PERSON THAT HAS BEEN AN AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY DURING THE IMMEDIATELY PRECEDING THREE MONTHS MAY PURCHASE, OTHERWISE ACQUIRE OR HOLD THIS SECURITY OR A BENEFICIAL INTEREST
HEREIN.]8
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8
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Subject to the procedures of the Depositary, the Restrictive Legend shall be deemed removed from
the face of this Note without further action by the Company, Trustee or the Holders of this Note at such time and in the manner provided under Section 2.05 of the Indenture.
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E-102
ZEROFOX HOLDINGS, INC.
7.00%/8.75% Convertible Senior Cash/PIK Toggle Notes due 2025
No. [ ]
[Initially]9 $[ ]
CUSIP No. [ ]10
Zerofox Holdings, Inc., a corporation duly organized and validly
existing under the laws of the State of [•] (the “Company,” which term includes any successor corporation or other entity under the Indenture referred to on the reverse hereof), for value received hereby
promises to pay to [CEDE & CO.]11 [ ]12, or registered assigns, the principal sum [as set forth in the “Schedule of Exchanges of Notes” attached hereto]13 [of $[ ]]14,
which amount, taken together with the principal amounts of all other outstanding Notes, shall not, unless permitted by the Indenture, exceed $150,000,000 in aggregate at any time, in accordance with the rules and procedures of the Depositary,
on [ ], 2025, and interest thereon as set forth below.
This Note will bear cash interest (“Cash
Interest”) at a rate of 7.00% per annum payable quarterly in arrears on the last Business Day of the applicable quarter (or, if such day is not a Business Day, the next succeeding Business Day), commencing on [ ], 2022, to Holders of
record at the close of business on the last Business Day of the preceding fiscal quarter (whether or not such day is a Business Day). Notwithstanding the preceding sentence, interest may, at the Company’s option (a “PIK Election”), be paid by increasing the principal amount of the outstanding Notes or if, and in the limited circumstances where, the Notes are no longer held in global form, by issuing Notes (“PIK
Notes”) (rounded up to the nearest $ 1.00) (“PIK Interest”) under the Indenture , having the same terms and conditions as the Notes (in each case, a “PIK Payment”)
at a rate of 8.75% per annum. Interest on the Notes will accrue from [ ], 2022, or from the most recent date to which interest had been paid or provided for to, but excluding, the next scheduled Interest Payment Date until [ ], 2025.
Any Defaulted Amounts shall accrue interest per annum at the rate
borne by the Notes plus 2.00% per annum, from, and including, the relevant payment date to, but excluding, the date on which such Defaulted Amounts shall have been paid by the Company, at its election, in accordance with Section 2.03(c) of the
Indenture.
Upon the occurrence, and during the continuance, of an Event of
Default, the Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) at the then-applicable interest rate on the Notes plus 2.00% per annum.
The Company shall pay the principal of and interest on this Note, if
and so long as such Note is a Global Note, in immediately available funds to the Depositary or its nominee, as the case may be, as the registered Holder of such Note. As provided in and subject to the provisions of the Indenture, the Company
shall pay the principal of any Notes (other than Notes that are Global Notes) at the office or agency designated by the Company for that purpose. The Company has initially designated the Trustee as its Paying Agent and Note Registrar in respect
of the Notes and the Corporate Trust Office located in the United States of America as a place where Notes may be presented for payment or for registration of transfer and exchange.
At all times, PIK Interest on the Notes shall be payable: (i) with
respect to Notes represented by one or more Global Notes registered in the name of, or held by, the Custodian (or any successor depository) or its nominee on the relevant record date, by increasing the principal amount of the outstanding Global
Notes, effective as of the applicable Interest Payment Date, by an amount equal to the amount of PIK Interest for the applicable interest period (rounded up to the nearest whole dollar) at the request of the Company to increase the principal
amount of the outstanding Global Note and (ii) with respect to certificated Notes, if any, by issuing PIK Notes in certificated form, dated as of the applicable Interest Payment Date, in an aggregate principal amount equal to the amount of the
PIK Interest for the applicable interest period (rounded up to the nearest whole dollar), and the Trustee will, upon receipt of certificate of authentication, authenticate and deliver such PIK Notes in certificated form for original issuance to
the Holder s on the relevant record date, as shown by the records of the register of holders.
Following an increase in the principal amount of the outstanding
Global Notes as a result of a PIK Payment, the Global Notes will bear interest on such increased principal amount from and after the Interest Payment Date
E-103
in respect of which such PIK Payment was made. Any PIK Notes issued in certificated
form will be dated as of the applicable Interest Payment Date and will bear interest from and after such date. All Notes issued pursuant to a PIK Payment will mature on the same maturity date as the Notes issued on the Issue Date and will be
governed by, and subject to the terms, provisions and conditions of, the Indenture and shall have the same rights and benefits as the Notes issued on the Issue Date. Any certificated PIK Notes will be issued with the description “PIK” on the
face of such PIK Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, including, without limitation, provisions giving the Holder of this Note the right to convert this Note into shares of Common Stock on the terms and subject to the limitations set forth in the Indenture. Such further
provisions shall for all purposes have the same effect as though fully set forth at this place.
This Note, and any claim, controversy or dispute
arising under or related to this Note, shall be construed in accordance with and governed by the laws of the State of New York (without regard to the conflicts of laws provisions thereof).
In the case of any conflict between this Note and the Indenture, the
provisions of the Indenture shall control and govern.
This Note shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been signed manually by the Trustee or a duly authorized authenticating agent under the Indenture.
[Remainder of page intentionally left blank]
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9
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Include if a global note
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10
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Subject to the procedures of the Depositary, at such time as the Company notifies the Trustee that
the Restrictive Legend is to be removed in accordance with the Indenture, the CUSIP number for this Note shall be deemed to be [ ].
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11
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Include if a global note.
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12
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Include if a physical note.
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13
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Include if a global note.
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14
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Include if a physical note.
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E-104
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed.
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ZEROFOX HOLDINGS, INC.
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By:
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Name:
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Dated:
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TRUSTEE’S CERTIFICATE OF AUTHENTICATION
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WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee, certifies that this is one
of the Notes described in the within-named Indenture.
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By:
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Authorized Signatory
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E-105
[FORM OF REVERSE OF NOTE]
ZEROFOX HOLDINGS, INC.
7.00%/8.75% Convertible Senior Cash/PIK Toggle Notes due 2025
This Note is one of a duly authorized issue of Notes of the Company,
designated as its 7.00%/8.75% Convertible Senior Cash/PIK Toggle Notes due 2025 (the “Notes”), limited to the aggregate principal amount of $150,000,000 all issued or to be issued under and pursuant to an
Indenture dated as of [ ], 2022 (the “Indenture”), between the Company and Wilmington Trust, National Association, as trustee (the “Trustee”), to which Indenture
and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Notes. PIK Notes may be
issued in an unlimited aggregate principal amount, subject to certain conditions specified in the Indenture. Capitalized terms used in this Note and not defined in this Note shall have the respective meanings set forth in the Indenture.
In case certain Events of Default shall have occurred and be
continuing, the principal of, and interest on, all Notes may be declared, by either the Trustee or Holders of at least 20% in aggregate principal amount of Notes then outstanding, and upon said declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions and certain exceptions set forth in the Indenture.
Subject to the terms and conditions of the Indenture, the Company
will make all payments and deliveries in respect of the Fundamental Change Repurchase Price on the Fundamental Change Repurchase Date and the principal amount on the Maturity Date, as the case may be, to the Holder who surrenders a Note to a
Paying Agent to collect such payments in respect of the Note. The Company will pay cash amounts in money of the United States that at the time of payment is legal tender for payment of public and private debts.
The Indenture contains provisions permitting the Company and the
Trustee in certain circumstances, without the consent of the Holders of the Notes, and in certain other circumstances, with the consent of the Holders of not less than a majority in aggregate principal amount of the Notes at the time
outstanding, evidenced as in the Indenture provided, to execute supplemental indentures modifying the terms of the Indenture and the Notes as described therein. It is also provided in the Indenture that, subject to certain exceptions, the
Holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the Holders of all of the Notes waive any past Default or Event of Default under the Indenture and its consequences.
Notwithstanding any other provision of the Indenture or any provision
of this Note, each Holder shall have the contractual right to receive payment or delivery, as the case may be, of (x) the principal (including the Fundamental Change Repurchase Price, if applicable) of, (y) accrued and unpaid interest, if any,
on, and (z) the consideration due upon conversion of, this Note, on or after the respective due dates expressed or provided for in this Note or in the Indenture, and the contractual right to institute suit for the enforcement of any such
payment or delivery, as the case may be, on or after such respective dates, shall not be amended without the consent of each Holder.
The Notes are issuable in registered form without coupons in minimum
denominations of $1,000 principal amount and integral multiples in excess thereof (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof). At the office or agency of the
Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations, without payment of any
service charge but, if required by the Company or Trustee, with payment of a sum sufficient to cover any transfer or similar tax that may be imposed in connection therewith as a result of the name of the Holder of the new Notes issued upon such
exchange of Notes being different from the name of the Holder of the old Notes surrendered for such exchange.
The Notes are not subject to redemption through the operation of any
sinking fund or otherwise.
Upon the occurrence of a Fundamental Change, the Holder has the
right, at such Holder’s option, to require the Company to repurchase for cash all of such Holder’s Notes or any portion thereof (in principal amounts of $1,000 or integral multiples thereof (or if a PIK Payment has been made, in minimum
denominations of $1.00 and any integral multiple of $1.00 in excess thereof)) on the Fundamental Change Repurchase Date at a price equal to the Fundamental Change Repurchase Price.
E-106
Subject to the provisions of the Indenture, the Holder hereof has
the right, at its option, during certain periods and upon the occurrence of certain conditions specified in the Indenture, prior to the close of business on the second Scheduled Trading Day immediately preceding the Maturity Date, to convert
any Notes or portion thereof that is $1,000 or an integral multiple thereof (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof), into shares of Common Stock at the
Conversion Rate specified in the Indenture, as adjusted from time to time as provided in the Indenture.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
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Zerofox Holdings, Inc.
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[•]
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[•]
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Attention: [•]
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E-107
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face
of this Note, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM = as tenants in common
UNIF GIFT MIN ACT = Uniform Gifts to Minors Act
CUST = Custodian
TEN ENT = as tenants by the entireties
JT TEN = joint tenants with right of survivorship and not as tenants
in common Additional abbreviations may also be used though not in the above list.
E-108
SCHEDULE A15
SCHEDULE OF EXCHANGES OF NOTES
ZEROFOX HOLDINGS, INC.
7.00%/8.75% Convertible Senior Cash/PIK Toggle Notes due 2025
The initial principal amount of this Global Note is ONE HUNDRED AND
FIFTY MILLION DOLLARS ($150,000,000). The following increases or decreases in this Global Note have been made, including as a result of payments of PIK Interest:
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Date of exchange
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Amount of
decrease in principal amount
of this Global
Note
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Amount of
increase in
principal amount
of this Global
Note
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Principal amount
of this Global
Note following
such decrease or
increase
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Signature of
authorized
signatory of
Trustee or
Custodian
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15
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Include if a global note.
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E-109
ATTACHMENT 1
[FORM OF NOTICE OF CONVERSION]
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To:
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Wilmington Trust, National Association
Global Capital Markets
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402
Attention: Zerofox Holdings, Inc. Administrator
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The undersigned registered owner of this Note hereby exercises the
option to convert this Note, or the portion hereof (that is $1,000 principal amount or an integral multiple thereof (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof))
below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Note, and directs that any cash payable and any shares of Common Stock issuable and deliverable upon such conversion, together with
any cash for any fractional share, and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered Holder hereof unless a different name has been indicated below. If any shares of Common Stock or
any portion of this Note not converted are to be issued in the name of a Person other than the undersigned, the undersigned will pay all documentary, stamp or similar issue or transfer taxes, if any in accordance with Section 14.02(d) and
Section 14.02(e) of the Indenture. Any amount required to be paid to the undersigned on account of interest accompanies this Note. Capitalized terms used herein but not defined shall have the meanings ascribed to such terms in the Indenture.
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Dated:
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Signature
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Signature Guarantee
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Signature(s) must be guaranteed by
an eligible Guarantor Institution
(banks, stock brokers, savings and
loan associations and credit unions)
with membership in an approved
signature guarantee medallion program
pursuant to Securities and Exchange
Commission Rule 17Ad-15 if shares of Common Stock are to
be issued, or
Notes are to be delivered, other than
to and in the name of the registered holder.
Fill in for registration of shares if to be issued,
and Notes if to be delivered, other than to and in the name
of the registered holder:
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(Name)
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(Street Address)
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(City, State and Zip Code)
Please print name and address
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E-110
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Principal amount to be converted (if less than all):
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$__________,000
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NOTICE: The above signature(s) of the Holder(s) hereof must correspond with the
name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever.
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Social Security or Other Taxpayer
Identification Number
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E-111
ATTACHMENT 2
[FORM OF FUNDAMENTAL CHANGE REPURCHASE NOTICE]
To: Paying Agent
The undersigned registered owner of this Note hereby acknowledges
receipt of a notice from ZEROFOX HOLDINGS, INC. (the “Company”) as to the occurrence of a Fundamental Change with respect to the Company and specifying the Fundamental Change Repurchase Date and requests
and instructs the Company to pay to the registered holder hereof in accordance with Section 15.02 of the Indenture referred to in this Note (1) the entire principal amount of this Note, or the portion thereof (that is $1,000 principal amount or
an integral multiple thereof (or if a PIK Payment has been made, in minimum denominations of $1.00 and any integral multiple of $1.00 in excess thereof)) below designated, and (2) if such Fundamental Change Repurchase Date does not fall during
the period after a Regular Record Date and on or prior to the corresponding Interest Payment Date, accrued and unpaid interest, if any, thereon to, but excluding, such Fundamental Change Repurchase Date. Capitalized terms used herein but not
defined shall have the meanings ascribed to such terms in the Indenture.
In the case of Physical Notes, the certificate numbers of the Notes
to be repurchased are as set forth below:
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Dated:
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Signature(s)
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Social Security or Other Taxpayer Identification Number
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Principal amount to be repaid (if less than all):
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$__________,000
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NOTICE: The above signature(s) of the Holder(s) hereof must correspond with the
name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever.
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E-112
ATTACHMENT 3
[FORM OF ASSIGNMENT AND TRANSFER]
For value received _______________________ hereby sell(s), assign(s)
and transfer(s) unto _______________________ (Please insert social security or Taxpayer Identification Number of assignee) the within Note, and hereby irrevocably constitutes and appoints _______________________ attorney to transfer the said
Note on the books of the Company, with full power of substitution in the premises.
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Dated:
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Signature(s)
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Signature Guarantee Signature(s) must be guaranteed by an eligible
Guarantor Institution (banks, stockbrokers, savings
and loan associations and credit unions) with
membership in an approved signature guarantee
medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if Notes
are to
be delivered, other than to and in the name of the registered holder.
NOTICE: The signature on the assignment must
correspond with the name as written upon the face of
the Note in every particular without alteration or
enlargement or any change whatever.
E-113
January 31, 2022
L&F Acquisition Corp.
c/o Victory Park Capital Advisors, LLC
150 North Riverside Plaza, Suite 5200
Chicago, IL 60606
Re: Second Amended and Restated Sponsor Support Letter Agreement (“Letter Agreement”)
Ladies and Gentlemen:
Reference is hereby made to (a) that certain Sponsor Support Letter
Agreement re Initial Public Offering, dated as of November 18, 2020 (the “Original Letter Agreement”), by and among (i) L&F Acquisition Corp., a Cayman Islands exempted company
(which shall migrate to and domesticate as a Delaware corporation prior to the Closing) (the “Acquiror”), (ii) JAR Sponsor, LLC, a Delaware limited liability company (the “Sponsor”), (iii) the undersigned individuals listed on the signature page hereto as a “Sponsor Holder” (each such undersigned
individual, a “Sponsor Holder,” and collectively, the “Sponsor Holders”), and (iv) certain members of Acquiror’s board of
directors and/or management team listed on the signature page hereto as “Original Signatories” (the “Original Signatories”), and (b) that certain Business Combination Agreement, dated
as of December 17, 2021 (as the same may be amended, restated or amended and restated from time to time in accordance with its terms, the “Business Combination Agreement”), by and
among (i) Acquiror, (ii) L&F Holdings, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of Acquiror (“L&F Holdings”), (iii) ZF Merger Sub, Inc., a
Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings, (iv) IDX Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings, (v) IDX Forward Merger Sub, LLC, a Delaware limited
liability company and direct, wholly-owned subsidiary of L&F Holdings, (vi) ZeroFox, Inc., a Delaware corporation (“ZF”), and (vii) ID Experts Holdings, Inc., a Delaware
corporation (“IDX” and, together with Acquiror, Sponsor, the Sponsor Holders (solely in their capacity as (x) current record holders or beneficial owners of Pre-Domestication Acquiror
Class B Shares and future record holders or beneficial owners of any shares of Acquiror Common Stock into which such Pre-Domestication Acquiror Class B Shares convert in connection with the Domestication (collectively, the “Founder Shares”) and, in the case of the Sponsor, (y) current record holders or beneficial owners of Pre-Domestication Acquiror Warrants and future record holders or beneficial owners of
any Acquiror Warrants into which such Pre-Domestication Acquiror Warrants convert in connection with the Domestication (collectively, the “Founder Warrants”)), the Original Signatories
(solely for the limited purposes of amending and restating the A&R Letter Agreement, Section 6 and Section 21) and ZF, each, a “Party,” and collectively, the “Parties”). Unless otherwise expressly provided herein, capitalized terms shall have the respective meanings assigned to them in the Business Combination Agreement.
WHEREAS, in
order to induce each of the parties to the Business Combination Agreement to enter into and proceed with the consummation of the transactions contemplated by the Business Combination Agreement, the parties to the Original Letter Agreement
amended and restated the Original Letter Agreement in its entirety on December 17, 2021 (as amended, the “A&R Letter Agreement”) to, among other things,
reflect certain rights and obligations as further specified therein and include ZF and IDX as parties;
WHEREAS,
Section 7.07 of the Business Combination Agreement provides that, prior to the time at which the Effective Time occurs, Acquiror will transfer by way of continuation from the Cayman Islands to the State of Delaware and will domesticate in the
State of Delaware as a corporation in accordance with Section 388 of the Delaware General Corporation Law (the “DGCL”) and Part XII of the Cayman Islands
Companies Act (As Revised) (the “Companies Act”) (the “Domestication”), and
in connection with the Domestication, (a) each then-issued and outstanding Pre-Domestication Acquiror Ordinary Share shall convert automatically, on a one-for-one basis, into a share of common stock, par value US $0.0001 per share, of
Acquiror (the “Acquiror Common Stock”); (b) each then-issued and outstanding Pre-Domestication Acquiror Class B Share shall convert automatically, on a
one-for-one basis, into a share of Acquiror Common Stock; and (c) each then-issued and outstanding whole warrant of Acquiror, exercisable for one Pre-Domestication Acquiror Ordinary Share, shall convert automatically into a whole warrant
exercisable for one share of Acquiror Common Stock, pursuant to the Warrant Agreement;
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WHEREAS, the
board of directors of the Acquiror (a) has elected Kurt Summers Jr. (“Summers”) as a director of the Acquiror effective as of December 20, 2021 (the “New Director Appointment”) and (b) has authorized the transfer of 39,733 Pre-Domestication Acquiror Class B Shares from Sponsor to Kurt Summers Jr. (“New Director Share Transfer”); and
WHEREAS, the
parties to the A&R Letter Agreement desire to (a) amend and restate the A&R Letter Agreement in its entirety to account for the New Director Appointment and New Director Share Transfer and (b) add Summers as a party to the A&R
Letter Agreement, as a Sponsor Holder.
NOW, THEREFORE,
for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Acquiror, the Sponsor, the Sponsor Holders (including Summers) (solely in their capacity as current or future record holders or
beneficial owners of Founder Shares and/or Founder Warrants and not in their individual capacities), the Original Signatories (solely for the limited purposes of amending and restating the A&R Letter Agreement and Section 6), ZF
and IDX hereby agree as follows:
1. Summers is added as a party to the A&R Letter Agreement as a
Sponsor Holder and Summers agrees to be bound as a Sponsor Holder for all purposes of the A&R Letter Agreement, as amended and restated by this Letter Agreement.
2. Effective upon and subject to the Closing, the Sponsor and the
Sponsor Holders irrevocably (a) agree to, on a Pro Rata Basis (except as otherwise provided herein), subject an aggregate amount of 1,293,750 shares of Acquiror Common Stock owned by the Sponsor and Sponsor Holders, as allocated in accordance
with Schedule 1 attached hereto (the “Sponsor Holders Earnout Shares”), to forfeiture (by automatic cancellation by Acquiror) if the Triggering Events do not occur during the
Earnout Period (the “Potential Forfeiture”) in accordance with Section 3.10 of the Business Combination Agreement and (b) acknowledge and agree that, if, and as often as, the
outstanding shares of Acquiror Common Stock are changed into a different number of shares or a different class, by reason of any dividend, subdivision, reclassification, recapitalization, split, combination or exchange, or any similar event
after the date hereof, then the number of Sponsor Holders Earnout Shares to be surrendered or forfeited pursuant to the terms of Section 3.10 of the Business Combination Agreement will in each case be equitably adjusted to reflect such change.
Until the occurrence of the applicable Triggering Event, certificates representing the Sponsor Holders Earnout Shares shall bear a legend referencing that they are subject to forfeiture pursuant to the provisions of this Letter Agreement and
Section 3.10 of the Business Combination Agreement, and any transfer agent for Acquiror Common Stock will be given appropriate legends that will be applicable until the Sponsor Holders Earnout Shares are vested; provided, however,
that upon the vesting of any Sponsor Holders Earnout Shares in accordance with the terms of Section 3.10 of the Business Combination Agreement, Acquiror shall immediately cause the removal of such legend and direct such transfer agent that any
such legends are no longer applicable. To the extent any dividends or other distributions are paid or otherwise made by Acquiror (including, without limitation, any shares of Acquiror Common Stock or other equity securities of Acquiror
distributed in connection with a share split, share dividend, or reclassification, or through merger, amalgamation, consolidation, recapitalization or other similar event) during the Earnout Period, and the Sponsor and Sponsor Holders would
have been entitled to such dividends or other distributions in respect of the Sponsor Holders Earnout Shares if such Sponsor Holders Earnout Shares were not subject to forfeiture as of the record date for such dividends or other distributions,
Acquiror shall hold such portion of such dividends or other distributions in escrow or a segregated account for the benefit of the Sponsor and Sponsor Holders, and (i) in the event all or any portion of the Sponsor Holders Earnout Shares are
earned in accordance with Section 3.10 of the Business Combination Agreement, the portion of such dividends or other distributions in respect of the Sponsor Holders Earnout Shares so earned shall be released to the Sponsor and Sponsor Holders,
on a Pro Rata Basis, at the time such Sponsor Holders Earnout Shares are earned in accordance with Section 3.10 of the Business Combination Agreement or (ii) in the event all or any portion of the Sponsor Holders Earnout Shares are forfeited in
accordance with Section 3.10 of the Business Combination Agreement, the portion of such dividends or other distributions in respect of the Sponsor Holders Earnout Shares so forfeited shall be forfeited to Acquiror.
3. Effective upon and subject to the Domestication, except to the
extent this Letter Agreement is terminated in accordance with Section 21, the Sponsor and Sponsor Holders hereby irrevocably waive the anti-dilution adjustments set forth in Article 17.2 of Acquiror’s Amended and Restated Articles of
Association (as amended from time to time, the “Cayman Charter”) and any other anti-dilution or similar
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adjustment rights to which Sponsor and any Sponsor Holder otherwise are entitled,
related to or arising from the PIPE Investment, the Convertible Notes Investment, the Domestication, the Mergers or any of the other Transactions and solely for purposes of effectuating the Transactions (the “Anti-dilution Waiver”). For the avoidance of doubt, the Anti-dilution Waiver is intended to constitute a waiver within the meaning of Article 17.3 of the Cayman Charter, as well as a waiver for all other purposes
arising under Contract or Law, and shall apply to any Pre-Domestication Acquiror Class B Shares owned by Sponsor or any Sponsor Holder and any shares of Acquiror Common Stock issued as part of the Sponsor Holders Class B Conversion.
4. Effective upon and subject to the Closing, Acquiror acknowledges
the Anti-dilution Waiver and agrees to give effect to the Potential Forfeiture set forth in Section 2, including by cancelling the Sponsor Holders Earnout Shares immediately upon the occurrence of the Potential Forfeiture.
5. From the date of the Business Combination Agreement until the
earlier of the Closing or the termination of the Business Combination Agreement in accordance with its terms, the Sponsor and the Sponsor Holders, as applicable, solely in their capacity as beneficial owners or holders of Pre-Domestication
Acquiror Ordinary Shares or Pre-Domestication Acquiror Class B Shares shall vote or cause to be voted, all of the Pre-Domestication Acquiror Ordinary Shares and Pre-Domestication Acquiror Class B Shares beneficially owned or held by the Sponsor
or the Sponsor Holders, as applicable, at every meeting of the shareholders of Acquiror at which such matters are considered and at every adjournment or postponement thereof (and shall appear at such meetings for the purposes of constituting a
quorum), and shall execute and return (or cause to be executed and returned), any action by written resolution of the shareholders of Acquiror: (a) in favor of the Acquiror Shareholder Matters; (b) in favor of the Extension Proposal, if
applicable in accordance with the terms of the Business Combination Agreement; (c) against any merger agreement or merger, consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or
winding up of or by Acquiror (other than the Business Combination Agreement and the Transactions); (d) against any proposal in opposition to approval of the Business Combination Agreement or in competition with or inconsistent with the Business
Combination Agreement or the Transactions; (e) against any proposal, action or agreement that would (i) impede, frustrate, prevent or nullify any provision of this Letter Agreement, the Business Combination Agreement or the Transactions,
(ii) result in a breach in any respect of any covenant, representation, warranty or any other obligation or agreement of Acquiror under the Business Combination Agreement or (iii) result in any of the conditions set forth in Article IX of the
Business Combination Agreement not being fulfilled; and (f) in favor of any proposal to amend the Cayman Charter to delete (i) the limitation on share repurchases prior to the consummation of a business combination that would cause Acquiror's
net tangible assets to be less than $5,000,001 following such repurchases, (ii) the limitation that Acquiror shall not consummate a business combination if it would cause Acquiror's net tangible assets to be less than $5,000,001 and (iii) the
limitation that Acquiror shall not redeem Acquiror Common Stock that would cause Acquiror's net tangible assets to be less than $5,000,001 following such redemptions.
6. The Sponsor, the Sponsor Holders and the Original Signatories
agree to be bound by the provisions of Section 8.03(b) of the Business Combination Agreement to the same extent as such provisions apply to Acquiror. The Sponsor, the Sponsor Holders and the Original Signatories agree to be bound by the
provisions of Section 8.05(a) of the Business Combination Agreement to the same extent as such provisions apply to Acquiror.
7. From the date of the Business Combination Agreement until the
earlier of the Closing or the termination of the Business Combination Agreement in accordance with its terms, the Sponsor and the Sponsor Holders, as applicable, agree not to redeem any Pre-Domestication Acquiror Ordinary Shares or Founder
Shares owned by it, him or her in connection with any of the shareholder approval matters described in Section 5. From the date of the Business Combination Agreement until the earlier of the Closing or the termination of the Business
Combination Agreement in accordance with its terms, the Sponsor and the Sponsor Holders, as applicable, agree not to convert any Pre-Domestication Acquiror Class B Shares except in connection with the Domestication.
8. From the date of the Business Combination Agreement until the
earlier of the Closing or the termination of the Business Combination in accordance with its terms, except as set forth in Section 9, the Sponsor and the Sponsor Holders, as applicable, agree not to Transfer any Founder Shares or
Founder
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Warrants. “Transfer”
means the (a) sale of, offer to sell, contract or agreement to sell, hypothecate, pledge, grant of any option to purchase or otherwise dispose of or agreement to dispose of, directly or indirectly, or establishment or increase of a put
equivalent position or liquidation with respect to or decrease of a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, and the rules and regulations of the U.S. Securities and Exchange Commission
promulgated thereunder with respect to, any security, (b) entry into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any security, whether any such transaction is to
be settled by delivery of such securities, in cash or otherwise, or (c) public announcement of any intention to effect any transaction specified in clause (a) or (b).
9. Notwithstanding the provisions set forth in Section 2, Section
8 and Section 10 of this Letter Agreement, Transfers of Founder Shares or Founder Warrants, as applicable, that are held by the Sponsor, any Sponsor Holder or any of their permitted transferees (that have complied with this Section
9), are permitted (a) to Acquiror’s officers or directors, any affiliate or family member of any of Acquiror’s officers or directors, any members or partners of the Sponsor or their affiliates, any affiliates of the Sponsor, or any
employees of such affiliates; (b) in the case of an individual, by gift to a member of such individual’s immediate family or to a trust, the beneficiary of which is a member of such individual’s immediate family, an affiliate of such individual
or to a charitable organization; (c) in the case of an individual, by virtue of the laws of descent and distribution upon the death of such individual; (d) in the case of an individual, pursuant to a qualified domestic relations order; (e) by
private sales or transfers made in connection with any forward purchase agreement or similar arrangement or in connection with the consummation of the Mergers, in each case at prices no greater than the price at which the securities were
originally purchased; (f) by virtue of the laws of the Cayman Islands or the Sponsor’s limited liability company agreement upon the dissolution of the Sponsor; (g) in the event of Acquiror’s liquidation prior to the completion of an initial
Business Combination; or (h) following the Closing, in the event of Acquiror’s liquidation, merger, capital stock exchange or other similar transaction which results in all of Acquiror’s shareholders having the right to exchange their shares of
Acquiror Common Stock for cash, securities or other property; provided, however, that in the case of clauses (a) through (g), these permitted transferees must enter into a written agreement with Acquiror agreeing
to be bound by the transfer restrictions herein and the other restrictions and provisions contained in this Letter Agreement (including the provisions of Section 2, Section 8 and Section 10).
10. Except for those transfers permitted by Section 9,
following the Closing, the Sponsor and the Sponsor Holders, as applicable, agree not to Transfer (a) any Founder Warrants (or any Acquiror Common Stock underlying the Founder Warrants) until 30 days after the Closing and (b) any Founder Shares
until the earlier of (i) one year after the Closing and (ii) subsequent to the Closing, (x) if the Common Share Price equals or exceeds $12.00 per share for any 20 trading days within any 30-trading day period commencing at least 150 days after
the Closing or (y) the date following the Closing on which Acquiror completes a liquidation, merger, amalgamation, capital stock exchange, reorganization or other similar transaction that results in all of Acquiror’s stockholders having the
right to exchange their shares of Acquiror Common Stock for cash, securities or other property. For purposes of this Section 10, the term “Common Share Price” shall have the
meaning assigned to such term in the Business Combination Agreement, except that the measurement period shall be as set forth in clause (x) above. For the avoidance of doubt, the restrictions in this Section 10 shall not apply to any
equity interests in Acquiror that do not constitute Founder Shares or Founder Warrants.
11. In the event of a stock dividend, subdivision, reclassification,
reorganization, recapitalization, split, combination or exchange of shares, or any similar event, equitable adjustment shall be made to the provisions of this Letter Agreement as may be required so that the intended rights, privileges, duties
and obligations hereunder shall be given full effect.
12. Each of the Sponsor and the Sponsor Holders, severally and not
jointly, represent and warrant to Acquiror, ZF and IDX as follows:
(a) Such Party, if not a natural person, is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is incorporated, formed, organized or constituted, and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated
hereby are within such Party’s corporate, limited liability company or organizational
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powers and have been duly authorized by all necessary corporate, limited liability
company, or organizational actions on the part of such Party. This Letter Agreement has been duly executed and delivered by such Party and, assuming due authorization, execution and delivery by the other Parties hereto, this Letter Agreement
constitutes a legally valid and binding obligation of such Party, enforceable against such Party in accordance with the terms hereof (except as enforceability may be limited by bankruptcy Laws, other similar Laws affecting creditors’ rights and
general principles of equity affecting the availability of specific performance and other equitable remedies).
(b) Such Party is the record and beneficial owner of, and has good
title to, all of its Pre-Domestication Acquiror Class B Shares and Founder Warrants as set forth on Schedule 2 attached hereto, and there exist no Liens (other than Permitted Liens) or any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such Pre-Domestication Acquiror Class B Shares or Founder Warrants (other than transfer restrictions under the Securities Act and the Warrant Agreement)) affecting any such
securities, other than Liens pursuant to (i) this Letter Agreement, (ii) the Business Combination Agreement, or (iii) any applicable Securities Laws. Such Party’s Pre-Domestication Acquiror Class B Shares and Founder Warrants are the only
equity securities of Acquiror owned of record or beneficially by such Party on the date of this Letter Agreement, and none of such Party’s Pre-Domestication Acquiror Class B Shares and Founder Warrants are subject to any proxy, voting trust or
other agreement or arrangement with respect to the voting of such Pre-Domestication Acquiror Class B Shares, except as provided hereunder. Such Party does not hold or own any rights to acquire (directly or indirectly) any equity securities of
the Acquiror or any equity securities convertible into, or which can be exchanged for, equity securities of the Acquiror other than the Founder Warrants.
(c) The execution and delivery of this Letter Agreement by such
Party does not, and the performance by such Party of its obligations hereunder will not, (i) conflict with or result in a violation of the organizational documents of such Party, if applicable, or (ii) require any consent or approval that has
not been given or other action that has not been taken by any third party (including under any Contract binding upon such Party or such Party’s Pre-Domestication Acquiror Class B Shares or Founder Warrants), in each case, to the extent such
consent, approval or other action would prevent, enjoin or materially delay the performance by such Party of its obligations under this Letter Agreement.
(d) There are no Actions pending against such Party or, to the
knowledge of such Party, threatened against such Party, before (or, in the case of threatened Actions, that would be before) any arbitrator or any Governmental Authority, which in any manner challenges or seeks to prevent, enjoin or materially
delay the performance by such Party of its obligations under this Letter Agreement.
(e) Except for the fees described in Section 5.07 of the Business
Combination Agreement, no broker, finder, investment banker or other Person is entitled to any brokerage fee, finders’ fee, underwriting fee, deferred underwriting fee, commission or other similar payment in connection with the Transactions
based upon arrangements made by such Party, for which Acquiror or any of its Affiliates may become liable.
13. This Letter Agreement constitutes the entire agreement and
understanding of the Parties in respect of the subject matter hereof and supersedes all prior understandings, agreements, or representations by or among any of the parties hereto, written or oral, to the extent they relate in any way to the
subject matter hereof or the transactions contemplated hereby, including (without limitation) the Original Letter Agreement. This Letter Agreement may not be changed, amended, modified or waived (other than to correct a typographical error) as
to any particular provision, except by a written instrument executed by all parties hereto.
14. No Party may assign either this Letter Agreement or any of its
rights, interests, or obligations hereunder without the prior written consent of the other Parties. Any purported assignment in violation of this Section 14 shall be void and ineffectual and shall not operate to transfer or assign any
interest or title to the purported assignee. This Letter Agreement shall be binding on Acquiror, the Sponsor and each Sponsor Holder and their respective successors, heirs and assigns and permitted transferees and shall inure to the benefit of
the Parties and their respective successors and assigns.
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15. This Letter Agreement shall be construed and interpreted in a
manner consistent with the provisions of the Business Combination Agreement, and to the extent there are any inconsistencies between this Letter Agreement and the Business Combination Agreement, the Business Combination Agreement shall prevail.
The provisions set forth in Section 11.13 (Enforcement) of the Business Combination Agreement are hereby incorporated by reference into, and shall be deemed to apply to, this Letter Agreement as if all references to the “Agreement” in such
sections were instead references to this Letter Agreement and all references to “Parties” in such sections were instead references to Parties as defined in this Letter Agreement. For the avoidance of doubt, Section 6.03 (Trust Account) of the Business Combination Agreement shall apply to the Parties hereto, mutatis mutandis.
16. Nothing in this Letter Agreement shall be construed to confer
upon, or give to, any person or corporation other than the Parties any right, remedy or claim under or by reason of this Letter Agreement or of any covenant, condition, stipulation, promise or agreement hereof. All covenants, conditions,
stipulations, promises and agreements contained in this Letter Agreement shall be for the sole and exclusive benefit of the Parties and their successors, heirs, personal representatives and assigns and permitted transferees.
17. This Letter Agreement may be executed in any number of original
or facsimile counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.
18. This Letter Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Letter Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or
provision, the parties hereto intend that there shall be added as a part of this Letter Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable.
19. This Letter Agreement, and all claims or causes of action based
upon, arising out of, or related to this Letter Agreement, shall, to the greatest extent permitted by Law, be governed by, and construed in accordance with, the internal substantive Laws of the State of Delaware applicable to contracts entered
into and to be performed solely within such state, without giving effect to principles or rules of conflict of laws to the extent such principles or rules would require or permit the application of Laws of another jurisdiction; provided,
that, the Domestication shall be effected in accordance with both the DGCL and the Companies Act, without giving effect to principles or rules of conflict of laws to the extent such principles or rules would require or permit the application of
Laws of another jurisdiction. The Parties (a) all agree that any action, proceeding, claim or dispute arising out of, or relating in any way to, this Letter Agreement shall be brought and enforced in the federal and state courts located in the
State of Delaware, and irrevocably submit to such jurisdiction and venue, which jurisdiction and venue shall be exclusive and (b) waive any objection to such exclusive jurisdiction and venue or that such courts represent an inconvenient forum;
provided that the courts of the Cayman Islands shall have jurisdiction over the Domestication to the extent required by the Companies Act. Nothing herein contained shall be deemed to affect the right of any Party to serve process in any
manner permitted by Law or to commence legal proceedings or otherwise proceed against any other Party in any other jurisdiction, in each case, to enforce judgments obtained in any Action brought pursuant to this Section 19. EACH OF THE
PARTIES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION BASED UPON, ARISING OUT OF OR RELATED TO THIS AGREEMENT.
20. Any notice, consent or request to be given in connection with
any of the terms or provisions of this Letter Agreement shall be in writing and shall be sent in the same manner as provided in Section 11.02 (Notices) of the Business Combination Agreement, with notices to Acquiror, ZF and IDX being sent to
the addresses set forth therein, and notices to the Sponsor and the Sponsor Holders to the addresses set forth on Schedule 1 hereto, in the cases of Acquiror, ZF and IDX with copies as required under the Business Combination Agreement.
21. This Letter Agreement shall automatically terminate, without any
notice or other action by any Party, upon the valid termination of the Business Combination Agreement in accordance with its terms, and upon such termination, this Letter Agreement shall be null and void and of no effect whatsoever, and the
parties hereto shall have no rights or obligations under this Letter Agreement. Notwithstanding anything in this Letter Agreement to the contrary, in the event that the Business Combination Agreement is terminated,
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the Acquiror, the Sponsor and the Original Signatories acknowledge and agree that
the Original Letter Agreement, dated as of November 18, 2020, shall continue to apply to the Acquiror, the Sponsor and the Original Signatories. This Section 21 shall survive the termination of this Letter Agreement.
22. Each Party agrees that (a) this Letter Agreement may only be
enforced against, and any action for breach of this Letter Agreement may only be made against, the Parties, and no claims of action of any nature whatsoever (whether in tort, contract, equity or otherwise) based upon, arising under or relating
to this Letter Agreement, the negotiation hereof or its subject matter, or the transactions contemplated hereby, shall be asserted against any Company Non-Party Affiliate or any Acquiror Non-Party Affiliate (who are not otherwise Parties), and
(b) none of the Company Non-Party Affiliates or the Acquiror Non-Party Affiliates (who are not otherwise Parties) shall have any liability arising out of or relating to this Letter Agreement, the negotiation hereof or its subject matter, or the
transactions contemplated hereby, including with respect to any claim (whether in tort, contract, equity or otherwise) for breach of this Letter Agreement or in respect of any written or oral representations made or alleged to be made in
connection herewith, as expressly provided herein, or for any actual or alleged inaccuracies, misstatements or omissions with respect to any information or materials of any kind furnished in connection with this Letter Agreement, the
negotiation hereof or the transactions contemplated hereby. For the purpose of this Section 22, (i) “Acquiror Non-Party Affiliate” means (1) any officer, director, employee,
sponsor, incorporator, member, partner, stockholder, manager, direct or indirect equityholder, agent, attorney, advisor, representative or Affiliate of either Acquiror or Sponsor and (2) each of the past, present or future Affiliates,
Representatives, successors or permitted assigns of any of the Persons referred to in the immediately preceding clause (i)(1) (other than, for the avoidance of doubt, Acquiror) and (ii) “Company Non-Party Affiliate” means (1) any officer, director, employee, sponsor, incorporator, member, partner, stockholder, manager, direct or indirect equityholder, agent, attorney, advisor, representative or Affiliate of the
Company Parties or any of their Subsidiaries (other than, for the avoidance of doubt, such Company Party or any of its respective Subsidiaries) or any family member of the foregoing Persons and (2) each of the past, present or future
Affiliates, Representatives, successors or permitted assigns of any of the Persons in the immediately preceding clause (ii)(1) (other than, for the avoidance of doubt, such Company Party or any of its respective Subsidiaries).
23. Notwithstanding anything in this Letter Agreement to the
contrary, (a) each of Sponsor and the Sponsor Holders makes no agreement or understanding herein in any capacity other than in Sponsor’s or Sponsor Holder’s individual capacity as a current or future record holder or beneficial owner of Founder
Shares and Founder Warrants, as applicable, and (b) nothing herein will be construed to limit or affect any action or inaction expressly permitted under the Business Combination Agreement by any representative of Sponsor in such
representative’s capacity as a member of the board of directors (or other similar governing body) of any Acquiror Party, or as an officer, employee or fiduciary of any Acquiror Party or an Affiliate of Acquiror, in each case, acting in such
person’s capacity as a director, officer, employee or fiduciary of such Acquiror Party.
[Signature Page Follows]
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Sincerely,
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JAR SPONSOR, LLC
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By:
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/s/ Zachary Malkin
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Name:
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Zachary Malkin
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Title:
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Secretary
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Acknowledged and agreed:
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L&F ACQUISITION CORP.
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/s/ Adam Gerchen
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Name:
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Adam Gerchen
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Title:
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Chief Executive Officer
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ZEROFOX, INC.
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/s/ James C. Foster
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Name:
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James C. Foster
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Title:
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Chief Executive Officer and President
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ID EXPERTS HOLDINGS, INC.
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/s/ Thomas F. Kelly
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Name:
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Thomas F. Kelly
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Title:
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Chief Executive Officer
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Signature Page to Letter Agreement
F-8
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SPONSOR HOLDERS:
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/s/ Joseph Lieberman
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Name:
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Joseph Lieberman
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/s/ Albert Goldstein
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Name:
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Albert Goldstein
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/s/ Kurt Summers Jr.
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Name:
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Kurt Summers Jr.
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Signature Page to Letter Agreement
F-9
Solely for the limited purposes of amending
and restating the A&R Letter Agreement
and Section 6 and Section 21:
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ORIGINAL SIGNATORIES:
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/s/ Jeffrey C. Hammes
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Name:
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Jeffrey C. Hammes
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/s/ Adam Gerchen
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Name:
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Adam Gerchen
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/s/ Tom Gazdziak
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Name:
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Tom Gazdziak
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/s/ Richard Levy
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Name:
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Richard Levy
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Signature Page to Letter Agreement
F-10
Schedule 1
Sponsor Holders Earnout Shares Allocation
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Name
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Contact Information
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Shares Subject to Earnout
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JAR Sponsor, LLC
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Address:
c/o Victory Park Capital
Advisors, LLC
150 North Riverside
Plaza, Suite 5200
Chicago, IL 60606
Phone: [***]
Email: [***]
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1,266,750
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Joseph Lieberman
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Address:
3220 Arlington Ave
Riverdale, NY 10463
Phone: [***]
Email: [***]
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15,000
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Albert Goldstein
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Address:
1900 N. Hoyne
Chicago, IL 60647
Phone: [***]
Email: [***]
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6,000
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Kurt Summers Jr.
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Address: 4922 S. Cornell
Ave., Unit V Chicago, IL 60615
Phone: [***]
Email: [***]
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6,000
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Total:
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1,293,750
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Schedule 1 to Letter Agreement
F-11
Schedule 2
Pre-Domestication Acquiror Class B Shares and Founder Warrants
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Name
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Pre-Domestication
Acquiror Class B Shares
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Founder Warrants
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JAR Sponsor, LLC
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4,202,767
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5,450,000
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Joseph Lieberman
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50,000
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0
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Albert Goldstein
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20,000
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0
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Kurt Summers Jr.
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39,733
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0
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Schedule 2 to Letter Agreement
F-12
TABLE OF CONTENTS
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G-2
This AMENDED AND RESTATED REGISTRATION AND SHAREHOLDER RIGHTS
AGREEMENT (as it may be amended from time to time in accordance with the terms hereof, the “Agreement”), dated as of , 2022 is made by and among:
(i) ZeroFox Holdings, Inc. (f/k/a “L&F Acquisition Corp.”), a
Delaware corporation (the “Company”);
(ii) JAR Sponsor, LLC, a Delaware limited liability company (the “Sponsor”),
and Jefferies LLC (collectively, together with their Permitted Transferees that become party hereto, the “Sponsor Investors”);
(iii) each Person executing this Agreement and listed as an “IDX
Pre-Closing Holder” on Schedule A hereto (collectively, together with their Permitted Transferees that become party hereto, the “IDX Investors”);
(iv) each Person executing this Agreement and listed as a “ZF
Pre-Closing Holder” on Schedule B hereto (collectively, together with their Permitted Transferees that become party hereto, the “ZF Investors”, and collectively with the IDX Investors and the
Sponsor Investors, the “Investors”).
RECITALS
WHEREAS, the Company, the Sponsor, and Jefferies LLC are parties to
that certain Registration and Shareholder Rights Agreement, dated as of November 23, 2020 (the “Prior Agreement”);
WHEREAS, the Company, L&F Acquisition Holdings, LLC, a Delaware
limited liability company and direct, wholly-owned subsidiary of the Company (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“ZF Merger Sub”), IDX Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“IDX Merger Sub”), IDX Forward Merger Sub, LLC, a
Delaware limited liability company and direct, wholly-owned subsidiary of L&F Holdings (“IDX Forward Merger Sub”), ZeroFox, Inc., a Delaware corporation (“ZF”),
and ID Experts Holdings, Inc., a Delaware corporation (“IDX”), have consummated the transactions contemplated by that certain Business Combination Agreement, dated as of December 17, 2021 (as amended,
modified and/or supplemented from time to time, the “Business Combination Agreement”), pursuant to which, among other things, (i) the Company transferred by way of continuation from the Cayman Islands and
domesticated in the State of Delaware, (ii) ZF Merger Sub merged with and into ZF (the “ZF Merger”), with ZF being the surviving entity in the ZF Merger and continuing (immediately following the ZF
Merger) as a direct, wholly-owned Subsidiary of L&F Holdings, (iii) IDX Merger Sub merged with and into IDX (the “IDX Merger”), with IDX being the surviving entity in the IDX Merger (“Transitional IDX Entity”) and continuing (immediately following the IDX Merger) as a direct, wholly-owned Subsidiary of L&F Holdings and (iv) Transitional IDX Entity merged with and into IDX Forward
Merger Sub (the “IDX Forward Merger”), with IDX Forward Merger Sub being the surviving entity in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct,
wholly-owned subsidiary of L&F Holdings; and
WHEREAS, the Company and the other parties hereto desire to amend and
restate the Prior Agreement in its entirety and to enter into this Agreement and, as applicable, to accept the rights created pursuant to this Agreement in lieu of any rights granted to them under the Prior Agreement.
NOW, THEREFORE, the Company and the other parties to this Agreement
hereby agree to amend and restate the Prior Agreement in its entirety as set forth herein, and the parties hereto further agree as follows:
EFFECTIVENESS
DEFINITIONS
2.1 Definitions. Capitalized terms used but not otherwise defined in this Section 2.1 or elsewhere in this Agreement shall have the meanings ascribed to such terms in the Business Combination Agreement:
“Adverse Disclosure” means
public disclosure of material non-public information that, in the good faith judgment of the board of directors of the Company: (i) would be required to be made in any Registration
G-3
Statement filed with the SEC by the Company so that such Registration Statement, from
and after its effective date, does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) would not be required to be
made at such time but for the filing, effectiveness or continued use of such Registration Statement; and (iii) the Company has a bona fide business purpose for not disclosing publicly.
“Affiliate” means, (i) with
respect to any specified Person that is not a natural person, (a) any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person, and (b)
any corporation, trust, limited liability company, general or limited partnership or other entity advised or managed by, or under common control or management with, such Person (for the purposes of this definition, “control” (including, with
correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management
or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise) and (ii) with respect to any natural person, any Member of the Immediate Family of such natural person, or any Person that is, directly
or indirectly, controlled by such specified natural person; provided that the Company and each of its subsidiaries shall be deemed not to be Affiliates of any Investor.
“Agreement” shall have the
meaning set forth in the preamble.
“Business Day” means a day,
other than a Saturday or Sunday, on which commercial banks in New York, New York are open for the general transaction of business.
“Business Combination Agreement”
shall have the meaning set forth in the recitals.
“Bylaws” means the bylaws of
the Company, as amended, modified, supplemented or restated and in effect from time to time.
“Certificate” means the
certificate of incorporation of the Company, as amended, modified, supplemented or restated and in effect from time to time, including any certificate of designation, correction or amendment filed with the Secretary of State of the State of
Delaware.
“Charitable Gifting Event”
means any Transfer by a holder of Registrable Securities, or any subsequent Transfer by such holder’s members, partners or other employees, in connection with a bona fide gift to any Charitable Organization made on the date of, but prior to,
the execution of the underwriting agreement entered into in connection with any Underwritten Public Offering.
“Charitable Organization”
means a charitable organization as described by Section 501(c)(3) of the Internal Revenue Code of 1986, as in effect from time to time.
“Common Stock” means the
common stock of the Company, par value $0.0001 per share.
“Company Indemnitees” shall
have the meaning set forth in Section 3.9.5.
“Convertible Securities”
means any evidence of indebtedness, shares of stock (other than Common Stock) or other securities (other than Options and Warrants) which are directly or indirectly convertible into or exchangeable or exercisable for shares of Common Stock.
“Demand Notice” shall have
the meaning set forth in Section 3.1.3.
“Demand Registration” shall
have the meaning set forth in Section 3.1.1.1.
“Demand Registration Request”
shall have the meaning set forth in Section 3.1.1.1.
“Demand Registration Statement”
shall have the meaning set forth in Section 3.1.1.3.
“Demand Suspension” shall
have the meaning set forth in Section 3.1.6.
“Effectiveness Deadline”
shall have the meaning set forth in Section 3.2.1.1.
“Equivalent Shares” means, at
any date of determination, (i) as to any outstanding shares of Common Stock, such number of shares of Common Stock and (ii) as to any outstanding Options, Warrants or Convertible Securities which constitute Shares, the maximum number of shares
of Common Stock for which or into which such Options, Warrants or Convertible Securities may at the date of determination be exercised, converted or
G-4
exchanged (or which will become exercisable, convertible or exchangeable on or prior
to, or by reason of, the transaction or circumstance in connection with which the number of Equivalent Shares is to be determined) but excluding any shares of restricted stock or Options that are not then vested or will not become vested on or
prior to, or by reason of, the transaction or circumstance in connection with which the number of Equivalent Shares is to be determined.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended, and any successor thereto, and any rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.
“Filing Deadline” shall
have the meaning set forth in Section 3.2.1.1.
“FINRA” means the Financial
Industry Regulatory Authority.
“Form S-1 Shelf” shall have
the meaning set forth in Section 3.2.1.1.
“Form S-3 Shelf” shall have
the meaning set forth in Section 3.2.1.1.
“Holders” means, as of any
determination time, Investors who hold Registrable Securities under this Agreement.
“IDX Holders” means, as of
any determination time, IDX Investors who hold Registrable Securities under this Agreement.
“IDX Investor” shall have the
meaning set forth in the preamble.
“IDX Investor Shares” means
all shares of Common Stock originally issued to, or issued with respect to shares originally issued to, or held by, an IDX Investor, whenever issued, including all shares of Common Stock issued upon the exercise, conversion or exchange of any
Options, Warrants or Convertible Securities.
“Investor” shall have the
meaning set forth in the preamble.
“Issuer Free Writing Prospectus”
means an issuer free writing prospectus, as defined in Rule 433 under the Securities Act, relating to an offer of the Registrable Securities.
“JAR Sponsor Holder” shall
have the meaning of “Sponsor Holder” in the Sponsor Holders Agreement.
“Lock-Up Period” shall have
the meaning set forth in Section 3.4.1.
“Lock-Up Shares” shall have
the meaning set forth in Section 3.4.1.
“Loss” shall have the meaning
set forth in Section 3.9.1.
“Member of the Immediate Family”
means, with respect to any Person who is an individual, (i) each parent, spouse (but not including a former spouse or a spouse from whom such Person is legally separated) or child (including those adopted) of such individual and (ii) each
trustee, solely in his or her capacity as trustee, for a trust naming only one or more of the Persons listed in sub-clause (i) as beneficiaries.
“NASDAQ” means The Nasdaq
Global Select Market, The Nasdaq Global Market or The Nasdaq Capital Market.
“Non-Underwritten Offering”
means any Public Offering other than an Underwritten Public Offering.
“Options” means any options
to subscribe for, purchase or otherwise directly acquire Common Stock.
“Participation Conditions”
shall have the meaning set forth in Section 3.2.5.2.
“Permitted Transferee” means
any transferee described in any of clauses (i) through (vii) or in clause (ix) in Section 3.4.1.
“Person” means any
individual, partnership, corporation, company, association, trust, joint venture, limited liability company, unincorporated organization, entity or division, or any government, governmental department or agency or political subdivision thereof.
“Piggyback Notice” shall have
the meaning set forth in Section 3.3.1.
“Piggyback Registration”
shall have the meaning set forth in Section 3.3.1.
“Potential Takedown Participant”
shall have the meaning set forth in Section 3.2.3.2.
G-5
“Prior Agreement” shall
have the meaning set forth in the recitals.
“Pro Rata Portion” means,
with respect to each Holder requesting that its shares be registered or sold in an Underwritten Public Offering, a number of such shares equal to the aggregate number of Registrable Securities to be registered or sold (excluding any shares to
be registered or sold for the account of the Company) multiplied by a fraction, the numerator of which is the aggregate number of Registrable Securities held by such Holder, and the denominator of which is the aggregate number of Registrable
Securities held by all Holders requesting that their Registrable Securities be registered or sold.
“Prospectus” means (i) the
prospectus included in any Registration Statement, all amendments and supplements to such prospectus, including post-effective amendments and supplements, and all other material incorporated by reference in such prospectus, and (ii) any Issuer
Free Writing Prospectus.
“Public Offering” means the
offer and sale of Registrable Securities for cash pursuant to an effective Registration Statement under the Securities Act (other than a Registration Statement on Form S-4 or Form S-8 or any successor form).
“Registrable Securities”
means (i) all shares of Common Stock, (ii) all shares of Common Stock issuable upon exercise, conversion or exchange of any option, warrant or convertible security, (iii) all Warrants and (iv) all shares of Common Stock directly or indirectly
issued or then issuable with respect to the securities referred to in clauses (i), (ii) or (iii) above by way of a stock dividend or stock split, or in connection with a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities upon the earliest to occur of: (A) a Registration Statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been sold, transferred, disposed of or exchanged in accordance with such Registration Statement by the applicable Holder; (B)(i) such securities shall have been otherwise
transferred, (ii) new certificates for such securities not bearing (or book entry positions not subject to) a legend restricting further transfer shall have been delivered by the Company and (iii) subsequent public distribution of such
securities shall not require registration under the Securities Act; (C) such securities shall have ceased to be outstanding; (D) (i) such securities may be sold without registration pursuant to Rule 144 or any successor rule promulgated under
the Securities Act (but with no volume or other restrictions or limitations including as to manner or timing of sale) and (ii) new certificates for such securities not bearing (or book entry positions not subject to) a legend restricting
further transfer shall have been delivered by the Company; and (E) such securities have been sold to, or through, a broker, dealer or underwriter in a public distribution or other public securities transaction.
“Registration” means
registration under the Securities Act of the offer and sale to the public of any Registrable Securities under a Registration Statement. The terms “register”, “registered”
and “registering” shall have correlative meanings.
“Registration Expenses”
shall have the meaning set forth in Section 3.8.
“Registration Statement”
means any registration statement of the Company filed with, or to be filed with, the SEC under the Securities Act, including the related Prospectus, amendments and supplements to such registration statement, including pre- and post-effective
amendments, and all exhibits and all material incorporated by reference in such registration statement other than a registration statement (and related Prospectus) filed on Form S-4 or Form S-8 or any successor form thereto.
“Representatives” means, with
respect to any Person, any of such Person’s officers, directors, employees, agents, attorneys, accountants, actuaries, consultants, equity financing partners or financial advisors or other Person associated with, or acting on behalf of, such
Person.
“Requesting Holders” shall
have the meaning set forth in Section 3.2.3.1.
“Rule 144” means Rule 144
under the Securities Act (or any successor rule).
“Rule 415” shall have the
meaning set forth in Section 3.2.1.1.
“SEC” means the Securities
and Exchange Commission or any successor agency having jurisdiction under the Securities Act.
G-6
“Securities Act” means the
Securities Act of 1933, as amended, and any successor thereto, and any rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.
“Selling Stockholder Information”
shall have the meaning set forth in Section 3.9.1.
“Shares” means all Sponsor
Investor Shares, IDX Investor Shares and ZF Investor Shares.
“Shelf Suspension” shall
have the meaning set forth in Section 3.2.2.
“Shelf Takedown Notice”
shall have the meaning set forth in Section 3.2.3.2.
“Shelf Takedown Request”
shall have the meaning set forth in Section 3.2.3.1.
“Sponsor Holders” means, as
of any determination time, Sponsor Investors who hold Registrable Securities under this Agreement.
“Sponsor Holders Agreement”
means the Amended and Restated Sponsor Support Letter Agreement dated December 17, 2021 by and among the Sponsor, the Company, ZF, IDX and the directors and executive officers of Sponsor.
“Sponsor Investors” shall
have the meaning set forth in the preamble.
“Sponsor Investor Shares”
means all shares of Common Stock originally issued to, or issued with respect to shares originally issued to, or held by, a Sponsor Investor, whenever issued, including all shares of Common Stock issued upon the exercise, conversion or exchange
of any Options, Warrants or Convertible Securities.
“Transfer” means, with
respect to any Registrable Security, any interest therein, or any other securities or equity interests relating thereto, a direct or indirect transfer, sale, exchange, assignment, pledge, hypothecation or other encumbrance or other disposition
thereof, including the grant of an option or other right, whether directly or indirectly, whether voluntarily, involuntarily, by operation of law, pursuant to judicial process or otherwise. “Transferred” shall have a correlative meaning.
“Underwritten Public Offering”
means an underwritten Public Offering, including any bought deal or block sale to a financial institution conducted as an underwritten Public Offering.
“Underwritten Shelf Takedown”
means an Underwritten Public Offering pursuant to an effective Shelf Registration Statement.
“Warrants” means any
warrants to subscribe for, purchase or otherwise directly acquire Common Stock.
“ZF Holders” means, as of any
determination time, ZF Investors who hold Registrable Securities under this Agreement.
“ZF Investor” shall have
the meaning set forth in the preamble.
“ZF Investor Shares” means
all shares of Common Stock originally issued to, or issued with respect to shares originally issued to, or held by, a ZF Investor, whenever issued, including all shares of Common Stock issued upon the exercise, conversion or exchange of any
Options, Warrants or Convertible Securities.
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
(b) The words “hereof”, “herein”, “hereunder” and similar words
refer to this Agreement as a whole and not to any particular provision of this Agreement; and any subsection and section references are to this Agreement unless otherwise specified.
(c) The term “including” is not limiting and means “including
without limitation.”
(d) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.
(e) Whenever the context requires, any pronouns used herein shall
include the corresponding masculine, feminine or neuter forms.
G-7
REGISTRATION RIGHTS
The Company will perform and comply, and cause each of its
subsidiaries to perform and comply, with such of the following provisions as are applicable to it. Each Holder will perform and comply with such of the following provisions as are applicable to such Holder.
3.1.1 Request for Demand Registration.
3.1.1.1 Provided the Company has not filed a Form S-3 Shelf or Form
S-1 Shelf and caused the Form S-3 Shelf or Form S-1 Shelf, as applicable, to become effective, with the Prospectus therein available to effect resales of Registrable Securities, by the Effectiveness Deadline (subject to extension in accordance
Section 3.2.1), each of the Holders of a majority of the Sponsor Investor Shares, a majority of the IDX Investor Shares or a majority of the ZF Investor Shares shall have the right to make one or more written requests from time to time
(such Holders, the “Demanding Holders” and such request, a “Demand Registration Request”) to the Company for Registration of all or part of the Registrable
Securities held by such Holders. Any such Registration pursuant to a Demand Registration Request shall hereinafter be referred to as a “Demand Registration.”
3.1.1.2 Each Demand Registration Request shall specify (x) the kind
and aggregate amount of Registrable Securities to be registered, and (y) the intended method or methods of disposition thereof including pursuant to an Underwritten Public Offering.
3.1.1.3 Upon receipt of a Demand Registration Request, the Company
shall as soon as practicable, but not more than thirty (30) days after receipt of a Demand Registration Request file a Registration Statement (a “Demand Registration Statement”) relating to such Demand
Registration, and use its reasonable best efforts to cause such Demand Registration Statement to be promptly declared effective under the Securities Act.
3.1.2 Limitation on Demand Registrations. The Company shall
not be obligated to take any action to effect any Demand Registration if a Demand Registration or Piggyback Registration has been filed and was declared or became effective, with the Prospectus in the applicable Registration Statement available
to effect resales of Registrable Securities, or an Underwritten Shelf Takedown was consummated within the preceding sixty (60) calendar days (unless otherwise consented to by the Company).
3.1.3 Demand Notice. Promptly upon receipt of a Demand
Registration Request pursuant to Section 3.1.1 (but in no event more than four (4) Business Days thereafter), the Company shall deliver a written notice (a “Demand Notice”) of any such Demand
Registration Request to all other Sponsor Holders, ZF Holders and IDX Holders, as applicable, and the Demand Notice shall offer each such Holder the opportunity to include in the Demand Registration that number of Registrable Securities as each
such Holder may request in writing. Subject to Section 3.1.7, the Company shall include in the Demand Registration all such Registrable Securities with respect to which the Company has received written requests for inclusion therein
within five (5) Business Days after the date that the Demand Notice was delivered.
3.1.4 Demand Withdrawal. Any Holder that has requested its
Registrable Securities be included in a Demand Registration pursuant to Section 3.1.1 or Section 3.1.3 may withdraw all or any portion of its Registrable Securities included in a Demand Registration from such Demand Registration
at any time prior to the effectiveness of the applicable Demand Registration Statement. Upon receipt of a notice to such effect with respect to all of the Registrable Securities included in such Demand Registration, the Company shall cease all
efforts to secure effectiveness of the applicable Demand Registration Statement.
3.1.5 Effective Registration. The Company shall use
reasonable best efforts to cause the applicable Demand Registration Statement to become effective as soon as practicable after filing a Demand Registration Statement and remain effective until all Registrable Securities covered by such Demand
Registration Statement have been sold or withdrawn, or, if such Demand Registration Statement relates to an Underwritten Public Offering, such longer period as in the opinion of counsel for the underwriter or underwriters a Prospectus is
required by law to be delivered in connection with sales of Registrable Securities by an underwriter or dealer.
G-8
3.1.6 Delay in Filing; Suspension of Registration. If the
filing, initial effectiveness or continued use of a Demand Registration Statement at any time would require the Company to make an Adverse Disclosure, the Company may, upon giving prompt written notice of such action to the Sponsor Holders, the
IDX Holders and the ZF Holders whose Registrable Securities are included in such Demand Registration Statement delay the filing or initial effectiveness of, or suspend use of, the Demand Registration Statement (a “Demand Suspension”); provided, however, that the Company shall not be permitted to exercise a Demand Suspension more than one (1) time during any twelve (12)-month period or for a total period of greater than
sixty (60) days; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such sixty (60)-day (or shorter) period, other than pursuant to a registration relating
to the sale or grant of securities to employees or directors of the Company or a subsidiary pursuant to a stock option, stock purchase, equity incentive or similar plan; or a registration on any form that does not include substantially the same
information as would be required to be included in a registration statement covering the sale of the Registrable Securities. In the case of a Demand Suspension, the Sponsor Holders, the IDX Holders and the ZF Holders agree to suspend use of the
applicable Prospectus in connection with any sale or purchase, or offer to sell or purchase, Registrable Securities, upon receipt of the notice referred to above. The Company shall immediately notify the Sponsor Holders, the IDX Holders and the
ZF Holders in writing upon the termination of any Demand Suspension, amend or supplement the Prospectus, if necessary, so it does not contain any untrue statement of a material fact or any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading and furnish to the Sponsor Holders, the IDX Holders and the ZF Holders such numbers of copies of the Prospectus as so amended or supplemented as the Sponsor Holders, the IDX
Holders and the ZF Holders may reasonably request. The Company shall, if necessary, supplement or amend the Demand Registration Statement, if required by the registration form used by the Company for the Demand Registration or by the
instructions applicable to such registration form or by the Securities Act or the rules or regulations promulgated thereunder or as may reasonably be requested by any of the Holders of a majority of the Sponsor Investor Shares, a majority of
the IDX Investor Shares or a majority of the ZF Investor Shares that are included in such Demand Registration Statement.
3.1.7 Priority of Securities Registered Pursuant to Demand
Registrations. If the managing underwriter or underwriters of a proposed Underwritten Public Offering of the Registrable Securities included in a Demand Registration advise the Company in writing that, in its or their opinion, the number
of securities requested to be included in such Demand Registration exceeds the number that can be sold in such offering without being likely to have an adverse effect on the price, timing or distribution of the securities offered or the market
for the securities offered, then the securities to be included in such Registration shall be, in the case of any Demand Registration, (x) first, allocated to each Holder that has requested to participate in such Demand Registration an amount
equal to the lesser of (i) the number of such Registrable Securities requested to be registered or sold by such Holder, and (ii) a number of such shares equal to such Holder’s Pro Rata Portion of the number of Registrable Securities that, in
the opinion of such managing underwriter or underwriters, can be sold without having such adverse effect, and (y) second, and only if all the securities referred to in clause (x) have been included, the number of other securities eligible for
inclusion in such Registration.
3.2.1 Initial Registration.
3.2.1.1 The Company shall, as promptly as reasonably practicable,
but in no event later than thirty (30) calendar days after the Closing Date (the “Filing Deadline”), file with the SEC (at its sole cost and expense) a Registration Statement under the Securities Act to
permit the public resale of all the Registrable Securities held by the Holders (and certain other outstanding equity securities of the Company) from time to time as permitted by Rule 415 under the Securities Act (or any successor or similar
provision adopted by the Commission then in effect)(“Rule 415”) on the terms and conditions specified in this subsection 3.2.1 and shall use its reasonable best efforts to cause such Registration
Statement to be declared effective as promptly as reasonably practicable after the initial filing thereof, but in no event later than the earlier of (x) sixty (60) calendar days following the earlier to occur of the Filing Deadline or the
filing date of such Registration Statement (the “Effectiveness Deadline”); provided, that the Effectiveness Deadline shall be extended to one hundred twenty (120) days after the
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earlier to occur of the Filing Deadline or the filing date of such Registration
Statement if the Registration Statement is reviewed by, and receives comments from, the SEC, and (y) the fifth (5th) Business Day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that the
Registration Statement will not be “reviewed” or will not be subject to further review. The Registration Statement filed with the SEC pursuant to this subsection 3.2.1.1 shall be a shelf registration statement on Form S-3 (a “Form S-3 Shelf”) or, if Form S-3 is not then available to the Company, on Form S-1 (a “Form S-1 Shelf”) or such other form of registration statement as is then
available to effect a registration for resale of such Registrable Securities, covering such Registrable Securities, and shall contain a Prospectus in such form as to permit any Holder to sell such Registrable Securities pursuant to Rule 415 at
any time beginning on the effective date for such Registration Statement. A Registration Statement filed pursuant to this subsection 3.2.1.1 shall provide for the resale pursuant to any method or combination of methods legally available to, and
requested prior to effectiveness by, the Holders The Company shall use its reasonable best efforts to cause a Registration Statement filed pursuant to this subsection 3.2.1.1 to remain effective, and to be supplemented and amended to the extent
necessary to ensure that such Registration Statement is available or, if not available, that another Registration Statement is available, for the resale of all the Registrable Securities held by the Holders until the date on which Investors
cease to hold any Registrable Securities. If the Company files a Form S-3 Shelf and thereafter the Company becomes ineligible to use Form S-3 for secondary sales, the Company shall use its reasonable best efforts to file a Form S-1 Shelf as
promptly as reasonably practicable to replace the shelf registration statement that is a Form S-3 Shelf and have the Form S-1 Shelf declared effective as promptly as reasonably practicable and to cause such Form S-1 Shelf to remain effective,
and to be supplemented and amended to the extent necessary to ensure that such Registration Statement is available or, if not available, that another Registration Statement is available, for the resale of all the Registrable Securities held by
the Holders until all such Registrable Securities have ceased to be Registrable Securities. Notwithstanding the foregoing, if the SEC prevents the Company from including any or all of the Registrable Securities proposed to be registered under
the Form S-1 Shelf or Form S-3 Shelf due to limitations on the use of Rule 415 for the resale of Registrable Securities by the applicable Holder or otherwise, such Registration Statement shall register for resale the maximum number of
Registrable Securities as is permitted. In such event, the number of Registrable Securities to be registered for each Holder named in such Registration Statement shall be reduced pro rata among all such Holders, and as promptly as practicable
after being permitted to register additional Registrable Securities under Rule 415, the Company shall amend such Registration Statement or file a new Form S-1 Shelf or Form S-3 Shelf to register such Registrable Securities not included in the
initial Form S-1 Shelf or Form S-3 Shelf and use its reasonable best efforts to cause such amendment or Registration Statement to become effective as promptly as practicable. As soon as practicable following the effective date of a Registration
Statement filed pursuant to this subsection 3.2.1.1, but in any event within one (1) Business Day of such date, the Company shall notify the Investors of the effectiveness of such Registration Statement. If, after the filing such
Registration Statement, a holder of Registrable Securities requests registration under the Securities Act of additional Registrable Securities pursuant to such Registration Statement, the Company shall amend such Registration Statement to cover
such additional Registrable Securities.
3.2.1.2 Required Holder Information. At least ten (10)
Business Days prior to the first anticipated filing date of a Registration Statement pursuant to this Article III, the Company shall use reasonable best efforts to notify each Holder in writing (which may be by email) of the information
reasonably necessary about the Holder to include such Holder’s Registrable Securities in such Registration Statement. Notwithstanding anything else in this Agreement, the Company shall not be obligated to include such Holder’s Registrable
Securities to the extent the Company has not received such information on or prior to the third Business Day prior to the first anticipated filing date of a Registration Statement pursuant to this Article III.
3.2.2 Suspension of Registration. If the continued use of
such Registration Statement under this Section 3.2 at any time would require the Company to make an Adverse Disclosure, the Company may, upon giving prompt written notice of such action to the Sponsor Holders, IDX Holders and ZF Holders
suspend use of such Registration Statement (a “Shelf Suspension”); provided, however, that the Company shall not be permitted to exercise a Shelf Suspension more than one (1) time during
any twelve (12)-month
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period or for a total period of greater than sixty (60) calendar days. In the case
of a Shelf Suspension, the Sponsor Holders, IDX Holders and ZF Holders agree to suspend use of the applicable Prospectus in connection with any sale or purchase of, or offer to sell or purchase, Registrable Securities, upon receipt of the
notice referred to above. The Company shall immediately notify the Sponsor Holders, IDX Holders and ZF Holders in writing upon the termination of any Shelf Suspension, amend or supplement the Prospectus, if necessary, so it does not contain any
untrue statement of a material fact or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading and furnish to the Sponsor Holders, IDX Holders and ZF Holders such numbers of
copies of the Prospectus as so amended or supplemented as the Sponsor Holders, IDX Holders and ZF Holders may reasonably request. The Company shall, if necessary, supplement or amend the Registration Statement, if required by the registration
form used by the Company for the Registration Statement or by the instructions applicable to such registration form or by the Securities Act or the rules or regulations promulgated thereunder or as may reasonably be requested by each of the
Holders of a majority of the Sponsor Investor Shares, a majority of the IDX Investor Shares and a majority of the ZF Investor Shares that are included in such Registration Statement.
3.2.3 Shelf Takedown.
3.2.3.1 At any time the Company has an effective Form S-1 Shelf or
Form S-3 Shelf, by notice to the Company specifying the intended method or methods of disposition thereof, each of the Holders of a majority of the Sponsor Investor Shares, a majority of the IDX Investor Shares and a majority of the ZF Investor
Shares may make a written request (a “Shelf Takedown Request” and such requesting Holders, the “Requesting Holders”) to the Company to effect a Public Offering,
including pursuant to an Underwritten Shelf Takedown, of all or a portion of such Holders’ Registrable Securities that may be registered under such Registration Statement, and as soon as practicable the Company shall amend or supplement the
Registration Statement as necessary for such purpose.
3.2.3.2 Promptly upon receipt of a Shelf Takedown Request (but in no
event more than two (2) Business Days thereafter (or more than twenty-four (24) hours thereafter in connection with an underwritten “block trade”)) for any Underwritten Shelf Takedown, the Company shall deliver a notice (a “Shelf Takedown Notice”) to each other Holder with Registrable Securities covered by the applicable Registration Statement (each, a “Potential Takedown Participant”).
The Shelf Takedown Notice shall offer each such Potential Takedown Participant the opportunity to include in any Underwritten Shelf Takedown such number of Registrable Securities as each such Potential Takedown Participant may request in
writing. The Company shall include in the Underwritten Shelf Takedown all such Registrable Securities with respect to which the Company has received written requests for inclusion therein within three (3) Business Days (or within twenty-four
(24) hours in connection with an underwritten “block trade”) after the date that the Shelf Takedown Notice has been delivered. Any Potential Takedown Participant’s request to participate in an Underwritten Shelf Takedown shall be binding on the
Potential Takedown Participant; provided that each such Potential Takedown Participant that elects to participate may condition its participation on the Underwritten Shelf Takedown being completed within ten (10) Business Days of its
acceptance at a price per share (after giving effect to any underwriters’ discounts or commissions) to such Potential Takedown Participant of not less than a percentage of the closing price for the shares on their principal trading market on
the Business Day immediately prior to such Potential Takedown Participant’s election to participate, as specified in such Potential Takedown Participant’s request to participate in such Underwritten Shelf Takedown (the “Participation Conditions”). Notwithstanding the delivery of any Shelf Takedown Notice, but subject to the Participation Conditions (to the extent applicable), all determinations as to whether to complete any
Underwritten Shelf Takedown and as to the timing, manner, price and other terms of any Underwritten Shelf Takedown contemplated by this Section 3.2.3.2 shall be determined by the Requesting Holder(s).
3.2.3.3 The Company shall not be obligated to take any action to
effect any Underwritten Shelf Takedown if a Demand Registration or Piggyback Registration was declared effective or an Underwritten Shelf Takedown was consummated within the preceding sixty (60) days (unless otherwise consented to by the
Company).
3.2.4 Priority of Securities Sold Pursuant to Shelf Takedowns.
If the managing underwriter or underwriters of a proposed Underwritten Shelf Takedown, or the Requesting Holder of a proposed “block
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trade” conducted as an Underwritten Shelf Takedown, in each case pursuant to Section
3.2.3 advise the Company in writing that, in its or their opinion, the number of securities requested to be included in the proposed Underwritten Shelf Takedown exceeds the number that can be sold in such Underwritten Shelf Takedown
without being likely to have an adverse effect on the price, timing or distribution of the securities offered or the market for the securities offered, the number of Registrable Securities to be included in such offering shall be (x) first,
allocated to each Holder that has requested to participate in such Underwritten Shelf Takedown an amount equal to the lesser of (i) the number of such Registrable Securities requested to be registered or sold by such Holder, and (ii) a number
of such shares equal to such Holder’s Pro Rata Portion of the number of Registrable Securities that, in the opinion of such managing underwriter or underwriters, can be sold without having such adverse effect, and (y) second, and only if all
the securities referred to in clause (x) have been included, the number of other securities eligible for inclusion in such Registration.
3.3.1 Participation. At any time after the Closing Date, if
the Company at any time proposes to file a Registration Statement under the Securities Act or to conduct a Public Offering with respect to any offering of its equity securities for its own account or for the account of any other Persons (other
than (i) a Registration under Sections 3.1 or 3.2, (ii) a Registration on Form S-4 or Form S-8 or any successor form to such forms or (iii) a Registration of securities solely relating to an offering and sale to employees or
directors of the Company or its subsidiaries pursuant to any employee stock plan or other employee benefit plan arrangement), then, as soon as practicable (but in no event less than five (5) Business Days prior to the proposed date of filing of
such Registration Statement or, in the case of a Public Offering under a Shelf Registration Statement, the anticipated pricing or trade date), the Company shall give written notice (a “Piggyback Notice”)
of such proposed filing or Public Offering to all Holders, and such Piggyback Notice shall offer the Holders the opportunity to register under such Registration Statement, or to sell in such Public Offering, such number of Registrable
Securities as each such Holder may request in writing (a “Piggyback Registration”). Subject to Section 3.3.2, the Company shall include in such Registration Statement or in such Public Offering as
applicable, all such Registrable Securities that are requested to be included therein within three (3) Business Days after the receipt by such Holder of any such notice; provided, however, that if at any time after giving
written notice of its intention to register or sell any securities and prior to the effective date of the Registration Statement filed in connection with such Registration, or the pricing or trade date of a Public Offering under a Shelf
Registration Statement, the Company determines for any reason not to register or sell or to delay the Registration or sale of such securities, the Company shall give written notice of such determination to each Holder and, thereupon, (x) in the
case of a determination not to register or sell, shall be relieved of its obligation to register or sell any Registrable Securities in connection with such Registration or Public Offering (but not from its obligation to pay the Registration
Expenses in connection therewith), without prejudice, however, to the rights of any Holders entitled to request that such Registration or sale be effected as a Demand Registration under Section 3.1 or an Underwritten Shelf Takedown
under Section 3.2, as the case may be, and (y) in the case of a determination to delay Registration or sale, in the absence of a request for a Demand Registration or an Underwritten Shelf Takedown, as the case may be, shall be permitted
to delay registering or selling any Registrable Securities, for the same period as the delay in registering or selling such other securities. Any Holder shall have the right to withdraw all or part of its request for inclusion of its
Registrable Securities in a Piggyback Registration by giving written notice to the Company of its request to withdraw, prior to the applicable Registration Statement becoming effective or, in connection with an Underwritten Shelf Takedown, the
execution of the related underwriting agreement.
3.3.2 Priority of Piggyback Registration. If the managing
underwriter or underwriters of any proposed offering of Registrable Securities included in a Piggyback Registration informs the Company and the participating Holders in writing that, in its or their opinion, the number of securities that such
Holders and any other Persons intend to include in such offering exceeds the number that can be sold in such offering without being likely to have an adverse effect on the price, timing or distribution of the securities offered or the market
for the securities offered, then the securities to be included in such Registration shall be (i) first, one hundred percent (100%) of the securities that the Company proposes to sell; (ii) second, and only if all the securities referred to in
clause (i) have been included, the number of Registrable Securities that, in the opinion of such managing underwriter or underwriters, can be sold without having such adverse effect, with
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such number to be allocated among the Holders that have requested to participate in
such Registration based on an amount equal to the lesser of (x) the number of such Registrable Securities requested to be sold by such Holder, and (y) a number of such shares equal to such Holder’s Pro Rata Portion; (iii) third, and only if all
of the Registrable Securities referred to in clause (ii) have been included in such Registration, any other securities eligible for inclusion in such Registration.
3.3.3 No Effect on Other Registrations. No Registration of
Registrable Securities effected pursuant to a request under this Section 3.3 shall be deemed to have been effected pursuant to Sections 3.1 and 3.2 or shall relieve the Company of its obligations under Sections 3.1
and 3.2.
3.4.1 Each IDX Investor and ZF Investor agrees that such Investor
shall not Transfer any Shares issued to such IDX Investors or ZF Investor, as applicable, as consideration in connection with the transactions contemplated by the Business Combination Agreement (“Lock-Up Shares”)
for one hundred eighty (180)-days following the Closing Date (the “Lock-up Period”). Notwithstanding any other provision in this Agreement, Lock-Up Shares shall not include shares of Acquiror Common Stock
issued as part of the PIPE Investment or shares of Acquiror Common Stock issuable upon exercise of Convertible Notes. The foregoing restriction is expressly agreed to preclude each IDX Investor and ZF Investor during such one hundred eighty
(180)-day period from engaging in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of such IDX Investor and ZF Investor’s Shares, as applicable, even if
such Shares would be disposed of by someone other than the undersigned. Such prohibited hedging or other transactions during such one hundred eighty (180)-day period would include without limitation any short sale or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with respect to any of the IDX Investor and ZF Investor’s Shares or with respect to any security that includes, relates to, or derives any significant part of its value from
such Shares. The foregoing notwithstanding, (x) each executive officer and director of the Company shall be permitted to establish a plan to acquire or sell Shares pursuant to Rule 10b5-1 under the Exchange Act, provided that such plan does not
provide for the Transfer of Lock-Up Shares during the Lock-up Period and (y) to the extent any IDX Investor or ZF Investor is granted a release or waiver from the restrictions contained in this Section 3.4.1 prior to the expiration of
the Lock-Up Period (or Sponsor or any JAR Sponsor Holder is granted a release or waiver from its restrictions on transfer of Company securities under the Sponsor Holders Agreement), then all IDX Investors and ZF Investors shall be automatically
granted a release or waiver from the restrictions contained in this Section 3.4.1 to the same extent, on substantially the same terms as and on a pro rata basis with, the IDX Investor or ZF Investor (or Sponsor or any JAR Sponsor
Holder, as applicable) to which such release or waiver is granted. In the event of any such release or waiver, the Company shall use its reasonable best efforts to notify the Investors as promptly as practicable, but in no event later than two
(2) Business Days of the occurrence of such release or waiver. The foregoing restrictions shall not apply to Transfers made: (i) pursuant to a bona fide gift or charitable contribution; (ii) by will or intestate succession upon the death of an
IDX Investor or ZF Investor; (iii) to any Affiliate; (iv) pursuant to a court order, qualified domestic relations order, divorce settlement, divorce decree, separation agreement or settlement agreement related to the distribution of assets in
connection with the dissolution of marriage or civil union; (v) in the case of a trust, to a trustor or beneficiary of the trust or to the estate of a beneficiary of such trust; (vi) pro rata (or in accordance with the applicable organizational
documents of the transferring IDX Investor or ZF Investor) to the direct or indirect partners, members or shareholders of an IDX Investor or ZF Investor or any related investment funds or vehicles controlled or managed by such persons or their
respective affiliates; (vii) to a nominee or custodian of a Person to whom a Transfer would be permitted under clauses (i) through (vi) above; (viii) in connection with any legal, regulatory or other order; (ix) in connection with any bona fide
mortgage, encumbrance, pledge or other grant of a security interest in Shares granted by the ZF Investor set forth on Schedule C-1 to one or more financial or lending institutions as collateral or security for or in connection with any
bona fide loans, advances or extensions of credit or debt transaction (or enforcement thereunder) entered into by such ZF Investor under the credit facilities set forth on Schedule C-2, or any refinancings, replacements or new
facilities of such ZF Investor pursuant to which there is any bona fide mortgage, encumbrance, pledge or other grant of a security interest in Shares, and any transfers of such Shares upon foreclosure thereof shall be deemed permitted for
purposes of this Section 3.4.1; (x) to satisfy tax withholding obligations in connection with the exercise of options to purchase Shares or the vesting of Company stock-based awards
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granted under the Company’s equity incentive plans in effect as of the date first
set forth above; (xi) to the Company in connection with the repurchase of such IDX Investor or ZF Investor’s Shares, as applicable, in connection with the termination of the IDX Investor or ZF Investor’s employment, as applicable, with the
Company pursuant to contractual agreements with the Company; (xii) in payment on a “net exercise” or “cashless” basis of the exercise or purchase price with respect to the exercise of options to purchase Shares granted under the Company’s
equity incentive plans in effect as of the date first set forth above; (xiii) in the event of the Company’s completion of a liquidation, merger, share exchange or other similar transaction which results in all of its shareholders having the
right to exchange their Common Stock for cash, securities or other property; provided that in the case of clauses (i) through (vii) and clause (ix) above, the recipient of such Transfer (including any financial or lending institution or
other Person to which a security interest is granted or to which a transfer of Shares upon foreclosure would occur, in each case, pursuant to clause (ix) above) must enter into a written agreement agreeing to be bound by the terms of this
Agreement, including the transfer restrictions set forth in this Section 3.4.1.
3.4.2 Each Investor also agrees, and the Company agrees to use its
reasonable best efforts to cause each director and executive officer of the Company to agree, that, in connection with each Registration or sale of Registrable Securities pursuant to Section 3.1, 3.2 or 3.3 conducted as
an Underwritten Public Offering in which such Investor participates, if requested, to become bound by and to execute and deliver a customary lock-up agreement reasonably acceptable to the Company with the underwriter(s) of such Underwritten
Public Offering restricting such applicable person or entity’s right to (a) Transfer, directly or indirectly, any equity securities of the Company held by such person or entity or (b) enter into any swap or other arrangement that transfers to
another any of the economic consequences of ownership of such securities during the period commencing on the date of the final Prospectus relating to the Underwritten Public Offering and ending on the date specified by the underwriters (such
period not to exceed ninety (90) days). The terms of such lock-up agreements shall be negotiated among the applicable Investors requested to enter into lock-up agreements in accordance with the immediately preceding sentence, the Company and
the underwriters and shall include customary exclusions from the restrictions on Transfer set forth therein, including that such restrictions on the applicable Investors (and directors and executive officers bound by such lock-up agreements)
shall be conditioned upon all applicable Investors and directors and executive officers of the Company bound by such lock-up agreements being subject to the same restrictions.
3.5.1 Requirements. In connection with the Company’s
obligations under Sections 3.1 through 3.4, the Company shall use its reasonable best efforts to effect such Registration and to permit the sale of such Registrable Securities in accordance with the intended method or methods of
distribution thereof as expeditiously as reasonably practicable, and in connection therewith the Company shall:
3.5.1.1 as promptly as practicable prepare the required Registration
Statement, including all exhibits and financial statements required under the Securities Act to be filed therewith, and Prospectus, and, before filing a Registration Statement or Prospectus or any amendments or supplements thereto, (x) furnish
to the underwriters, if any, and to the Holders of the Registrable Securities covered by such Registration Statement, copies of all documents prepared to be filed, which documents shall be subject to the review of such underwriters and such
Holders and their respective counsel, (y) make such changes in such documents concerning the Holders prior to the filing thereof as such Holders, or their counsel, may reasonably request and (z) except in the case of a Registration under Section
3.3 not file any Registration Statement or Prospectus or amendments or supplements thereto to which the Holders, in such capacity, or the underwriters, if any, shall reasonably object;
3.5.1.2 prepare and file with the SEC such amendments and
post-effective amendments to such Registration Statement and supplements to the Prospectus as may be (x) reasonably requested by any Holder with Registrable Securities covered by such Registration Statement, (y) reasonably requested by any
participating Holder (to the extent such request relates to information relating to such Holder), or (z) necessary to keep such Registration Statement effective for the period of time required by this Agreement, and comply with provisions of
the applicable securities laws with respect to the sale or other disposition of all securities covered by such Registration Statement during such period in accordance with the intended method or methods of disposition by the sellers thereof set
forth in such Registration Statement;
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3.5.1.3 notify the participating Holders and the managing
underwriter or underwriters, if any, and (if requested) confirm such notice in writing and provide copies of the relevant documents, as soon as reasonably practicable after notice thereof is received by the Company (i) when the applicable
Registration Statement or any amendment thereto has been filed or becomes effective, and when the applicable Prospectus or any amendment or supplement thereto has been filed; (ii) of any written comments by the SEC, or any request by the SEC or
other federal or state governmental authority for amendments or supplements to such Registration Statement or such Prospectus, or for additional information (whether before or after the effective date of the Registration Statement) or any other
correspondence with the SEC relating to, or which may affect, the Registration; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or any order by the SEC or any other regulatory
authority preventing or suspending the use of any preliminary or final Prospectus or the initiation or threatening of any proceedings for such purposes; (iv) if, at any time, the representations and warranties of the Company in any applicable
underwriting agreement cease to be true and correct in all material respects; and (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for offering or sale in
any jurisdiction or the initiation or threatening of any proceeding for such purpose;
3.5.1.4 promptly notify each selling Holder and the managing
underwriter or underwriters, if any, when the Company becomes aware of the happening of any event as a result of which the applicable Registration Statement or the Prospectus included in such Registration Statement (as then in effect) contains
any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein (in the case of such Prospectus or any preliminary Prospectus, in light of the circumstances under which they were made) not
misleading, when any Issuer Free Writing Prospectus includes information that may conflict with the information contained in the Registration Statement, or, if for any other reason, it shall be necessary during such time period to amend or
supplement such Registration Statement or Prospectus in order to comply with the Securities Act and, as promptly as reasonably practicable thereafter, prepare and file with the SEC, and furnish without charge to the selling Holders and the
managing underwriter or underwriters, if any, an amendment or supplement to such Registration Statement or Prospectus, which shall correct such misstatement or omission or effect such compliance;
3.5.1.5 to the extent the Company is eligible under the relevant
provisions of Rule 430B under the Securities Act, if the Company files any Shelf Registration Statement, the Company shall include in such Shelf Registration Statement such disclosures as may be required by Rule 430B under the Securities Act
(referring to the unnamed selling security holders in a generic manner by identifying the initial offering of the securities to the Holders) in order to ensure that the Holders may be added to such Shelf Registration Statement at a later time
through the filing of a Prospectus supplement rather than a post-effective amendment;
3.5.1.6 use its reasonable best efforts to prevent, or obtain the
withdrawal of, any stop order or other order or notice preventing or suspending the use of any preliminary or final Prospectus;
3.5.1.7 promptly incorporate in a Prospectus supplement, Issuer Free
Writing Prospectus or post-effective amendment such information as the managing underwriter or underwriters and the participating Holders agree should be included therein relating to the plan of distribution with respect to such Registrable
Securities; and make all required filings of such Prospectus supplement, Issuer Free Writing Prospectus or post-effective amendment as soon as reasonably practicable after being notified of the matters to be incorporated in such Prospectus
supplement, Issuer Free Writing Prospectus or post-effective amendment;
3.5.1.8 furnish to each selling Holder and each underwriter, if any,
without charge, as many conformed copies as such Holder or underwriter may reasonably request of the applicable Registration Statement and any amendment or post-effective amendment or supplement thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference);
3.5.1.9 deliver to each selling Holder and each underwriter, if any,
without charge, as many copies of the applicable Prospectus (including each preliminary Prospectus) and any amendment or
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supplement thereto and such other documents as such Holder or underwriter may
reasonably request in order to facilitate the disposition of the Registrable Securities by such Holder or underwriter (it being understood that the Company shall consent to the use of such Prospectus or any amendment or supplement thereto by
each of the selling Holders and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto);
3.5.1.10 on or prior to the date on which the applicable
Registration Statement becomes effective, use its reasonable best efforts to register or qualify, and cooperate with the selling Holders, the managing underwriter or underwriters, if any, and their respective counsel, in connection with the
Registration or qualification of such Registrable Securities for offer and sale under the securities or “Blue Sky” laws of each state and other jurisdiction as any such selling Holder or managing underwriter or underwriters, if any, or their
respective counsel reasonably request in writing and do any and all other acts or things reasonably necessary or advisable to keep such Registration or qualification in effect for such period as required by Section 3.1 or Section
3.2, as applicable, provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to taxation or general
service of process in any such jurisdiction where it is not then so subject;
3.5.1.11 cooperate with the selling Holders and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may request prior to any sale of Registrable Securities to the underwriters;
3.5.1.12 use its reasonable best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter or underwriters, if
any, to consummate the disposition of such Registrable Securities;
3.5.1.13 make such representations and warranties to the Holders of
Registrable Securities being registered, and the underwriters or agents, if any, in form, substance and scope as are customarily made by issuers in public offerings similar to the offering then being undertaken;
3.5.1.14 enter into such customary agreements (including
underwriting and indemnification agreements) and take all such other actions as the participating Holders or the managing underwriter or underwriters, if any, reasonably request in order to expedite or facilitate the Registration and
disposition of such Registrable Securities;
3.5.1.15 obtain for delivery to the Holders being registered and to
the underwriter or underwriters, if any, an opinion or opinions from counsel for the Company dated the most recent effective date of the Registration Statement or, in the event of an Underwritten Public Offering, the date of the closing under
the underwriting agreement, in customary form, scope and substance, which opinions shall be reasonably satisfactory to such Holders or underwriters, as the case may be, and their respective counsel;
3.5.1.16 in the case of an Underwritten Public Offering, obtain for
delivery to the Company and the managing underwriter or underwriters, with copies to the Holders included in such Registration or sale, a comfort letter from the Company’s independent certified public accountants or independent auditors (and,
if necessary, any other independent certified public accountants or independent auditors of any subsidiary of the Company or any business acquired by the Company for which financial statements and financial data are, or are required to be,
included in the Registration Statement) in customary form and covering such matters of the type customarily covered by comfort letters as the managing underwriter or underwriters reasonably request, dated the date of execution of the
underwriting agreement and brought down to the closing under the underwriting agreement;
3.5.1.17 cooperate with each seller of Registrable Securities and
each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA;
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3.5.1.18 use its reasonable best efforts to comply with all
applicable securities laws and, if a Registration Statement was filed, make available to its security holders, as soon as reasonably practicable, an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and the
rules and regulations promulgated thereunder;
3.5.1.19 provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by the applicable Registration Statement;
3.5.1.20 use its reasonable best efforts to cause all Registrable
Securities covered by the applicable Registration Statement to be listed on each securities exchange on which any of the Company’s equity securities are then listed or quoted and on each inter-dealer quotation system on which any of the
Company’s equity securities are then quoted;
3.5.1.21 make available upon reasonable notice at reasonable times
and for reasonable periods for inspection by a representative appointed by the Holders holding a majority of Registrable Securities being sold, by any underwriter participating in any disposition to be effected pursuant to such Registration
Statement and by any attorney, accountant or other agent retained by such Holders or any such underwriter, all pertinent financial and other records and pertinent corporate documents and properties of the Company, and cause all of the Company’s
officers, directors and employees and the independent public accountants who have certified its financial statements to make themselves available to discuss the business of the Company and to supply all information reasonably requested by any
such Person in connection with such Registration Statement;
3.5.1.22 in the case of an Underwritten Public Offering, cause the
senior executive officers of the Company to participate in the customary “road show” presentations that may be reasonably requested by the managing underwriter or underwriters in any such offering and otherwise to facilitate, cooperate with,
and participate in each proposed offering contemplated herein and customary selling efforts related thereto;
3.5.1.23 take no direct or indirect action prohibited by Regulation
M under the Exchange Act;
3.5.1.24 take all reasonable action to ensure that any Issuer Free
Writing Prospectus utilized in connection with any Registration complies in all material respects with the Securities Act, is filed in accordance with the Securities Act to the extent required thereby, is retained in accordance with the
Securities Act to the extent required thereby and, when taken together with the related Prospectus, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
3.5.1.25 cooperate with the Holders of Registrable Securities
subject to the Registration Statement and with the managing underwriter or agent, if any, to facilitate any Charitable Gifting Event and to prepare and file with the SEC such amendments and supplements to such Registration Statement and the
Prospectus used in connection therewith as may be necessary to permit any such recipient Charitable Organization to sell in the Public Offering if it so elects; and
3.5.1.26 take all such other commercially reasonable actions as are
necessary or advisable in order to expedite or facilitate the disposition of such Registrable Securities in accordance with the terms of this Agreement.
3.5.2 Company Information Requests. The Company may require
each seller of Registrable Securities as to which any Registration or sale is being effected to furnish to the Company customary information regarding such Holder and the ownership and distribution of its Registrable Securities as the Company
may from time to time reasonably request in writing and the Company may exclude from such Registration or sale the Registrable Securities of any such Holder who unreasonably fails to furnish such information within a reasonable time after
receiving such request. Each Holder agrees to furnish such information to the Company and to cooperate with the Company as reasonably necessary to enable the Company to comply with the provisions of this Agreement.
3.5.3 Discontinuing Registration. Each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.5.1.4, such Holder will discontinue disposition of Registrable Securities pursuant to such Registration Statement until such
Holder’s
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receipt of the copies of the supplemented or amended Prospectus contemplated by Section
3.5.1.4, or until such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus, or
any amendments or supplements thereto, and if so directed by the Company, such Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the period during which the applicable Registration Statement is required to be maintained effective shall
be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement either receives the copies
of the supplemented or amended Prospectus contemplated by Section 3.5.1.4 or is advised in writing by the Company that the use of the Prospectus may be resumed.
3.6.1 Shelf and Demand Registrations. If requested by the
underwriters for any Underwritten Public Offering, pursuant to a Registration or sale under Sections 3.1 or 3.2, the Company shall enter into an underwriting agreement with such underwriters, such agreement to be reasonably
satisfactory in substance and form to each of the Company, the underwriters and, to the extent its Registrable Securities are being sold, Holders of a majority of the Sponsor Investor Shares that are Registrable Securities being sold, a
majority of the IDX Investor Shares that are Registrable Securities being sold and a majority of the ZF Investor Shares that are Registrable Securities being sold, as applicable, and to contain such representations and warranties by the Company
and such other terms as are generally prevailing in agreements of that type, including indemnities no less favorable to the recipient thereof than those provided in Section 3.9 of this Agreement. The Holders of the Registrable
Securities proposed to be distributed by such underwriters shall cooperate with the Company in the negotiation of the underwriting agreement and shall give consideration to the reasonable suggestions of the Company regarding the form thereof,
and such Holders shall complete and execute all questionnaires, powers of attorney and other documents reasonably requested by the underwriters and required under the terms of such underwriting arrangements. Any such Holder shall not be
required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Holder, such Holder’s title to the Registrable Securities and such
Holder’s intended method of distribution, and the aggregate amount of the liability of such Holder under such agreement shall not exceed such Holder’s proceeds from the sale of its Registrable Securities in the offering, net of underwriting
discounts and commissions but before expenses.
3.6.2 Piggyback Registrations. If the Company proposes to
register or sell any of its securities under the Securities Act as contemplated by Section 3.3 and such securities are to be distributed through one or more underwriters, the Company shall, if requested by any Holder pursuant to Section
3.3 and, subject to the provisions of Section 3.3.2, use its reasonable best efforts to arrange for such underwriters to include on the same terms and conditions that apply to the other sellers in such Registration or sale all the
Registrable Securities to be offered and sold by such Holder among the securities of the Company to be distributed by such underwriters in such Registration or sale. The Holders of Registrable Securities to be distributed by such underwriters
shall be parties to a customary underwriting agreement between the Company and such underwriters and shall complete and execute all questionnaires, powers of attorney and other documents reasonably requested by the underwriters and required
under the terms of such underwriting arrangements. Any such Holder shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements
regarding such Holder, such Holder’s title to the Registrable Securities and such Holder’s intended method of distribution, and the aggregate amount of the liability of such Holder shall not exceed such Holder’s proceeds from the sale of its
Registrable Securities in the offering, net of underwriting discounts and commissions but before expenses.
3.6.3 Selection of Underwriters; Selection of Counsel. In the
case of an Underwritten Public Offering under Sections 3.1 or 3.2, the managing underwriter or underwriters to administer the offering shall be determined by the Holders holding a majority of Registrable Securities being sold in
such offering; provided that such underwriter or underwriters shall be reasonably acceptable to the Company. In the case of an Underwritten Public Offering under Section 3.3, the managing underwriter or underwriters to
administer the offering shall be determined by the Company; provided that such underwriter or underwriters shall be
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reasonably acceptable to the Holders holding a majority of Registrable Securities
being sold in such offering. In the case of an Underwritten Public Offering under Sections 3.1, 3.2 or 3.3, each participating Holder shall be entitled to select its counsel, including, without limitation, any additional
local counsel necessary to deliver any required legal opinions.
3.6.4 Non-Underwritten Offerings. Notwithstanding anything
herein to the contrary and subject to applicable law, regulation and the rules of the stock exchange on which the shares of Common Stock are listed, any Non-Underwritten Offering shall be conducted in accordance with the Company’s insider
trading policy to the extent that such selling stockholder is then subject to such policy.
3.7 No
Inconsistent Agreements; Additional Rights. Neither the Company nor any of its subsidiaries shall hereafter enter into, and neither the Company nor any of its subsidiaries is currently a party to, any
agreement with respect to its securities that is inconsistent with the rights granted to the Holders by this Agreement. Without the approval of the Holders holding a majority of the Registrable Securities then outstanding (voting together as
a single class on an as-converted basis), neither the Company nor any of its subsidiaries shall enter into any agreement granting registration or similar rights to any Person, and the Company hereby represents and warrants that, as of the
date hereof, no registration or similar rights have been granted to any other Person other than pursuant to this Agreement. Notwithstanding the foregoing, the Company has entered into subscription agreements providing for private investment
in public equity and convertible notes in connection with the Business Combination Agreement and entry into such agreements, or one or more registration rights agreements in respect of such subscription agreements, shall not constitute a
breach of the representations and warranties and covenants set forth in this Section 3.7.
3.8 Registration
Expenses. All expenses incident to the Company’s performance of or compliance with this Agreement shall be paid by the Company, including (i) all registration and filing fees, and any other fees and
expenses associated with filings required to be made with the SEC or FINRA, (ii) all fees and expenses in connection with compliance with any securities or “Blue Sky” laws (including reasonable fees and disbursements of counsel for the
underwriters in connection with blue sky qualifications of the Registrable Securities), (iii) all printing, duplicating, word processing, messenger, telephone, facsimile and delivery expenses (including expenses of printing certificates for
the Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing Prospectuses), (iv) all fees and disbursements of counsel for the Company and of all independent certified public accountants or
independent auditors of the Company and any subsidiaries of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance), (v) Securities Act liability insurance or similar insurance
if the Company so desires or the underwriters so require in accordance with then-customary underwriting practice, (vi) all fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange or
quotation of the Registrable Securities on any inter-dealer quotation system, (viii) reasonable fees and expenses of one counsel selected by the Holders of a majority of the Registrable Securities included in the relevant offering and, when
required by the underwriters, reasonable fees and expenses of legal counsel for each Holder participating in such registration (or, in the case of a Form S-3 Shelf or Form S-1 Shelf, each Holder selling Registrable Securities under the
applicable Registration Statement) solely in connection with the preparation of any legal opinions requested by the underwriters in respect of such Holder personally, (ix) any reasonable fees and disbursements of underwriters customarily paid
by issuers or sellers of securities, (x) all fees and expenses of any special experts or other Persons retained by the Company in connection with any Registration or sale, (xi) all of the Company’s internal expenses (including all salaries
and expenses of its officers and employees performing legal or accounting duties) and (xii) all expenses related to the “road show” for any Underwritten Public Offering, including the reasonable out-of-pocket expenses of the Holders and
underwriters, if so requested. All such expenses are referred to herein as “Registration Expenses”. The Company shall not be required to pay any fees and disbursements to underwriters not
customarily paid by the issuers of securities in an offering similar to the applicable offering, including underwriting discounts and commissions and transfer taxes, if any, attributable to the sale of Registrable Securities.
3.9.1 Indemnification by the Company. The Company shall
indemnify and hold harmless, to the fullest extent permitted by law, each Holder, each shareholder, member, limited or general partner of such Holder, each shareholder, member, limited or general partner of each such shareholder, member,
limited or general partner, each of their respective Affiliates, officers, directors, shareholders, employees, advisors, and
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agents and each Person who controls (within the meaning of the Securities Act or the
Exchange Act) such Persons and each of their respective Representatives from and against any and all losses, penalties, judgments, suits, costs, claims, damages, liabilities and expenses, joint or several (including reasonable costs of
investigation and legal expenses and any indemnity and contribution payments made to underwriters ) (each, a “Loss” and collectively “Losses”) arising out of or based upon (i) any untrue or alleged untrue statement of a material
fact contained in any Registration Statement under which such Registrable Securities are registered or sold under the Securities Act (including any final, preliminary or summary Prospectus contained therein or any amendment thereof or
supplement thereto or any documents incorporated by reference therein) or any other disclosure document produced by or on behalf of the Company or any of its subsidiaries including any report and other document filed under the Exchange Act,
(ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus or preliminary Prospectus, in light of the circumstances under which
they were made) not misleading or (iii) any violation or alleged violation by the Company or any of its subsidiaries of any federal, state, foreign or common law rule or regulation applicable to the Company or any of its subsidiaries and
relating to action or inaction in connection with any such Registration, disclosure document or other document or report; provided, that no selling Holder shall be entitled to indemnification pursuant to this Section 3.9.1 in
respect of any untrue statement or omission contained in any information relating to such selling Holder furnished in writing by such selling Holder to the Company specifically for inclusion in a Registration Statement and used by the Company
in conformity therewith (such information “Selling Stockholder Information”). This indemnity shall be in addition to any liability the Company may otherwise have. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Holder or any indemnified party and shall survive the Transfer of such securities by such Holder and regardless of any indemnity agreed to in the underwriting agreement that is less favorable to the
Holders. The Company shall also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons
(within the meaning of the Securities Act and the Exchange Act) to the same extent as provided above (with appropriate modification) with respect to the indemnification of the indemnified parties.
3.9.2 Indemnification by the Selling Holders. Each selling
Holder agrees (severally and not jointly) to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act or the
Exchange Act) and each of their respective Representatives from and against any Losses resulting from (i) any untrue statement of a material fact in any Registration Statement under which such Registrable Securities were registered or sold
under the Securities Act (including any final, preliminary or summary Prospectus contained therein or any amendment thereof or supplement thereto or any documents incorporated by reference therein) or (ii) any omission to state therein a
material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus or preliminary Prospectus, in light of the circumstances under which they were made) not misleading, in each case to the
extent, but only to the extent, that such untrue statement or omission is contained in such selling Holder’s Selling Stockholder Information. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar
amount of the proceeds from the sale of its Registrable Securities in the offering giving rise to such indemnification obligation, net of underwriting discounts and commissions but before expenses, less any amounts paid by such Holder pursuant
to Section 3.9.4 and any amounts paid by such Holder as a result of liabilities incurred under the underwriting agreement, if any, related to such sale.
3.9.3 Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that any delay or failure to so notify the indemnifying party
shall relieve the indemnifying party of its obligations hereunder only to the extent, if at all, that it forfeits substantive legal rights by reason of such delay or failure) and (ii) permit such indemnifying party to assume the defense of such
claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any Person entitled to indemnification hereunder shall have the right to select and employ separate counsel and to participate in the
defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (a) the indemnifying party has agreed in writing to pay such fees or expenses, (b) the indemnifying party shall have failed to assume
the defense of such claim within a reasonable time after
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receipt of notice of such claim from the Person entitled to indemnification
hereunder and employ counsel reasonably satisfactory to such Person, (c) the indemnified party has reasonably concluded (based upon advice of its counsel) that there may be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, or (d) in the reasonable judgment of any such Person (based upon advice of its counsel) a conflict of interest may exist between such Person and the indemnifying party
with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to
assume the defense of such claim on behalf of such Person). If the indemnifying party assumes the defense, the indemnifying party shall not have the right to settle such action without the consent of the indemnified party which consent shall
not be unreasonably withheld or delayed. No indemnifying party shall consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of an unconditional release from all liability in respect to such claim or litigation without the prior written consent of such indemnified party. If such defense is not assumed by the indemnifying party, the indemnifying
party will not be subject to any liability for any settlement made without its prior written consent, but such consent may not be unreasonably withheld. It is understood that the indemnifying party or parties shall not, except as specifically
set forth in this Section 3.9.3, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements or other charges of more than one separate firm admitted to practice in
such jurisdiction at any one time unless (x) the employment of more than one counsel has been authorized in writing by the indemnifying party or parties, (y) an indemnified party has reasonably concluded (based on the advice of counsel) that
there may be legal defenses available to it that are different from or in addition to those available to the other indemnified parties or (z) a conflict or potential conflict exists or may exist (based upon advice of counsel to an indemnified
party) between such indemnified party and the other indemnified parties, in each of which cases the indemnifying party shall be obligated to pay the reasonable fees and expenses of such additional counsel or counsels.
3.9.4 Contribution. If for any reason the indemnification
provided for in Section 3.9.1 and Section 3.9.2 is unavailable to an indemnified party or insufficient in respect of any Losses referred to therein (other than as a result of exceptions or limitations on indemnification
contained in Section 3.9.1 and Section 3.9.2), then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such Losses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified party or parties on the other hand in connection with the acts, statements or omissions that resulted in such Losses, as well as any other relevant equitable
considerations. In connection with any Registration Statement filed with the SEC by the Company, the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand shall be determined by reference to, among
other things, whether any untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’
relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, it being understood and agreed that, with respect to each selling Holder, such information will be limited to such Holder’s
Selling Stockholder Information. The parties hereto agree that it would not be just or equitable if contribution pursuant to this Section 3.9.4 were determined by pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to in this Section 3.9.4. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation. The amount paid or payable by an indemnified party as a result of the Losses referred to in Sections 3.9.1 and 3.9.2 shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 3.9.4, in
connection with any Registration Statement filed by the Company, a selling Holder shall not be required to contribute any amount in excess of the dollar amount of the proceeds from the sale of its Registrable Securities in the offering giving
rise to such indemnification obligation, net of underwriting discounts and commissions but before expenses, less any amounts paid by such Holder pursuant to Section 3.9.2 and any amounts paid by such Holder as a result of liabilities
incurred under the underwriting agreement, if any, related to such sale. If indemnification is available under this Section 3.9, the indemnifying parties shall indemnify each indemnified party to the full extent provided
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in Sections 3.9.1 and 3.9.2 hereof without regard to the provisions
of this Section 3.9.4. The remedies provided for in this Section 3.9 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.
3.9.5 Indemnification Priority. The Company hereby
acknowledges and agrees that any of the Persons entitled to indemnification pursuant to Section 3.9.1 (each, a “Company Indemnitee” and collectively, the “Company Indemnitees”) may have certain rights to indemnification,
advancement of expenses and/or insurance provided by other sources. The Company hereby acknowledges and agrees (i) that it is the indemnitor of first resort (i.e., its obligations to a Company Indemnitee are primary and any obligation of such
other sources to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such Company Indemnitee are secondary) and (ii) that it shall be required to advance the full amount of expenses incurred by a
Company Indemnitee and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement without regard to any rights a
Company Indemnitee may have against such other sources. The Company further agrees that no advancement or payment by such other sources on behalf of a Company Indemnitee with respect to any claim for which such Company Indemnitee has sought
indemnification, advancement of expenses or insurance from the Company shall affect the foregoing, and that such other sources 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 such Company Indemnitee against the Company.
3.10 Rules
144 and 144A and Regulation S. The Company shall file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or,
if the Company is not required to file such reports, it will, upon the request of any Holder, make publicly available such necessary information for so long as necessary to permit sales that would otherwise be permitted by this Agreement
pursuant to Rule 144, Rule 144A or Regulation S under the Securities Act, as such rules may be amended from time to time or any similar rule or regulation hereafter adopted by the SEC), and it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without Registration under the Securities Act in transactions that would otherwise be permitted by this Agreement and within
the limitation of the exemptions provided by (i) Rule 144, Rule 144A or Regulation S under the Securities Act, as such rules may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements and, if not, the specifics thereof. In connection with a sale or transfer of Registrable Securities exempt
from Section 5 of the Securities Act or through any broker-dealer transactions described in the plan of distribution set forth within the Prospectus and pursuant to the Registration Statement of which such Prospectus forms a part, the Company
shall, subject to the receipt of any customary documentation reasonably required from the applicable Holders and/or their broker(s) in connection therewith, (a) promptly instruct its transfer agent to remove any restrictive legends applicable
to the Registrable Securities being sold or transferred and (b) to the extent required by the transfer agent deliver the necessary legal opinions or instruction letters, as applicable, to the transfer agent in connection with the instruction
under subclause (a).
3.11 Existing
Registration Statements. Notwithstanding anything herein to the contrary and subject to applicable law and regulation, the Company may satisfy any obligation hereunder to file a Registration Statement or
to have a Registration Statement become effective by a specified date by designating, by notice to the Holders, a Registration Statement that previously has been filed with the SEC or become effective, as the case may be, as the relevant
Registration Statement for purposes of satisfying such obligation, and all references to any such obligation shall be construed accordingly; provided that such previously filed Registration Statement may be, and is, amended or,
subject to applicable securities laws, supplemented to add the number of Registrable Securities, and, to the extent necessary, to identify as selling stockholders those Holders demanding the filing of a Registration Statement pursuant to the
terms of this Agreement. To the extent this Agreement refers to the filing or effectiveness of other Registration Statements, by or at a specified time and the Company has, in lieu of then filing such Registration Statements or having such
Registration Statements become effective, designated a previously filed or effective Registration Statement as the relevant Registration Statement for such purposes, in accordance with the preceding sentence, such references shall be
construed to refer to such designated Registration Statement, as amended or supplemented in the manner contemplated by the immediately preceding sentence.
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MISCELLANEOUS
4.1 Authority;
Effect. Each party hereto represents and warrants to and agrees with each other party that the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized on behalf of such party and do not violate any agreement or other instrument applicable to such party or by which its assets are bound. This Agreement does not, and shall not be construed to, give rise to the creation of
a partnership among any of the parties hereto, or to constitute any of such parties members of a joint venture or other association. The Company and its subsidiaries shall be jointly and severally liable for all obligations of each such party
pursuant to this Agreement.
4.2 Notices. Any notices, requests, demands and other communications required or permitted in this Agreement shall be effective if in writing and (i) delivered personally, (ii) sent by e-mail, provided that any
e-mail must be followed by confirmation copy sent by the means provided in the following clause (iii) on the same day the e-mail is sent, or (iii) sent by overnight courier, in each case, addressed as follows:
If to the Company to:
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ZeroFox Holdings, Inc.
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1834 S. Charles Street
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Baltimore, Maryland 21230
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Attention:
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James C. Foster, Chief Executive Officer and President
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Email:
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with a copy (which shall not constitute notice) to each of:
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Venable
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750 E. Pratt Street, Suite 900
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Baltimore, Maryland 21202
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Attention:
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Anthony J. Rosso
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Email:
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If to an Investor, to his, her or its address as set forth on Schedule
A or Schedule B.
Notice to the holder of record of any Registrable Securities shall be
deemed to be notice to the holder of such securities for all purposes hereof.
Unless otherwise specified herein, such notices or other
communications shall be deemed effective (i) on the date received, if personally delivered, (ii) the earlier of (a) non-automated confirmation of receipt or (b) as provided in the following clause (iii), if sent by e-mail, and (iii) one (1)
Business Day after being sent by overnight courier. Each of the parties hereto shall be entitled to specify a different address by giving notice as aforesaid to each of the other parties hereto.
4.3 Termination
and Effect of Termination. This Agreement may be terminated only by an agreement in writing signed by the Holders holding (i) a majority of the Sponsor Investor Shares then outstanding, (ii) a majority
of the ZF Investor Shares then outstanding and (iii) a majority of the IDX Investor Shares then outstanding; provided, that the consent of any Investor will be required for any termination of this Agreement which has an adverse effect on the
rights, limitations or obligations of such Investor. Notwithstanding any termination of this Agreement in accordance with the foregoing sentence, the provisions of Sections 3.8, 3.9, 3.10, 4.5, 4.7, 4.8,
4.9, 4.11, 4.12 and 4.13 shall survive any such termination. No termination under this Agreement shall relieve any Person of liability for breach or Registration Expenses incurred prior to termination. In the
event this Agreement is terminated, each Person entitled to indemnification rights pursuant to Section 3.9 hereof shall retain such indemnification rights with respect to any matter that (i) may be an indemnified liability thereunder
and (ii) occurred prior to such termination.
4.4 Permitted
Transferees. The rights of a Holder hereunder may be assigned (but only with all related obligations as set forth below) in connection with a Transfer of Registrable Securities to a Permitted Transferee
of that Holder. Without prejudice to any other or similar conditions imposed hereunder with respect to any such Transfer, no assignment permitted under the terms of this Section 4.4 will be effective unless the Permitted
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Transferee to which the assignment is being made, if not a Holder, has delivered to
the Company a written acknowledgment and agreement in form and substance reasonably satisfactory to the Company that the Permitted Transferee will be bound by, and will be a party to, this Agreement. A Permitted Transferee to whom rights are
transferred pursuant to this Section 4.4 may not again transfer those rights to any other Permitted Transferee, other than as provided in this Section 4.4.
4.5 Remedies. The parties to this Agreement shall have all remedies available at law, in equity or otherwise in the event of any breach or violation of this Agreement or any default hereunder. The parties acknowledge and
agree that in the event of any breach of this Agreement, in addition to any other remedies that may be available, each of the parties hereto shall be entitled to specific performance of the obligations of the other parties hereto and, in
addition, to such other equitable remedies (including preliminary or temporary relief) as may be appropriate in the circumstances. No delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any
breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring
later; nor shall any such delay, omission nor waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver.
4.6 Amendments. This Agreement may not be orally amended, modified or extended, nor shall any oral waiver of any of its terms be effective. This Agreement may be amended, modified or extended, and the provisions hereof may be
waived, only by an agreement in writing signed by the Company and the Holders holding (i) a majority of the Sponsor Investor Shares then outstanding, (ii) a majority of the ZF Investor Shares then outstanding and (iii) a majority of the IDX
Investor Shares then outstanding. Each such amendment, modification, extension or waiver shall be binding upon each party hereto; provided that (a) the consent of any Sponsor Investor, ZF Holder and IDX Holder shall be required for
any amendment, modification, extension or waiver which has an adverse effect on the rights, limitations or obligations of such Sponsor Investor, ZF Holder and IDX Holder, as applicable, and (b) any such amendment, modification, extension or
waiver that by its terms would adversely affect a Holder or group of Holders in a disproportionate manner relative to the Holders generally shall require the written consent of the Holder (or a majority in interest based on Registrable
Securities of such group of Holders) so affected. In addition, each party hereto may waive any right hereunder (solely as applicable to such party) by an instrument in writing signed by such party.
4.7 Governing
Law. This Agreement, the rights of the parties under or in connection herewith or in connection with any of the transactions contemplated hereby, and all actions arising in whole or in part under or in
connection herewith or therewith (whether at law or in equity, whether sounding in contract, tort, statute or otherwise), shall be governed by and construed in accordance with the domestic substantive laws of the State of Delaware without
giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.
4.8 Consent
to Jurisdiction; Venue; Service. Each party to this Agreement, by its execution hereof, (i) hereby irrevocably submits to the exclusive jurisdiction and venue of the Court of Chancery of the State of
Delaware located in Wilmington, Delaware, or if (but only if) such court does not have subject matter jurisdiction, the state or federal courts located in the State of Delaware for the purpose of any suit, action or other proceeding described
in Section 4.7; (ii) hereby waives to the extent not prohibited by applicable law, and agrees not to assert, and agrees not to allow any of its subsidiaries 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 any such suit, action or proceeding brought in one of
the above-named courts is improper, or that this Agreement or the subject matter hereof may not be enforced in or by such court; and (iii) hereby agrees not to commence or maintain any such action other than before one of the above-named
courts nor to make any motion or take any other action seeking or intending to cause the transfer or removal of any such action to any court other than one of the above-named courts whether on the grounds of inconvenient forum or otherwise.
Each party to this Agreement hereby also (x) consents to service of process in any action described in this Section 4.8 in any manner permitted by Delaware law, (y) agrees that service of process made in accordance with clause (x) or
made by overnight delivery by a nationally recognized courier service addressed to a party’s address specified pursuant to Section 4.2 shall constitute good and valid service of process in any such action and (z) waives and agrees not
to assert (by way of motion, as a defense or otherwise) in any such action any claim that service of process made
G-24
in accordance with clause (x) or (y) does not constitute good and valid service of
process. Notwithstanding the foregoing in this Section 4.8, a party may commence any action in a court other than the above-named courts solely for the purpose of enforcing an order or judgment issued by one of the above-named courts.
4.9 WAIVER
OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE)
ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO THIS AGREEMENT OR ANY AND ALL ACTIONS OR PROCEEDINGS (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) DESCRIBED IN SECTION 4.8. EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE
OTHER PARTIES HERETO THAT THIS SECTION 4.9 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THEY ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT. ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 4.9
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
4.10 Merger;
Binding Effect, Etc.. This Agreement constitutes the entire agreement of the parties with respect to its subject matter, supersedes all prior or contemporaneous oral or written agreements, including the
Prior Agreement, or discussions with respect to such subject matter, and shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective heirs, representatives, successors and permitted assigns. Except as
otherwise expressly provided herein, no Holder or other party hereto may assign any of its respective rights or delegate any of its respective obligations under this Agreement without the prior written consent of the other parties hereto, and
any attempted assignment or delegation in violation of the foregoing shall be null and void.
4.11 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one instrument. The parties hereto agree that execution of
this Agreement by industry standard electronic signature software and/or by exchanging executed signature pages in .pdf format via e-mail shall have the same legal force and effect as the exchange of original signatures, and that in any
proceeding arising under or related to this Agreement, each party hereby waives any right to raise any defense or waiver based upon execution of this Agreement by means of such electronic signatures or maintenance of the executed agreement
electronically.
4.12 Severability. In the event that any provision hereof would, under applicable law, be invalid or unenforceable in any respect, such provision shall be construed by modifying or limiting it so as to be valid and enforceable to
the maximum extent compatible with, and possible under, applicable law. The provisions hereof are severable, and in the event any provision hereof should be held invalid or unenforceable in any respect, it shall not invalidate, render
unenforceable or otherwise affect any other provision hereof.
4.13 No
Recourse. Notwithstanding anything that may be expressed or implied in this Agreement, the Company and each Holder covenant, agree and acknowledge that no recourse under this Agreement or any documents
or instruments delivered in connection with this Agreement shall be had against any current or future director, officer, employee, general or limited partner or member of any Holder or of any Affiliate or assignee thereof, as such, whether by
the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be
imposed on or otherwise be incurred by any current or future officer, agent or employee of any Holder or any current or future member of any Holder or any current or future director, officer, employee, partner or member of any Holder or of
any Affiliate or assignee thereof, as such, for any obligation of any Holder under this Agreement or any documents or instruments delivered in connection with this Agreement for any claim based on, in respect of or by reason of such
obligations or their creation.
G-25
IN WITNESS WHEREOF, each of the undersigned has duly executed this Agreement as of the date first above written.
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Company:
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ZEROFOX HOLDINGS, INC.
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By:
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Name:
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Title:
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Investors:
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JAR SPONSOR, LLC
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By:
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Name:
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Title:
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JEFFERIES LLC
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By:
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Name:
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Title:
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FORGEPOINT CYBERSECURITY FUND I,
L.P.
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By:
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Name:
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Title:
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FORGEPOINT CYBER AFFILIATES FUND
I, L.P.
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By:
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Name:
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Title:
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BLUECROSS BLUESHIELD VENTURE
PARTNERS II, L.P.
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By:
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Name:
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Title:
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PELOTON EQUITY I, L.P.
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By:
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Name:
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Title:
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G-26
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PELOTON ID EXPERTS, LLC
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By:
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Name:
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Title:
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THOMAS KELLY
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By:
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Name:
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Title:
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SANDBOX ADVANTAGE FUND, L.P.
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By:
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Name:
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Title:
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JAMES C. FOSTER
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By:
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Name:
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Title:
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WOLF ACQUISITIONS, L.P.
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By:
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Name:
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Title:
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NEW ENTERPRISE ASSOCIATES 14, L.P.
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By:
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Name:
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Title:
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HIGHLAND CAPITAL PARTNERS 9
LIMITED PARTNERSHIP
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By:
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Name:
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Title:
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HIGHLAND CAPITAL PARTNERS 9-B
LIMITED PARTNERSHIP
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By:
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Name:
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Title:
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G-27
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HIGHLAND ENTREPRENEURS’ FUND 9
LIMITED PARTNERSHIP
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By:
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Name:
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Title:
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REDLINE CAPITAL FUND UNIVERSAL INVESTMENTS
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By:
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Name:
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Title:
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INTEL CAPITAL CORPORATION
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By:
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Name:
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Title:
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LOOKINGGLASS CYBER SOLUTIONS, INC.
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By:
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Name:
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Title:
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G-28
SCHEDULE A
IDX Pre-Closing Holders
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Forgepoint Cybersecurity Fund I, L.P.
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•
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Forgepoint Cybersecurity Affiliates Fund I, L.P.
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•
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BlueCross BlueShield Venture Partners II, L.P.
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•
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Peloton Equity I, L.P.
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•
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Peloton ID Experts, LLC
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Thomas Kelly
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Sandbox Advantage Fund, L.P.
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G-29
SCHEDULE B
ZF Pre-Closing Holders
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James C. Foster
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Wolf Acquisitions, L.P.
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•
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New Enterprise Associates 14, L.P.
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•
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Highland Capital Partners 9 Limited Partnership
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•
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Highland Capital Partners 9-B Limited Partnership
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Highland Entrepreneurs’ Fund 9 Limited Partnership
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Redline Capital Fund Universal Investments
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Intel Capital Corporation
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LookingGlass Cyber Solutions, Inc.
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G-30
SCHEDULE C-1
ZF Investor
LookingGlass Cyber Solutions, Inc.
SCHEDULE C-2
Credit facilities
Loan and Security Agreement, dated as of June 25, 2021, between LookingGlass Cyber
Solutions, Inc., CloudShield Technologies, LLC, Cyveillance, Inc. and Alphawave, Inc., as borrowers, and Eastward Fund Management, LLC, as lender.
Loan and Security Agreement, dated as of August 24, 2021, between LookingGlass Cyber
Solutions, Inc., CloudShield Technologies, LLC, Cyveillance, Inc. and Alphawave, Inc., as borrowers, and Silicon Valley Bank, as lender.
G-31
ZEROFOX HOLDINGS, INC.
2022 INCENTIVE EQUITY 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 and its Subsidiaries 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 Agreement as it deems necessary or appropriate to administer the Plan and any Awards. 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 or the Administrator may delegate any or all of its powers under the Plan to one or more Committees or committees of officers of the Company or any of its Subsidiaries. The Board or the Administrator, as applicable, may
rescind any such delegation, abolish any such committee or Committee and/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 that may be issued pursuant to Awards under the Plan shall be equal to the Overall Share Limit. Shares issued under the Plan shall be shares of Common Stock, and
may consist of authorized but unissued Shares, Shares purchased on the open market or treasury Shares.
4.2 Share Recycling. If all or any part of an Award or Prior
Plan Award (a) expires, lapses or is terminated, (b) is exchanged for or settled in cash, (c) is surrendered, repurchased, or canceled, without having been fully exercised or forfeited, in any case, in a manner that results in the Company
(i) acquiring Shares covered by the Award or Prior Plan Award at a price not greater than the price (as adjusted to reflect any Equity Restructuring) paid by the Participant for such Shares, or (ii) not issuing any Shares covered by the Award
or Prior Plan Award, then the unused Shares covered by the Award or Prior Plan 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 or Prior Plan Award and/or to satisfy any applicable tax withholding obligation with respect to an Award or Prior Plan Award (including Shares retained by
the Company from the Award or Prior Plan 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 or
H-1
Prior Plan Awards shall not count against the Overall Share Limit. Notwithstanding
anything to the contrary contained herein, the following Shares shall not be added to the Shares authorized for grant under Section 4.1 and shall not be available for future grants of Awards: (A) Shares subject to a Stock Appreciation
Right that are not issued in connection with the stock settlement of the Stock Appreciation Right on exercise thereof; and (B) Shares purchased on the open market with the cash proceeds from the exercise of Options.
4.3 Incentive Stock Option Limitations. Notwithstanding
anything to the contrary herein, the maximum number of Shares that may be issued pursuant to the exercise of Incentive Stock Options shall not exceed ten percent (10%) of the issued and outstanding Shares as of the Effective Time.
4.4 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 or other stock or stock-based awards granted before such merger or consolidation
by such entity or its affiliate. 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 pursuant to the terms of 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 Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan (and Shares subject to such Awards shall not be added to the Shares available for Awards under the Plan as provided above);
provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who
were not Employees, Consultants or Directors prior to such acquisition or combination. This Section 4.4 shall not apply to the Prior Plans, which shall be governed by the terms described in Section 4.1 above.
4.5 Non-Employee Director Compensation. Notwithstanding any
provision to the contrary in the Plan, the Administrator may establish compensation for non-employee Directors from time to time, subject to the limitations in the Plan. The sum of any cash compensation, or 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 during any fiscal year of the Company may not exceed $750,000 (which limits shall not apply to the compensation for any non-employee Director who serves in any capacity in addition to that of a non-employee Director for
which he or she receives additional compensation); provided, that, the Administrator may make exceptions to this limit, but the non-employee Director receiving such additional compensation may not participate in the decision toward such
compensation.
ARTICLE V.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
5.1 General. 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. 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 (a) the excess, if any, of (i) the Fair Market Value of one Share on
the date of exercise over (ii) the exercise price per Share of the Stock Appreciation Right by (b) 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 and 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. The exercise price will not be less than 100% of the Fair Market Value on the grant date of the Option (subject to Section 5.6)
or Stock Appreciation Right.
H-2
Notwithstanding the foregoing, in the case of an Option or a Stock Appreciation Right
that is a Substitute Award, the exercise price per share of the Shares subject to such Option or Stock Appreciation Right, as applicable, may be less than the Fair Market Value per share on the date of grant; provided that the exercise price of
any Substitute Award shall be determined in accordance with the applicable requirements of Sections 424 and 409A of the Code.
5.3 Duration. Each Option or Stock Appreciation Right will be
exercisable at such times and as specified in the Award Agreement, provided that, subject to Section 5.6, the term of an Option or Stock Appreciation Right will not exceed ten years. Notwithstanding the foregoing and unless determined
otherwise by the Company, in the event that, on the last business day of the term of an Option or Stock Appreciation Right (other than an Incentive Stock Option), (a) the exercise of the Option or Stock Appreciation Right is prohibited by
Applicable Law, as determined by the Company, or (b) Shares may not be purchased or sold by the applicable Participant due to any Company insider trading policy (including blackout periods) or a “lock-up” agreement undertaken in connection with
an issuance of securities by the Company, the term of the Option or Stock Appreciation Right shall be extended until the date that is 30 days after the end of the legal prohibition, black-out period or lock-up agreement, as determined by the
Company; provided, however, in no event shall the extension last beyond the ten year term of the applicable Option or Stock Appreciation Right. Notwithstanding the foregoing, to the extent permitted under Applicable Laws, 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, in the Company’s discretion, the right of the Participant and the Participant’s transferees to exercise any Option or Stock
Appreciation Right issued to the Participant may terminate immediately upon such violation.
5.4 Exercise. 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, (a) as specified in Section 5.5, for the number of Shares for which the Award is exercised, and (b) as specified in Section 9.5, 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.
5.5 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) solely to the extent permitted by Applicable Law, if there is a
public market for Shares at the time of exercise, unless the Company otherwise determines, (i) delivery (including electronically or telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a
broker acceptable to the Company 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 Company 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;
(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;
(e) to the extent permitted by the Administrator, delivery of a
promissory note or any other property that the Administrator determines is good and valuable consideration; or
(f) to the extent permitted by the Company, any combination of the
above payment forms approved by the Administrator.
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5.6 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 on the Option’s
grant date, and the term of the Option will not exceed five 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 (other than in connection with a Change in Control) of Shares acquired under the Option made within (a) two years from the grant date of the Option or (b) one year after the
transfer of such Shares to the Participant, 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 the Administrator will be liable to a Participant, or any other party, if an Incentive Stock Option fails or ceases to qualify as an “incentive stock option” under Section 422 of the Code. Any Incentive
Stock Option or portion thereof that fails to qualify as an “incentive stock option” under Section 422 of the Code for any reason, including becoming exercisable with respect to Shares having a fair market value exceeding the $100,000
limitation under Treasury Regulation Section 1.422-4, will be a Non-Qualified Stock Option.
ARTICLE VI.
RESTRICTED STOCK; RESTRICTED STOCK UNITS
6.1 General. 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 all or part of such Shares at their issue price or other stated or formula price from the Participant (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 or periods that the Administrator establishes for such Award. In addition, the Administrator may
grant to Service Providers Restricted Stock Units, which may be subject to vesting and forfeiture conditions during the applicable restriction period or periods, as set forth in an Award Agreement.
6.2 Restricted Stock.
(a) Dividends. Participants holding Shares of 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 a dividend or distribution to holders of Common Stock 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 Shares of Restricted Stock with respect to which they were paid. Notwithstanding anything to the contrary herein, with respect to any award of Restricted Stock, dividends which are paid to holders of Common Stock prior to
vesting shall only be paid out to a Participant holding such Restricted Stock to the extent that the vesting conditions are subsequently satisfied. All such dividend payments will be made no later than March 15 of the calendar year following
the calendar year in which the right to the dividend payment becomes nonforfeitable.
(b) 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 Shares of Restricted Stock, together with a stock power endorsed in blank.
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 have no 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.
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ARTICLE VII.
OTHER STOCK OR CASH BASED AWARDS; DIVIDEND EQUIVALENTS
7.1 Other Stock or Cash Based Awards. Other Stock or Cash
Based Awards may be granted to Participants, including Awards entitling Participants to receive Shares to be delivered in the future and including annual or other periodic or long-term cash bonus awards (whether based on specified Performance
Criteria or otherwise), in each case, subject to any conditions and limitations in the Plan. Such 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.
7.2 Dividend Equivalents. A grant of Restricted Stock Units or
Other Stock or Cash Based Award may provide a Participant with the right to receive Dividend Equivalents, and no Dividend Equivalents shall be payable with respect to Options or Stock Appreciation Rights. Dividend Equivalents may be paid
currently or credited to an account for the Participant, settled in cash or Shares and subject to the same restrictions on transferability and forfeitability as the Award with to which the Dividend Equivalents are paid and subject to other
terms and conditions as set forth in the Award Agreement. Notwithstanding anything to the contrary herein, Dividend Equivalents with respect to an Award shall only be paid out to a Participant to the extent that the vesting conditions are
subsequently satisfied. All such Dividend Equivalent payments will be made no later than March 15 of the calendar year following calendar year in which the right to the Dividend Equivalent payment becomes nonforfeitable, unless determined
otherwise by the Administrator or unless deferred in a manner intended to comply with Section 409A.
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 and/or the Award’s exercise price or grant price (if applicable), granting new Awards to Participants, and making a cash payment to Participants. The adjustments provided under
this Section 8.1 will be nondiscretionary and final and binding on 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, Common Stock, other securities, or other property), reorganization, merger, consolidation, combination, amalgamation, repurchase, recapitalization, liquidation, dissolution, or sale, transfer,
exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, Change in Control, issuance of warrants or other rights to purchase Common Stock 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, on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event (except that action to give effect to a change in Applicable Law
or accounting principles may be made within a reasonable period of time after such change), is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to
(x) prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any Award granted or issued under the Plan, (y) to facilitate such transaction or event or
(z) give effect to such changes in Applicable Laws or accounting principles:
(a) 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) 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;
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(c) 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 kind of
shares and/or applicable exercise or purchase price, in all cases, as determined by the Administrator;
(d) make adjustments in the number and type of Shares (or other
securities or property) subject to outstanding Awards and/or with respect to which Awards may be granted under the Plan (including, but not limited to, adjustments of the limitations in Article IV on the maximum number and kind of
shares which may be issued) and/or in the terms and conditions of (including the grant or exercise price or applicable performance goals), and the criteria included in, outstanding Awards;
(e) replace such Award with other rights or property selected by
the Administrator; and/or
(f) provide that the Award will terminate and cannot vest, be
exercised or become payable after the applicable event.
8.3 Effect of Non-Assumption in a Change in Control.
Notwithstanding the provisions of Section 8.2, if a Change in Control occurs and a Participant’s Awards are not continued, converted, assumed, or replaced with a substantially similar award by (a) the Company, or (b) a successor entity
or its parent or subsidiary (an “Assumption”), and provided that the Participant has not had a Termination of Service, then, immediately prior to the Change in Control, such Awards
shall become fully vested, exercisable and/or payable, as applicable, and all forfeiture, repurchase and other restrictions on such Awards shall lapse, in which case, such Awards shall be canceled upon the consummation of the Change in Control
in exchange for the right to receive the Change in Control consideration payable to other holders of Common Stock, (i) which may be on such terms and conditions as apply generally to holders of Common Stock under the Change in Control documents
(including, without limitation, any escrow, earn-out or other deferred consideration provisions) or such other terms and conditions as the Administrator may provide, and (ii) determined by reference to the number of Shares subject to such
Awards and net of any applicable exercise price; provided that to the extent that any Awards constitute “nonqualified deferred compensation” that may not be paid upon the Change in Control under
Section 409A without the imposition of taxes thereon under Section 409A, the timing of such payments shall be governed by the applicable Award Agreement (subject to any deferred consideration provisions applicable under the Change in Control
documents); and provided, further, that if the amount to which a Participant would be entitled upon the settlement or exercise of such Award at the time of the Change in Control is equal to or less than
zero, then such Award may be terminated without payment. The Administrator shall determine whether an Assumption of an Award has occurred in connection with a Change in Control.
8.4 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, 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 60 days before or
after such transaction.
8.5 General. 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 of any class, 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 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 grant or exercise price. 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 (a) any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its
business, (b) any merger, consolidation dissolution or liquidation of the Company or sale of Company assets or (c) any sale or issuance of securities, including securities with rights superior to those of the Shares or securities convertible
into or exchangeable for Shares. The Administrator may treat Participants and Awards (or portions thereof) differently under this Article VIII.
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ARTICLE IX.
GENERAL PROVISIONS APPLICABLE TO AWARDS
9.1 Transferability. Except as the Administrator may determine
or provide in an Award Agreement or otherwise for Awards other than Incentive Stock Options, Awards may not be sold, assigned, transferred, pledged or otherwise encumbered, either voluntarily or by operation of law, except for certain
Designated Beneficiary designations, by will or the laws of descent and distribution, or, subject to the Administrator’s consent, pursuant to a domestic relations order, and, during the life of the Participant, will be exercisable only by the
Participant. Any permitted transfer of an Award hereunder shall be without consideration, except as required by Applicable Law. 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. The Award Agreement will contain the terms and conditions applicable to an Award. 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 Termination of Status. The Administrator will determine
how an authorized leave of absence or any other change or purported change in a Participant’s Service Provider status affects an Award and 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 the Award, if applicable.
9.5 Withholding. Each Participant must pay the Company, or
make provision satisfactory to the Administrator for payment of, any taxes required by Applicable Law 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. In the absence of a contrary determination by the Company (or, with respect to withholding pursuant to clause (b) below with respect to Awards held by individuals subject to Section 16 of the Exchange Act, a
contrary determination by the Administrator), all tax withholding obligations will be calculated based on the minimum applicable statutory withholding rates, but in no event will withholding obligations be calculated based on rates in excess of
the maximum applicable statutory withholding rates. Subject to Section 10.8 and any Company insider trading policy (including blackout periods), Participants may satisfy such tax obligations (a) 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 the foregoing payment forms if one or more of the payment forms below is permitted, (b) to the extent permitted by the
Administrator, in whole or in part by delivery of Shares, including Shares delivered by attestation and Shares retained from the Award creating the tax obligation, valued at their Fair Market Value on the date of delivery, (c) if there is a
public market for Shares at the time the tax obligations are satisfied, unless the Company otherwise determines, (i) delivery (including electronically or telephonically to the extent permitted by the Company) of an irrevocable and
unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to satisfy the tax obligations, or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional
instructions to a broker acceptable to the Company 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 (d) to the extent permitted by the Company, any combination of the foregoing payment forms approved by the Administrator. Notwithstanding any other provision of the Plan, the number of Shares which may be so delivered or
retained pursuant to clause (b) of the immediately preceding sentence shall be limited to the number of Shares which have an aggregate Fair Market Value on the date of delivery or retention no greater than the aggregate amount of such
liabilities based on the maximum individual statutory tax rate in the applicable jurisdiction at the time of such withholding (or such other rate as may be required to avoid the liability classification of the applicable award under generally
accepted accounting principles in the United States of America). If any tax withholding obligation will be satisfied under clause (b) above by the Company’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 Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on the applicable Participant’s behalf some
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or all of the Shares retained and to remit the proceeds of the sale to the Company or
its designee, and each Participant’s acceptance of an Award under the Plan will constitute the Participant’s authorization to the Company and instruction and authorization to such brokerage firm to complete the transactions described in this
sentence.
9.6 Amendment of Award; Repricing. 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 (a) the action, taking into account any related action, does not materially and adversely affect the Participant’s rights under the Award, or (b) the change is permitted under Article
VIII or pursuant to Section 10.6. Notwithstanding the foregoing or anything in the Plan to the contrary, the Administrator may not reduce the exercise price per share of outstanding Options or Stock Appreciation Rights or cancel
outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards or Options or Stock Appreciation Rights with an exercise price per share that is less than the exercise price per share of the original Options or Stock
Appreciation Rights, in each case, unless such action is approved by the stockholders of the Company.
9.7 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 Company’s satisfaction, (b) as determined by the Company, 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 as to which such requisite authority has not been obtained.
9.8 Acceleration. The Administrator may at any time provide
that any Award will become immediately vested and fully or partially exercisable, free of some or all restrictions or conditions, or otherwise fully or partially realizable.
9.9 Cash Settlement. Without limiting the generality of any
other provision of the Plan, the Administrator may provide, in an Award Agreement or subsequent to the grant of an Award, in its discretion, that any Award may be settled in cash, Shares or a combination thereof.
9.10 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 Awards, including amounts to be paid under the final sentence of Section 9.5 above: (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 such sale; (d) to the extent the Company or its designee receives proceeds of such sale 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 such sale at any particular price; and (f) in the event the proceeds of such sale are insufficient to satisfy the Participant’s applicable 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.
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 or any of its Subsidiaries. The Company and its
Subsidiaries 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 or in
the Plan.
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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. Unless earlier
terminated by the Board, the Plan will become effective as of the Effective Time, as such term is defined in the Business Combination Agreement (the “Effective Date”), and it will
remain in effect until the tenth anniversary of the Effective Date. Notwithstanding anything to the contrary in the Plan, an Incentive Stock Option may not be granted under the Plan after 10 years from the earlier of (a) the date the Board
adopted the Plan and (b) the date the Company’s stockholders approved the Plan, but Awards previously granted may extend beyond that date in accordance with the Plan. Notwithstanding anything to the contrary contained herein, 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, and the Prior Plans will continue in full force and effect in accordance with its terms.
10.4 Amendment of Plan. The Administrator may 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 the Plan’s termination. 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, employee benefit 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, including regulations, guidance, compliance programs and other interpretative
authority that may be issued after an Award’s grant date. 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 the Participant’s Service Provider relationship. For purposes of this Plan or
any Award Agreement relating to any such payments or benefits, references to a “termination,” “termination of employment” or like terms means a “separation from service.”
(c) Payments to Specified Employees. Notwithstanding any
contrary provision in the Plan or any Award Agreement, any payment(s) of “nonqualified deferred compensation” required to be made under an
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Award to a “specified employee” (as defined under Section 409A and as the
Administrator determines) due to his or her “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 six-month period or as soon as administratively practicable thereafter (without
interest). Any payments of “nonqualified deferred compensation” under such Award 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
provisions of the Plan, 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 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 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 or otherwise, 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 180 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. 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 held in the Company or its Subsidiaries and affiliates; and Award details, to implement, manage and
administer the Plan and Awards (the “Data”). 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 Participant’s country, or elsewhere, and the Participant’s country may have different data privacy laws and protections than the recipients’ country. 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. The Data related to a Participant will be held only as long as necessary to implement, administer, and manage the Participant’s participation in the Plan. A Participant may, at any time, view the
Data that the Company holds regarding such Participant, request additional information about the storage and processing of the Data regarding such Participant, recommend any necessary corrections to the Data regarding the Participant or refuse
or withdraw the consents in this Section 10.9 in writing, without cost, by contacting the local human resources representative. If the Participant refuses or withdraws the consents in this Section 10.9, the Company may cancel
Participant’s ability to participate in the Plan and, in the Administrator’s discretion, the Participant may forfeit any outstanding Awards. For more information on the consequences of refusing or withdrawing consent, Participants may contact
their local human resources representative.
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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 contradiction 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 Claw-back Provisions. All Awards (including, without
limitation, any proceeds, gains or other economic benefit actually or constructively received by Participant upon any receipt or exercise of any Award or upon the receipt or resale of any Shares underlying the Award) shall be subject to the
provisions of any claw-back policy implemented by the Company, including, without limitation, any claw-back 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) as and to the extent set forth in such claw-back policy or the Award Agreement.
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. Participant acknowledges
that the Plan 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. No payment under the
Plan will be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except as expressly provided in writing in such
other plan or an agreement thereunder.
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 “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 Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where Awards are granted.
11.3 “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.
11.4 “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 terms and conditions of the Plan.
11.5 “Board”
means the Board of Directors of the Company.
11.6 “Business
Combination Agreement” means that certain business combination agreement entered into by and among L&F Acquisition Corp., L&F Acquisition Holdings, LLC, ZF Merger Sub, Inc. IDX Merger Sub, Inc., IDX Forward Merger Sub, LLC,
ZeroFox, Inc., and ID Experts Holdings, Inc., dated as of December 17, 2021.
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211.7 “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
under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
(b) During any period of two consecutive years, 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 by 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 two-year 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 (x) a merger, consolidation, reorganization, or business combination or (y) 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 (z) the acquisition of assets or stock of another entity, in each case, other than a transaction:
(i) which results in the Company’s voting securities outstanding
immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the
Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor
Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and
(ii) after which no person or group beneficially owns voting
securities representing 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 (ii) as beneficially owning 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 provides for the deferral of compensation that is subject to Section 409A, to the extent required to avoid the imposition of additional taxes under Section 409A, the
transaction or event described in subsections (a), (b) or (c) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes 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 pursuant to the above definition, 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 is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.
11.8 “Code”
means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
11.9 “Committee”
means one or more committees or subcommittees of the Board, which may include one or more Company 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
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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 granted by the Committee that is
otherwise validly granted under the Plan.
11.10 “Common
Stock” means the common stock of the Company, par value $0.0001 per share.
11.11 “Company”
means ZeroFox Holdings, Inc., a Delaware corporation, or any successor.
11.12 “Consultant”
means any consultant or advisor, engaged by the Company or any of its Subsidiaries to render services to such entity, who qualifies as a consultant or advisor under the applicable rules of Form S-8 Registration Statement.
11.13 “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.
11.14 “Director”
means a Board member.
11.15 “Dividend
Equivalents” means a right granted to a Participant under the Plan to receive the equivalent value (in cash or Shares) of dividends paid on Shares.
11.16 “Effective
Date” has the meaning set forth in Section 10.3.
11.17 “Employee”
means any employee of the Company or its Subsidiaries.
11.18 “Equity
Restructuring” means, as determined by the Administrator, a non-reciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash
dividend, or other large, nonrecurring cash dividend, that affects the Shares (or other securities of the Company) or the share price of Common Stock (or other securities of the Company) and causes a change in the per share value of the Common
Stock underlying outstanding Awards.
11.19 “Exchange
Act” means the Securities Exchange Act of 1934, as amended.
11.20 “Fair Market Value” means, as of any date, the value of a Share
of Common Stock determined as follows: (a) if the Common Stock is listed on any established stock exchange, 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 traded on a stock exchange but is quoted on a national market or other quotation system, 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) without an established market for the Common Stock, the Administrator will determine the Fair Market
Value in its discretion.
11.21 “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.
11.22 “Incentive
Stock Option” means an Option intended to qualify as an “incentive stock option” as defined in Section 422 of the Code.
11.23 “Non-Qualified
Stock Option” means an Option, or portion thereof, not intended or not qualifying as an Incentive Stock Option.
11.24 “Option”
means an option to purchase Shares, which will either be an Incentive Stock Option or a Non-Qualified Stock Option.
11.25 “Other
Stock or Cash Based Awards” means cash awards, awards of Shares, and other awards valued wholly or partially by referring to, or are otherwise based on, Shares or other property awarded to a Participant under Article VII.
11.26 “Overall
Share Limit” means the sum of (a) the number of Shares equal to ten percent (10%) of the Shares issued and outstanding as of the Effective Time, as such term is defined in the Business Combination
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Agreement, and (b) an annual increase on the first day of each calendar year
beginning on and including January 1, 2023 and ending on and including January 1, 2031 equal to the lesser of (i) the number of Shares equal to five percent (5%) of the Shares issued and outstanding on the final day of the immediately preceding
calendar year and (ii) such smaller number of Shares as is determined by the Board.
11.27 “Participant”
means a Service Provider who has been granted an Award.
11.28 “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 or revenue or 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 and 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; and marketing initiatives, 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.
11.29 “Plan”
means this 2022 Incentive Equity Plan.
11.30 “Prior
Plan Award” means an award outstanding under any of the Prior Plans as of the Effective Date.
11.31 “Prior
Plans” means the 2013 ZeroFOX, Inc. Equity Incentive Plan, the IDX 2016 Stock Option and Grant Plan, and the IDX 2017 Equity Incentive Plan, in each case as 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 Share or an amount in cash or other consideration determined by the Administrator to be of equal value as of such settlement date awarded
to a Participant under Article VI 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.
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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 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” means 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.
* * * * *
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ZEROFOX HOLDINGS, INC.
2022 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I.
PURPOSE
The purposes of this ZeroFOX Holdings, Inc. 2022 Employee Stock
Purchase Plan (as it may be amended or restated from time to time, the “Plan”) are to assist Eligible Employees of ZeroFOX Holdings, Inc., a Delaware corporation (the “Company”), and its Designated Subsidiaries in acquiring a stock ownership interest in the Company pursuant to a plan which is intended to qualify as an “employee stock purchase plan”
within the meaning of Section 423(b) of the Code, and to help Eligible Employees provide for their future security and to encourage them to remain in the employment of the Company and its Designated Subsidiaries.
ARTICLE II.
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan, they shall have
the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates. Masculine, feminine and neuter pronouns are used interchangeably and each comprehends
the others.
2.1 “Administrator”
shall mean the entity that conducts the general administration of the Plan as provided in Article XI.
2.2 “Applicable
Law” shall mean 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 Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where rights under this Plan are granted.
2.3 “Board”
shall mean the Board of Directors of the Company.
2.4 “Business
Combination Agreement” shall mean that certain business combination agreement entered into by and among L&F Acquisition Corp., L&F Acquisition Holdings, LLC, ZF Merger Sub, Inc. IDX Merger Sub, Inc., IDX Forward Merger Sub,
LLC, ZeroFOX, Inc., and ID Experts Holdings, Inc., dated as of December 17, 2021.
2.5 “Change in
Control” shall mean and include 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
under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
(b) During any period of two consecutive years, 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 by 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 two-year period or
whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
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(c) The consummation by the Company (whether directly involving
the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) 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 (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(i) which results in the Company’s voting securities outstanding
immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the
Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of
the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and
(ii) after which no person or group beneficially owns voting
securities representing 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 (ii) as beneficially owning 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 portion of any right that provides for the deferral of compensation that is subject to Section 409A of the Code, to the extent required to avoid the imposition of additional taxes under Section 409A of the
Code, the transaction or event described in subsection (a), (b) or (c) with respect to such right (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such right (or portion thereof) if such
transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).
2.6 “Code”
shall mean the Internal Revenue Code of 1986, as amended and the regulations issued thereunder.
2.7 “Common
Stock” shall mean common stock of the Company, par value $0.0001 per share, and such other securities of the Company that may be substituted therefor pursuant to Article VIII.
2.8 “Company”
shall mean ZeroFOX Holdings, Inc., a Delaware corporation, or any successor.
2.9 “Compensation”
of an Eligible Employee shall mean the gross cash compensation received by such Eligible Employee as compensation for services to the Company or any Designated Subsidiary, including prior week adjustment and overtime payments, but excluding any
commissions and periodic bonuses, vacation pay, holiday pay, jury duty pay, funeral leave pay, military leave pay, one-time bonuses (e.g., retention or sign on bonuses), education or tuition reimbursements, travel expenses, business and moving
reimbursements, income received in connection with any stock options, stock appreciation rights, restricted stock, restricted stock units or other compensatory equity awards, fringe benefits, other special payments and all contributions made by
the Company or any Designated Subsidiary for the Employee’s benefit under any employee benefit plan now or hereafter established.
2.10 “Designated
Subsidiary” shall mean any Subsidiary designated by the Administrator in accordance with Section 11.3(b).
2.11 “Effective
Date” shall mean the Effective Time, as such term is defined in the Business Combination Agreement.
2.12 “Eligible
Employee” shall mean an Employee who does not, immediately after any rights under this Plan are granted, own (directly or through attribution) stock possessing 5% or more of the total combined voting power or value of all classes of
Common Stock and other stock of the Company, a Parent or a Subsidiary (as determined under Section 423(b)(3) of the Code). For purposes of the foregoing sentence, the rules of Section 424(d) of the Code with regard to the attribution of stock
ownership shall apply in determining the stock ownership of an individual, and stock that an Employee may purchase under outstanding options shall be treated as stock owned by the Employee; provided, however, that the Administrator may provide
in an Offering Document that an Employee shall not be eligible to participate in an Offering Period if: (a) such Employee is a highly compensated employee within the meaning of Section 423(b)(4)(D) of the Code, (b) such Employee has
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not met a service requirement designated by the Administrator pursuant to Section
423(b)(4)(A) of the Code (which service requirement may not exceed two years), (c) such Employee’s customary employment is for 20 hours or less per week, (d) such Employee’s customary employment is for less than five months in any calendar year
and/or (e) such Employee is a citizen or resident of a foreign jurisdiction and the grant of a right to purchase Common Stock under the Plan to such Employee would be prohibited under the laws of such foreign jurisdiction or the grant of a
right to purchase Common Stock under the Plan to such Employee in compliance with the laws of such foreign jurisdiction would cause the Plan to violate the requirements of Section 423 of the Code, as determined by the Administrator in its sole
discretion; provided, further, that any exclusion in clauses (a), (b), (c), (d) or (e) shall be applied in an identical manner under each Offering Period to all Employees, in accordance with Treasury Regulation Section 1.423-2(e).
2.13 “Employee”
shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Designated Subsidiary. “Employee” shall not include any director of the Company or a Designated Subsidiary who does not
render services to the Company or a Designated Subsidiary as an employee within the meaning of Section 3401(c) of the Code. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on
sick leave or other leave of absence approved by the Company or Designated Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-1(h)(2). Where the period of leave exceeds three months and the individual’s right to
reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the first day immediately following such three-month period.
2.14 “Enrollment
Date” shall mean the first Trading Day of each Offering Period, unless otherwise specified in the Offering Document.
2.15 “Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.
2.16 “Fair
Market Value” shall mean, as of any date, the value of a Share of Common Stock determined as follows: (a) if the Common Stock is listed on any established stock exchange, 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 traded on a stock exchange but is quoted on a national market or other quotation system, 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) without an established market
for the Common Stock, the Administrator will determine the Fair Market Value in its discretion.
2.17 “Offering
Document” shall have the meaning given to such term in Section 4.1.
2.18 “Offering
Period” shall have the meaning given to such term in Section 4.1.
2.19 “Parent”
shall mean any corporation, other than the Company, in an unbroken chain of corporations ending with the Company if, at the time of the determination, each of the corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other corporations in such chain.
2.20 “Participant”
shall mean any Eligible Employee who has executed a subscription agreement and been granted rights to purchase Common Stock pursuant to the Plan.
2.21 “Plan”
shall mean this ZeroFOX Holdings, Inc. 2022 Employee Stock Purchase Plan, as it may be amended from time to time.
2.22 “Purchase
Date” shall mean the last Trading Day of each Purchase Period.
2.23 “Purchase
Period” shall refer to one or more periods within an Offering Period, as designated in the applicable Offering Document; provided, however, that, in the event no Purchase Period is designated by the Administrator in the applicable
Offering Document, the Purchase Period for each Offering Period covered by such Offering Document shall be the same as the applicable Offering Period.
2.24 “Purchase
Price” shall mean the purchase price designated by the Administrator in the applicable Offering Document (which purchase price shall not be less than 85% of the Fair Market Value of a Share on the
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Enrollment Date or on the Purchase Date, whichever is lower); provided, however,
that, in the event no purchase price is designated by the Administrator in the applicable Offering Document, the purchase price for the Offering Periods covered by such Offering Document shall be 85% of the Fair Market Value of a Share on the
Enrollment Date or on the Purchase Date, whichever is lower; provided, further, that the Purchase Price may be adjusted by the Administrator pursuant to Article VIII and shall not be less than the par value of a Share.
2.25 “Securities
Act” shall mean the Securities Act of 1933, as amended.
2.26 “Share”
shall mean a share of Common Stock.
2.27 “Subsidiary”
shall mean any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the time of the determination, each of the corporations other than the last corporation in an unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
2.28 “Trading
Day” shall mean a day on which national stock exchanges in the United States are open for trading.
ARTICLE III.
SHARES SUBJECT TO THE PLAN
3.1 Number of Shares. Subject to Article VIII, the
aggregate number of shares of Common Stock that may be issued pursuant to rights granted under the Plan shall be equal to two percent (2%) of the Shares issued and outstanding as of the Effective Time, as such term is defined in the Business
Combination Agreement. In addition to the foregoing, subject to Article VIII, on the first day of each calendar year beginning on and including January 1, 2023 and ending on and including January 1, 2031, the number of Shares available
for issuance under the Plan shall be increased by an amount equal to the lesser of (a) one percent (1%) of the number of Shares issued and outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of
Shares as is determined by the Board. If any right granted under the Plan shall for any reason terminate without having been exercised, the Shares not purchased under such right shall again become available for issuance under the Plan.
Notwithstanding anything in this Section 3.1 to the contrary, the number of Shares that may be issued or transferred pursuant to the rights granted under the Plan shall not exceed an aggregate of twenty-five million (25,000,000) Shares,
subject to Article VIII.
3.2 Stock Distributed. Any Common Stock distributed pursuant
to the Plan may consist, in whole or in part, of authorized and unissued Common Stock, treasury stock or Common Stock purchased on the open market.
ARTICLE IV.
OFFERING PERIODS; OFFERING DOCUMENTS; PURCHASE DATES
4.1 Offering Periods. The Administrator may from time to time
grant or provide for the grant of rights to purchase Shares under the Plan to Eligible Employees during one or more periods (each, an “Offering Period”) selected by the Administrator.
The terms and conditions applicable to each Offering Period shall be set forth in an “Offering Document” adopted by the Administrator, which Offering Document shall be in such form and
shall contain such terms and conditions as the Administrator shall deem appropriate. The Administrator shall establish in each Offering Document one or more Purchase Periods during such Offering Period during which rights granted under the Plan
shall be exercised and purchases of Shares carried out during such Offering Period in accordance with such Offering Document and the Plan. The provisions of separate Offering Periods under the Plan need not be identical.
4.2 Offering Documents. Each Offering Document with respect to
an Offering Period shall specify (through incorporation of the provisions of this Plan by reference or otherwise):
(a) the length of the Offering Period, which period shall not exceed
27 months;
(b) the length of the Purchase Period(s) within the Offering Period;
(c) in connection with each Offering Period that contains only one
Purchase Period the maximum number of Shares that may be purchased by any Eligible Employee during such Offering Period, which, in the absence of a contrary designation by the Administrator, shall be 6,000 Shares;
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(d) in connection with each Offering Period that contains more
than one Purchase Period, the maximum aggregate number of Shares which may be purchased by any Eligible Employee during each Purchase Period, which, in the absence of a contrary designation by the Administrator, shall be 3,000 Shares; and
(e) such other provisions as the Administrator determines are
appropriate, subject to the Plan.
ARTICLE V.
ELIGIBILITY AND PARTICIPATION
5.1 Eligibility. Any Eligible Employee who shall be employed
by the Company or a Designated Subsidiary on a given Enrollment Date for an Offering Period shall be eligible to participate in the Plan during such Offering Period, subject to the requirements of this Article V and the limitations
imposed by Section 423(b) of the Code.
5.2 Enrollment in Plan.
(a) Except as otherwise set forth herein or in an Offering Document
or determined by the Administrator, an Eligible Employee may become a Participant in the Plan for an Offering Period by delivering a subscription agreement to the Company by such time prior to the Enrollment Date for such Offering Period (or
such other date specified in the Offering Document) designated by the Administrator and in such form as the Company provides.
(b) Each subscription agreement shall designate a whole percentage
of such Eligible Employee’s Compensation to be withheld by the Company or the Designated Subsidiary employing such Eligible Employee on each payday during the Offering Period as payroll deductions under the Plan. The designated percentage may
not be less than 1% and may not be more than the maximum percentage specified by the Administrator in the applicable Offering Document (which percentage shall be 15% in the absence of any such designation). The payroll deductions made for each
Participant shall be credited to an account for such Participant under the Plan and shall be deposited with the general funds of the Company.
(c) A Participant may decrease the percentage of Compensation
designated in his or her subscription agreement, subject to the limits of this Section 5.2, or may suspend his or her payroll deductions, at any time during an Offering Period; provided, however, that the Administrator may limit the
number of changes a Participant may make to his or her payroll deduction elections during each Offering Period in the applicable Offering Document (and in the absence of any specific designation by the Administrator, a Participant shall be
allowed two decreases and one suspension (but no increases) to his or her payroll deduction elections during each Offering Period with respect to such Offering Period). Any such change or suspension of payroll deductions shall be effective with
the first full payroll period following ten business days after the Company’s receipt of the new subscription agreement (or such shorter or longer period as may be specified by the Administrator in the applicable Offering Document). In the
event a Participant suspends his or her payroll deductions, such Participant’s cumulative payroll deductions prior to the suspension shall remain in his or her account and shall be applied to the purchase of Shares on the next occurring
Purchase Date and shall not be paid to such Participant unless he or she withdraws from participation in the Plan pursuant to Article VII.
(d) Except as otherwise set forth in Section 5.8 or in an
Offering Document or determined by the Administrator, a Participant may participate in the Plan only by means of payroll deduction and may not make contributions by lump sum payment for any Offering Period.
5.3 Payroll Deductions. Except as otherwise provided in the
applicable Offering Document or Section 5.8, payroll deductions for a Participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which the Participant’s
authorization is applicable, unless sooner terminated by the Participant as provided in Article VII or suspended by the Participant or the Administrator as provided in Section 5.2 and Section 5.6, respectively.
5.4 Effect of Enrollment. A Participant’s completion of a
subscription agreement will enroll such Participant in the Plan for each subsequent Offering Period on the terms contained therein until the Participant either submits a new subscription agreement, withdraws from participation under the Plan as
provided in Article VII or otherwise becomes ineligible to participate in the Plan.
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5.5 Limitation on Purchase of Common Stock. An Eligible
Employee may be granted rights under the Plan only if such rights, together with any other rights granted to such Eligible Employee under “employee stock purchase plans” of the Company, any Parent or any Subsidiary, as specified by Section
423(b)(8) of the Code, do not permit such employee’s rights to purchase stock of the Company or any Parent or Subsidiary to accrue at a rate that exceeds $25,000 of the fair market value of such stock (determined as of the first day of the
Offering Period during which such rights are granted) for each calendar year in which such rights are outstanding at any time. This limitation shall be applied in accordance with Section 423(b)(8) of the Code.
5.6 Suspension of Payroll Deductions. Notwithstanding the
foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 5.5 or the other limitations set forth in this Plan, a Participant’s payroll deductions may be suspended by the Administrator at any time during an
Offering Period. The balance of the amount credited to the account of each Participant that has not been applied to the purchase of Shares by reason of Section 423(b)(8) of the Code, Section 5.5 or the other limitations set forth in
this Plan shall be paid to such Participant in one lump sum in cash as soon as reasonably practicable after the Purchase Date.
5.7 Foreign Employees. In order to facilitate participation
in the Plan, the Administrator may provide for such special terms applicable to Participants who are citizens or residents of a foreign jurisdiction, or who are employed by a Designated Subsidiary outside of the United States, as the
Administrator may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Such special terms may not be more favorable than the terms of rights granted under the Plan to Eligible Employees who are
residents of the United States. Moreover, the Administrator may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it may consider necessary or appropriate for such purposes without thereby
affecting the terms of this Plan as in effect for any other purpose. No such special terms, supplements, amendments or restatements shall include any provisions that are inconsistent with the terms of this Plan as then in effect unless this
Plan could have been amended to eliminate such inconsistency without further approval by the stockholders of the Company.
5.8 Leave of Absence. During leaves of absence approved by the
Company meeting the requirements of Treasury Regulation Section 1.421-1(h)(2) under the Code, a Participant may continue participation in the Plan by making cash payments to the Company on his or her normal payday equal to his or her authorized
payroll deduction. Where the period of leave exceeds three months, or such other period specified in Treas. Reg. § 1.421-1(h)(2), and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment
relationship shall be deemed to have terminated on the first day immediately following such three-month period, or such other period specified in Treas. Reg. § 1.421-1(h)(2).
ARTICLE VI.
GRANT AND EXERCISE OF RIGHTS
6.1 Grant of Rights. On the Enrollment Date of each Offering
Period, each Eligible Employee participating in such Offering Period shall be granted a right to purchase the maximum number of Shares specified under Section 4.2, subject to the limits in Section 5.5, and shall have the right
to buy, on each Purchase Date during such Offering Period (at the applicable Purchase Price), such number of whole Shares as is determined by dividing (a) such Participant’s payroll deductions accumulated prior to such Purchase Date and
retained in the Participant’s account as of the Purchase Date, by (b) the applicable Purchase Price (rounded down to the nearest Share). The right shall expire on the earliest of: (i) the last Purchase Date of such Offering Period, (i) last day
of such Offering Period and (iii) the date on which such Participant withdraws in accordance with Section 7.1 or Section 7.3.
6.2 Exercise of Rights. On each Purchase Date, each
Participant’s accumulated payroll deductions and any other additional payments specifically provided for in the applicable Offering Document will be applied to the purchase of whole Shares, up to the maximum number of Shares permitted pursuant
to the terms of the Plan and the applicable Offering Document, at the Purchase Price. No fractional Shares shall be issued upon the exercise of rights granted under the Plan, unless the Offering Document specifically provides otherwise. Any
cash in lieu of fractional Shares remaining after the purchase of whole Shares upon exercise of a purchase right will be carried forward and applied toward the purchase of whole Shares for the following Offering Period. Shares issued pursuant
to the Plan may be evidenced in such manner as the Administrator may determine and may be issued in certificated form or issued pursuant to book-entry procedures.
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6.3 Pro Rata Allocation of Shares. If the Administrator
determines that, on a given Purchase Date, the number of Shares with respect to which rights are to be exercised may exceed (a) the number of Shares that were available for issuance under the Plan on the Enrollment Date of the applicable
Offering Period, or (b) the number of Shares available for issuance under the Plan on such Purchase Date, the Administrator may in its sole discretion provide that the Company shall make a pro rata allocation of the Shares available for
purchase on such Enrollment Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all Participants for whom rights to purchase Shares are to
be exercised pursuant to this Article VI on such Purchase Date, and shall either (i) continue all Offering Periods then in effect, or (ii) terminate any or all Offering Periods then in effect pursuant to Article IX. The Company
may make pro rata allocation of the Shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for issuance under the Plan by the
Company’s stockholders subsequent to such Enrollment Date. The balance of the amount credited to the account of each Participant that has not been applied to the purchase of Shares shall be paid to such Participant, without interest, in one
lump sum in cash as soon as reasonably practicable after the Purchase Date.
6.4 Withholding. At the time a Participant’s rights under the
Plan are exercised, in whole or in part, or at the time some or all of the Shares issued under the Plan is disposed of, the Participant must make adequate provision for the Company’s federal, state, or other tax withholding obligations, if any,
that arise upon the exercise of the right or the disposition of the Shares. At any time, the Company may, but shall not be obligated to, withhold (a) from the Participant’s wages or other compensation, (b) a sufficient whole number of Shares
otherwise issuable following the exercise of the right to purchase Shares pursuant to the Plan during the applicable Offering Period having an aggregate value sufficient to pay the required tax-related items or (c) from proceeds from the sale
of Shares issued upon exercise of the right to purchase Shares through a voluntary sale arranged by the Company, in each case, to meet applicable withholding obligations, including any withholding required to make available to the Company any
tax deductions or benefits attributable to sale or early disposition of Shares by the Participant.
6.5 Conditions to Issuance of Common Stock. The Company shall
not be required to issue or deliver any certificate or certificates for, or make any book entries evidencing, Shares purchased upon the exercise of rights under the Plan prior to fulfillment of all of the following conditions:
(a) The admission of such Shares to listing on all stock exchanges,
if any, on which the Common Stock is then listed;
(b) The completion of any registration or other qualification of
such Shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, that the Administrator shall, in its absolute discretion, deem necessary or
advisable;
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable;
(d) The payment to the Company of all amounts that it is required to
withhold under federal, state or local law upon exercise of the rights, if any; and
(e) The lapse of such reasonable period of time following the
exercise of the rights as the Administrator may from time to time establish for reasons of administrative convenience.
ARTICLE VII.
WITHDRAWAL; CESSATION OF ELIGIBILITY
7.1 Withdrawal. A Participant may withdraw all but not less
than all of the payroll deductions credited to his or her account and not yet used to exercise his or her rights under the Plan at any time by giving written notice to the Company in a form acceptable to the Company no later than two weeks
prior to the end of the Offering Period or, if earlier, the end of the Purchase Period (or such shorter or longer period as may be specified by the Administrator in the Offering Document). All of the Participant’s payroll deductions credited to
his or her account during the Offering Period not yet used to exercise his or her rights under the Plan shall be paid to such Participant as soon as reasonably practicable after receipt of notice of withdrawal and such Participant’s rights for
the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of Shares shall be made for such Offering Period. If a Participant withdraws from an Offering
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Period, payroll deductions shall not resume at the beginning of the next Offering
Period unless the Participant is an Eligible Employee and timely delivers to the Company a new subscription agreement.
7.2 Future Participation. A Participant’s withdrawal from an
Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan that may hereafter be adopted by the Company or a Designated Subsidiary or in subsequent Offering Periods that commence after the
termination of the Offering Period from which the Participant withdraws.
7.3 Cessation of Eligibility. Upon a Participant’s ceasing to
be an Eligible Employee for any reason, he or she shall be deemed to have elected to withdraw from the Plan pursuant to this Article VII and the payroll deductions credited to such Participant’s account during the Offering Period shall
be paid to such Participant or, in the case of his or her death, to the person or persons entitled thereto under Section 12.4, as soon as reasonably practicable, and such Participant’s rights for the Offering Period shall be
automatically terminated.
ARTICLE VIII.
ADJUSTMENTS UPON CHANGES IN STOCK
8.1 Changes in Capitalization. Subject to Section 8.3,
in the event that the Administrator determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), Change in Control, reorganization, merger, amalgamation, consolidation,
combination, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the
Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, as determined by the Administrator, affects the Common Stock such that an adjustment is
determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any outstanding purchase rights
under the Plan, the Administrator shall make equitable adjustments, if any, to reflect such change with respect to (a) the aggregate number and type of Shares (or other securities or property) that may be issued under the Plan (including, but
not limited to, adjustments of the limitations in Section 3.1 and the limitations established in each Offering Document pursuant to Section 4.2 on the maximum number of Shares that may be purchased); (b) the class(es) and number
of Shares and price per Share subject to outstanding rights; and (c) the Purchase Price with respect to any outstanding rights.
8.2 Other Adjustments. Subject to Section 8.3, in the
event of any transaction or event described in Section 8.1 or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate (including
without limitation any Change in Control), or of changes in Applicable Law or accounting principles, the Administrator, in its discretion, and on such terms and conditions as it deems appropriate, is hereby authorized to take any one or more of
the following actions whenever the Administrator determines that such action is appropriate in order to prevent the dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to
any right under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:
(a) provide for either (i) termination of any outstanding right in
exchange for an amount of cash, if any, equal to the amount that would have been obtained upon the exercise of such right had such right been currently exercisable or (ii) the replacement of such outstanding right with other rights or property
selected by the Administrator in its sole discretion;
(b) provide that the outstanding rights under the Plan shall be
assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar rights covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices;
(c) make adjustments in the number and type of Shares (or other
securities or property) subject to outstanding rights under the Plan and/or in the terms and conditions of outstanding rights and rights that may be granted in the future;
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(d) provide that Participants’ accumulated payroll deductions may
be used to purchase Common Stock prior to the next occurring Purchase Date on such date as the Administrator determines in its sole discretion and the Participants’ rights under the ongoing Offering Period(s) shall be terminated; and
(e) provide that all outstanding rights shall terminate without
being exercised.
8.3 No Adjustment Under Certain Circumstances. No adjustment
or action described in this Article VIII or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to fail to satisfy the requirements of Section 423 of the Code.
8.4 No Other Rights. Except as expressly provided in the Plan,
no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution,
liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Administrator under the Plan, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to outstanding rights under the Plan or the Purchase Price with respect to
any outstanding rights.
ARTICLE IX.
AMENDMENT, MODIFICATION AND TERMINATION
9.1 Amendment, Modification and Termination. The Administrator
may amend, suspend or terminate the Plan at any time and from time to time; provided, however, that approval of the Company’s stockholders shall be required to amend the Plan to: (a) increase the
aggregate number, or change the type, of shares that may be sold pursuant to rights under the Plan under Section 3.1 (other than an adjustment as provided by Article VIII); (b) change the Plan in any manner that would be
considered the adoption of a new plan within the meaning of Treasury regulation Section 1.423-2(c)(4); or (c) change the Plan in any manner that would cause the Plan to no longer be an “employee stock purchase plan” within the meaning of
Section 423(b) of the Code.
9.2 Certain Changes to Plan. Without stockholder consent and
without regard to whether any Participant rights may be considered to have been adversely affected, to the extent permitted by Section 423 of the Code, the Administrator shall be entitled to change or terminate the Offering Periods, limit the
frequency and/or number of changes in the amount withheld from Compensation during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of
the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of payroll withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant’s Compensation, and establish such other limitations or procedures as the Administrator
determines in its sole discretion to be advisable that are consistent with the Plan.
9.3 Actions In the Event of Unfavorable Financial Accounting
Consequences. In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting consequence, including, but not limited to:
(a) altering the Purchase Price for any Offering Period, including
an Offering Period underway at the time of the change in Purchase Price;
(b) shortening any Offering Period so that the Offering Period ends
on a new Purchase Date, including an Offering Period underway at the time of the Administrator action; and
(c) allocating Shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Participant.
9.4 Payments Upon Termination of Plan. Upon termination of the
Plan, the balance in each Participant’s Plan account shall be refunded as soon as practicable after such termination, without any interest thereon.
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ARTICLE X.
TERM OF PLAN
The Plan shall be effective on the Effective Date. The effectiveness
of the Plan shall be subject to approval of the Plan by the stockholders of the Company within 12 months following the date the Plan is first approved by the Board. No right may be granted under the Plan prior to such stockholder approval. No
rights may be granted under the Plan during any period of suspension of the Plan or after termination of the Plan.
ARTICLE XI.
ADMINISTRATION
11.1 Administrator. Unless otherwise determined by the Board,
the Administrator of the Plan shall be the Compensation Committee of the Board (or another committee or a subcommittee of the Board to which the Board delegates administration of the Plan) (such committee, the “Committee”). The Board may at any time vest in the Board any authority or duties for administration of the Plan.
11.2 Action by the Administrator. Unless otherwise established
by the Board or in any charter of the Administrator, a majority of the Administrator shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present and, subject to Applicable Law and the
Bylaws of the Company, acts approved in writing by a majority of the Administrator in lieu of a meeting shall be deemed the acts of the Administrator. Each member of the Administrator is entitled to, in good faith, rely or act upon any report
or other information furnished to that member by any officer or other employee of the Company or any Designated Subsidiary, the Company’s independent certified public accountants, or any executive compensation consultant or other professional
retained by the Company to assist in the administration of the Plan.
11.3 Authority of Administrator. The Administrator shall have
the power, subject to, and within the limitations of, the express provisions of the Plan, to:
(a) determine when and how rights to purchase Shares shall be
granted and the provisions of each offering of such rights (which need not be identical);
(b) designate from time to time which Subsidiaries of the Company
shall be Designated Subsidiaries, which designation may be made without the approval of the stockholders of the Company;
(c) construe and interpret the Plan and rights granted under it, and
to establish, amend and revoke rules and regulations for its administration. The Administrator, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective;
(d) amend, suspend or terminate the Plan as provided in Article
IX;
(e) generally exercise such powers and to perform such acts as the
Administrator deems necessary or expedient to promote the best interests of the Company and its Subsidiaries and to carry out the intent that the Plan be treated as an “employee stock purchase plan” within the meaning of Section 423 of the
Code.
11.4 Decisions Binding. The Administrator’s interpretation of
the Plan, any rights granted pursuant to the Plan, any subscription agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.
ARTICLE XII.
MISCELLANEOUS
12.1 Restriction upon Assignment. A right granted under the
Plan shall not be transferable, other than by will or the Applicable Laws of descent and distribution, and is exercisable during the Participant’s lifetime only by the Participant. Except as provided in Section 12.4 hereof, a right
under the Plan may not be exercised to any extent except by the Participant. The Company shall not recognize and shall be under no duty to recognize any assignment or alienation of the Participant’s interest in the Plan, the Participant’s
rights under the Plan or any rights thereunder.
12.2 Rights as a Stockholder. With respect to Shares subject
to a right granted under the Plan, a Participant shall not be deemed to be a stockholder of the Company, and the Participant shall not have any of the rights or privileges of a stockholder, until such Shares have been issued to the Participant
or his or her nominee following
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exercise of the Participant’s rights under the Plan. No adjustments shall be made for
dividends (ordinary or extraordinary, whether in cash securities, or other property) or distribution or other rights for which the record date occurs prior to the date of such issuance, except as otherwise expressly provided herein or as
determined by the Administrator.
12.3 Interest. No interest shall accrue on the payroll
deductions or contributions of a Participant under the Plan.
12.4 Designation of Beneficiary.
(a) A Participant may, in the manner determined by the
Administrator, file a written designation of a beneficiary who is to receive any Shares and/or cash, if any, from the Participant’s account under the Plan in the event of such Participant’s death subsequent to a Purchase Date on which the
Participant’s rights are exercised but prior to delivery to such Participant of such Shares and cash. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant’s account under the
Plan in the event of such Participant’s death prior to exercise of the Participant’s rights under the Plan. If the Participant is married and resides in a community property state, a designation of a person other than the Participant’s spouse
as his or her beneficiary shall not be effective without the prior written consent of the Participant’s spouse.
(b) Such designation of beneficiary may be changed by the
Participant at any time by written notice to the Company. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant’s death, the Company shall
deliver such Shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such
Shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
12.5 Notices. All notices or other communications by a
Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
12.6 Equal Rights and Privileges. Subject to Section 5.7,
all Eligible Employees will have equal rights and privileges under this Plan so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code. Subject to Section 5.7, any provision of this
Plan that is inconsistent with Section 423 of the Code will, without further act or amendment by the Company, the Board or the Administrator, be reformed to comply with the equal rights and privileges requirement of Section 423 of the Code.
12.7 Use of Funds. All payroll deductions received or held by
the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.
12.8 Reports. Statements of account shall be given to
Participants at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of Shares purchased and the remaining cash balance, if any.
12.9 No Employment Rights. Nothing in the Plan shall be
construed to give any person (including any Eligible Employee or Participant) the right to employment or service with (or to remain in the employ of) the Company or any Parent or Subsidiary thereof or affect the right of the Company or any
Parent or Subsidiary thereof to terminate the employment of any person (including any Eligible Employee or Participant) at any time, with or without cause.
12.10 Notice of Disposition of Shares. Each Participant shall
give prompt notice to the Company of any disposition or other transfer of any Shares purchased upon exercise of a right under the Plan if such disposition or transfer is made: (a) within two years from the Enrollment Date of the Offering Period
in which the Shares were purchased or (b) within one year after the Purchase Date on which such Shares were purchased. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property,
assumption of indebtedness or other consideration, by the Participant in such disposition or other transfer.
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12.11 Governing Law. The Plan and any agreements hereunder
shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof or of any other jurisdiction.
12.12 Electronic Forms. To the extent permitted by Applicable
Law and in the discretion of the Administrator, an Eligible Employee may submit any form or notice as set forth herein by means of an electronic form approved by the Administrator. Before the commencement of an Offering Period, the
Administrator shall prescribe the time limits within which any such electronic form shall be submitted to the Administrator with respect to such Offering Period in order to be a valid election.
* * * * *
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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Item 20.
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Indemnification of Directors and Officers.
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Cayman Islands law does not limit the extent to which a company’s
memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide
indemnification against willful default, willful neglect, civil fraud or the consequences of committing a crime. The Existing Governing Documents provided for indemnification of our officers and directors to the maximum extent permitted by law,
including for any liability incurred in their capacities as such, except through their own actual fraud, willful default or willful neglect.
We have entered into agreements with our officers and directors to
provide contractual indemnification in addition to the indemnification provided for in the Existing Governing Documents. We have purchased a policy of directors’ and officers’ liability insurance that insures our officers and directors against
the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
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Item 21.
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Exhibits and Financial Statements Schedules
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(a) Exhibits.
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Exhibit Number
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Description of Exhibit
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Warrant Agreement, dated November 24, 2020, by and between L&F Acquisition
Corp. and Continental Stock Transfer & Trust Company, as warrant agent (incorporated by reference to Exhibit 4.1 to L&F Acquisition Corp.’s Current Report on Form 8-K, filed on November 23, 2020).
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Form of Convertible Notes Indenture (included as Annex A to form of Convertible
Note Subscription Agreement and incorporated by reference to Exhibit 10.3 to L&F Acquisition Corp.’s Current Report on Form 8-K, filed on December 20, 2021).
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Specimen Common Stock Certificate of ZeroFox Holdings, Inc.
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Form of Certificate of Corporate Domestication of L&F Acquisition Corp. to
be filed with the Secretary of State of Delaware.
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Legal opinion of Kirkland & Ellis LLP.
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Tax opinion of Kirkland & Ellis LLP.
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Form of Common Equity Subscription Agreement (included as Annex D to the proxy
statement/prospectus).
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Form of Convertible Notes Subscription Agreement (included as Annex E to the
proxy statement/prospectus).
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Second Amended and Restated Sponsor Support Letter Agreement, dated as of
January 31, 2022, by and among L&F Acquisition Corp., JAR Sponsor, LLC, ZeroFox, Inc., ID Experts Holdings, Inc., Albert Goldstein, Joseph Lieberman, Kurt Summers and certain other individuals named therein (included as Annex F to
the proxy statement/prospectus).
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| |
|
| | |
Form of Amended and Restated Registration Rights Agreement (attached as Annex G
to the proxy statement/prospectus).
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|
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|
| | |
Form of ZeroFox Holdings, Inc. 2022 Incentive Equity Plan (included as Annex H
to the proxy statement/prospectus).
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|
| | |
Form of ZeroFox Holdings, Inc. 2022 Employee Stock Purchase Plan (included as
Annex I to the proxy statement/prospectus).
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| | |
Administrative Services Agreement, dated November 23, 2020, by and between
L&F Acquisition Corp. and JAR Sponsor, LLC (incorporated by reference to Exhibit 10.6 to L&F Acquisition Corp.’s Current Report on Form 8-K, filed on November 23, 2020).
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| | |
Sponsor Private Placement Warrant Purchase Agreement, dated November 18, 2020,
by and between L&F Acquisition Corp. and JAR Sponsor, LLC (incorporated by reference to Exhibit 10.1 to L&F Acquisition Corp.’s Current Report on Form 8-K, filed on November 23, 2020).
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| | |
Underwriter Private Placement Warrant Purchase Agreement, dated November 18,
2020, by and between L&F Acquisition Corp. and Jefferies LLC (incorporated by reference to Exhibit 10.2 to L&F Acquisition Corp.’s Current Report on Form 8-K, filed on November 23, 2020).
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| | |
Investment Management Trust Agreement, dated as of November 23, 2020, by and
between L&F Acquisition Corp. and Continental Stock Transfer & Trust Company, as trustee (incorporated by reference to Exhibit 10.3 to L&F Acquisition Corp.’s Current Report on Form 8-K, filed on November 23, 2020).
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| | |
Form of Indemnity Agreement (incorporated by reference to Exhibit 10.5 to
L&F Acquisition Corp.’s Registration Statement on Form S-1, filed on November 12, 2020).
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II-2
|
Exhibit Number
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| |
Description of Exhibit
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| | |
Securities Subscription Agreement, dated as of August 28, 2020, by and
between L&F Acquisition Corp. and JAR Sponsor, LLC (incorporated by reference to Exhibit 10.7 to L&F Acquisition Corp.’s Registration Statement on Form S-1, filed on October 15, 2020).
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| | |
Lease Agreement, dated February 27, 2016, by and between ZeroFox, Inc. and
1830 Charles Street LLC.
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| | |
Amendment No. 1 to Lease Agreement, dated March 1, 2021, by and between
ZeroFox, Inc. and 1830 Charles Street LLC.
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| | |
Offer of Employment Letter, dated December 19, 2019, by and between ZeroFox,
Inc. and Kevin T. Reardon.
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| | |
Offer of Employment Letter, dated September 30, 2015, by and between
ZeroFox, Inc. and Scott O’Rourke.
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| | |
The ZeroFox, Inc. 2013 Equity Incentive Plan, as amended.
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| | |
Form of Option Grant Agreement under the ZeroFox, Inc. 2013 Equity Incentive
Plan.
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| | |
Form of Restricted Stock Grant Agreement under the ZeroFox, Inc. 2013 Equity
Incentive Plan.
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| | |
Letter Agreement, dated April 24, 2020, by and between ZeroFox, Inc. and
Kevin Reardon.
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| | |
Letter Agreement, dated November 1, 2017, by and between ZeroFox, Inc. and
Scott O’Rourke.
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| | |
Letter Agreement, dated December 7, 2021, by and between ZeroFox, Inc. and
Redline Capital Management S.A. acting on behalf and for the account of Redline Capital Fund Universal Instruments, a sub-fund of Redline Capital Fund, FCP-FIS.
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| | |
Deed of Sub-Sublease.
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| | |
Contract (Order No. 24361819F0014) between U.S. Office of Personnel
Management and Identity Theft Guard Solutions, LLC dated December 21, 2018.
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| | |
Employment Agreement between Identity Theft Guard Solutions, Inc. and Thomas
F. Kelly, dated August 9, 2017.
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| | |
Amendment No. 1 to Employment Agreement between Identity Theft Guard
Solutions, Inc. and Thomas F. Kelly, dated May 21, 2020.
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| | |
Amendment No. 2 to Employment Agreement between Identity Theft Guard
Solutions, Inc. and Thomas F. Kelly, dated August 25, 2021.
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| | |
Amendment No. 3 to Employment Agreement between Identity Theft Guard
Solutions, Inc. and Thomas F. Kelly, dated November 3, 2021.
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| | |
Amendment No. 4 to Employment Agreement between Identity Theft Guard
Solutions, Inc. and Thomas F. Kelly, dated December 17, 2021.
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|
| | |
Amendment P00010 dated March 29, 2022 to Contract (Order No. 24361819F0014)
between U.S. Office of Personnel Management and Identity Theft Guard Solutions, LLC dated December 21, 2018 (filed as Exhibit 10.24).
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| | |
List of Subsidiaries
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II-3
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Exhibit Number
|
| |
Description of Exhibit
|
| | |
Consent of WithumSmith+Brown, PC, independent registered public accounting
firm of L&F Acquisition Corp.
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| | |
Consent of Deloitte & Touche LLP, independent registered public
accounting firm of ID Experts Holdings, Inc.
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| | |
Consent of KPMG LLP, independent registered public accounting firm of ID
Experts Holdings, Inc.
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| | |
Consent of Deloitte & Touche LLP, independent registered public
accounting firm of ZeroFox, Inc.
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Consent of Kirkland & Ellis LLP (included in Exhibit 5.1)
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| | |
Consent of Kirkland & Ellis LLP (included in Exhibit 8.1)
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| | |
Power of Attorney (included on signature page to the initial filing of this
registration statement).
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| | |
Form of Proxy Card.
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| | |
Consent of Peter Barris
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| | |
Consent of Sean Cunningham
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Consent of James C. Foster
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Consent of Adam Gerchen
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Consent of Todd P. Headley
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Consent of Thomas F. Kelly
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Consent of Samskriti King
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| | |
Consent of Corey M. Mulloy
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| | |
Filing Fees Table
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101.INS
|
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XBRL Instance Document.
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101.SCH
|
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XBRL Taxonomy Extension Schema Document.
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101.CAL
|
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XBRL Taxonomy Extension Calculation Linkbase Document.
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101.DEF
|
| |
XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB
|
| |
XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE
|
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XBRL Taxonomy Extension Presentation Linkbase Document.
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*
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Previously filed.
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**
|
Filed herewith.
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†
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Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The
Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.
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§
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Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(a)(6).
|
II-4
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Item 22.
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Undertakings
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The undersigned Registrant hereby undertakes:
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(a)
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To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
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(i)
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To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
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(ii)
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To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement; and
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(iii)
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To include any material information with respect to the plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this Registration Statement.
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(b)
|
That, for the purpose of determining any liability under the Securities Act of 1933, each such 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.
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(c)
|
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at
the termination of the offering.
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(d)
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That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in
the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or
modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
|
|
(e)
|
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the
initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to
sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications,
|
|
(i)
|
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to
Rule 424;
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|
(ii)
|
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
|
|
(iii)
|
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and
|
|
(iv)
|
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
|
II-5
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 SEC such indemnification is
against public policy as expressed in the Securities Act of 1933 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 them is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other
items of the applicable form.
The registrant undertakes that every prospectus: (1) that is filed
pursuant to the immediately preceding paragraph, or (2) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment
to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment 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.
The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective.
II-6
Pursuant to the requirements of the Securities Act, the registrant
has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, State of Illinois on the 30th day of June, 2022.
|
|
| |
L&F ACQUISITION CORP.
|
|||
|
|
| |
|
| |
|
|
|
| |
By:
|
| |
/s/ Adam Gerchen
|
|
|
| |
Name:
|
| |
Adam Gerchen
|
|
|
| |
Title:
|
| |
Chief Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
|
NAME
|
| |
POSITION
|
| |
DATE
|
|
|
| |
|
| |
|
|
/s/ Jeffrey C. Hammes
|
| |
Chairman of the Board of Directors
|
| |
June 30, 2022
|
|
Jeffrey C. Hammes
|
| |||||
|
|
| |
|
| |
|
|
/s/ Adam Gerchen
|
| |
Chief Executive Officer and Director and
Authorized U.S. Representative
(Principal Executive Officer)
|
| |
June 30, 2022
|
|
Adam Gerchen
|
| |||||
|
|
| |
|
| |
|
|
/s/ Tom Gazdziak
|
| |
Chief Financial Officer
(Principal Financial and Accounting
Officer)
|
| |
June 30, 2022
|
|
Tom Gazdziak
|
| |||||
|
|
| |
|
| |
|
|
*
|
| |
Director
|
| |
June 30, 2022
|
|
Richard Levy
|
| |||||
|
|
| |
|
| |
|
|
*
|
| |
Director
|
| |
June 30, 2022
|
|
Senator Joseph Lieberman
|
| |||||
|
|
| |
|
| |
|
|
*
|
| |
Director
|
| |
June 30, 2022
|
|
Albert Goldstein
|
| |||||
|
|
| |
|
| |
|
|
*
|
| |
Director
|
| |
June 30, 2022
|
|
Kurt Summers
|
|
|
* By:
|
| |
/s/ Adam Gerchen
|
| |
|
|
|
| |
Name: Adam Gerchen
|
| |
|
|
|
| |
Title: Attorney-in-fact
|
| |
|
II-7
