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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from         to
Commission File Number 001-40267
Virgin Orbit Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
98-1576914
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
4022 E. Conant St.
Long Beach, CA
90808
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (562) 388-4400


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.0001 par value per shareVORBThe Nasdaq Stock Market LLC
Warrants to purchase common stock, $0.0001 par value per share
VORBWThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
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.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☒
Emerging growth company☒

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 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☐

As of November 4, 2022, there were 337,014,284 shares of the registrant's common stock, par value $0.0001 per share, issued and outstanding.



Table of Contents
Table of Contents

Page
Part I - FINANCIAL INFORMATION
Part II - OTHER INFORMATION


1
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” We intend such forward-looking statements to be covered by the safe harbor provisions for forward- looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements, including statements regarding our future results of operations and financial position, capital requirements and ability obtain adequate financing, business strategy, growth of the space market, our planned commercial launches, the expansion of our portfolio of space offerings, our research and development costs and timing and likelihood of success of the plans and objectives of management for future operations. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may” or “should” or, in each case, their negative or other variations or comparable terminology. Such forward-looking statements are based on available current market material and management’s expectations, beliefs and forecasts concerning future events impacting us. Such statements are subject to a number of known and unknown risks, uncertainties and assumptions, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified in Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II. Item 1A “Risk Factors.” These risks and uncertainties include, but are not limited to:

•our need for additional financing to expand our operations and grow our business;
•our ability to obtain necessary capital when needed on acceptable terms or at all;
•our ability to continue as a going concern and to access sufficient sources of capital to finance operations and growth;
•our ability to effectively market and sell our launch services;
•our ability to maintain an effective system of internal controls over financial reporting;
•our ability to grow market share in our existing markets or any new markets we may enter;
•our ability to respond to general economic conditions;
•our ability to manage our growth effectively;
•our ability to convert our contracted revenue or potential contracts into actual revenue;
•our ability to achieve and maintain profitability in the future;
•our ability to maintain and enhance our products and brand, and to attract customers; and
•our ability to execute our business model, including market acceptance of our planned products and services and achieve sufficient production volumes at acceptable quality levels and prices; the success of strategic relationships with third parties.

The foregoing list of factors is not exhaustive. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should carefully consider the foregoing factors and the other risks and uncertainties described in Part II. Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q and the documents we reference herein. The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on current expectations and beliefs concerning future developments and their potential effects on us and our business. We qualify all of our forward-looking statements through these cautionary statements. There can be no assurance that future developments affecting us will be those that we have anticipated. 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.

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RISK FACTOR SUMMARY

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this Quarterly Report. These risks include the following:

•We will require additional financing to expand our operations and grow our business, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our research and development, operations or commercialization efforts, which could have a material adverse effect on our business, financial condition, results of operations and prospects, including the possibility that a lack of funds could cause our business to fail and liquidate with little or no return to investors.

•Our losses from operations and liquidity conditions raise substantial doubt regarding our ability to continue as a going concern.

•The success of our business will be highly dependent on our ability to effectively market and sell our launch services for small low Earth orbit (“LEO”) satellites, our national security and defense services and space solutions, and to convert contracted revenues and our pipeline of potential contracts into actual revenues.

•The market for launch services for small LEO satellites and space solutions is not well established, is still emerging and may not achieve the growth potential we expect or may grow more slowly than expected.

•Our ability to grow our business depends on the successful operation and performance of our launch systems and related technology and our ability to introduce new enhancements or services in a timely manner, which are subject to many uncertainties, some of which are beyond our control.

•We may not be able to convert our contracted revenue or potential contracts into actual revenue.

•We routinely conduct hazardous operations when testing and launching our rockets, which could result in damage to property or persons. Unsatisfactory performance or failure of our rockets and related technology at launch or during operations could reduce customer confidence and have a material adverse effect on our business, financial condition and results of operations.

•If we are unable to adapt to and satisfy customer demands in a timely and cost-effective manner, or if we are unable to manufacture our rockets at a quantity and quality that our customers demand, our ability to grow our business may suffer.

•We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.

•If we commercialize outside the United States, we will be exposed to a variety of risks associated with international operations that could materially and adversely affect our business.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
VIRGIN ORBIT HOLDINGS, INC.
Condensed Consolidated Balance Sheets
As of September 30, 2022 and December 31, 2021
(In thousands, except per share data)
As of
September 30,
2022		December 31,
2021
(Unaudited)
Assets
Current assets
Cash and cash equivalents
$71,194 $194,154 
Restricted cash
— 828 
Accounts receivable, net
1,977 2,080 
Inventory
69,229 33,927 
Prepaid expenses and other current assets
12,708 7,789 
Total current assets
155,108 238,778 
Property, plant and equipment, net
69,840 61,425 
Right-of-use assets13,312 14,685 
Investments
4,338 13,498 
Other noncurrent assets
380 3,354 
Total assets
$242,978 $331,740 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
$19,728 $10,334 
Current portion of lease obligation
1,455 1,642 
Current portion of provision for contract losses8,054 — 
Accrued liabilities and other current liabilities
25,094 23,832 
Deferred revenue
17,927 12,150 
Total current liabilities
72,258 47,958 
Lease obligation, net of current portion
12,800 14,078 
Deferred revenue, net of current portion
9,165 28,991 
Convertible note44,147 — 
Public and private placement warrant liabilities4,326 20,188 
Provision for contract losses, net of current portion and other long-term liabilities10,795 7,555 
Total liabilities
153,491 118,770 
Commitments and contingencies (Note 17)
Stockholders’ equity
Preferred stock, $0.0001 par value, 25,000,000 shares authorized; none issued and outstanding
— — 
Common stock, $0.0001 par value, 2,000,000,000 shares authorized; 336,145,621 and 334,919,914 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively.
36 34 
Additional paid-in capital
1,049,533 1,033,393 
Accumulated deficit
(959,959)(820,454)
Accumulated other comprehensive loss
(123)(3)
Total stockholders’ equity
89,487 212,970 
Total liabilities and stockholders’ equity
$242,978 $331,740 
The accompanying notes are an integral part of the condensed consolidated financial statements.
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VIRGIN ORBIT HOLDINGS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except for per share data)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue
$30,907 $2 $33,023 $7,230 
Cost of revenue
40,396 8,697 61,264 25,370 
Gross loss
(9,489)(8,695)(28,241)(18,140)
Selling, general and administrative expenses
30,745 27,163 91,016 67,126 
Research and development expenses
10,263 9,035 30,201 38,482 
Operating loss
(50,497)(44,893)(149,458)(123,748)
Other income, net:
Change in fair value of equity investments(340)4,852 (9,160)4,852 
Change in fair value of liability classified warrants4,182 — 15,862 — 
Change in fair value of convertible note3,153 — 3,153 — 
Interest expense, net(508)(6)(588)(19)
Other income
367 1,457 690 3,352 
Total other income, net:6,854 6,303 9,957 8,185 
Loss before income taxes
(43,643)(38,590)(139,501)(115,563)
Provision for income taxes
— — 4 — 
Net loss
(43,643)(38,590)(139,505)(115,563)
Other comprehensive loss
Foreign currency translation adjustment
(31)(82)(120)(102)
Total comprehensive loss
$(43,674)$(38,672)$(139,625)$(115,665)
Net loss per share:
Basic and diluted$(0.13)$(0.13)$(0.42)$(0.41)
Weighted average shares outstanding
Basic and diluted335,416,139 294,124,548 335,101,146 283,496,703 
The accompanying notes are an integral part of the condensed consolidated financial statements.
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VIRGIN ORBIT HOLDINGS, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Three and Nine Months Ended September 30, 2021
(In thousands, except per share data)
(Unaudited)
Common StockAdditional
Paid-in
Capital		Accumulated other
comprehensive income (loss)		Accumulated
Deficit		Total
SharePar Value
Balance as of December 31, 2020
266,619,585 $27 $463,380 $134 $(663,163)$(199,622)
Net loss— — — — (32,325)(32,325)
Stock-based compensation— — 1,421 — — 1,421 
Exercise of stock options2,789 — 21 — — 21 
Advances to stock option holders— — 18 — — 18 
Other comprehensive loss— — — (33)— (33)
Issuance of common stock due to Parent Company contributions12,646,392 1 46,140 — — 46,141 
Conversion of long-term debt due to Parent Company to Parent Company non-cash contributions— — 235,108 — — 235,108 
Balance as of March 31, 2021 279,268,766 $28 $746,088 $101 $(695,488)$50,729 
Net loss— — — — (44,648)(44,648)
Stock-based compensation— — 1,327 — — 1,327 
Exercise of stock options195,594 — 758 — — 758 
Advances to stock option holders— — — — — — 
Other comprehensive income— — — 13 — 13 
Issuance of common stock due to Parent Company contributions9,030,759 1 39,797 — — 39,798 
Balance as of June 30, 2021
288,495,119 $29 $787,970 $114 $(740,136)$47,977 
Net loss— — — — (38,590)(38,590)
Stock-based compensation— — 5,560 — — 5,560 
Exercise of stock options245,190 — 954 — — 954 
Advances to stock option holders— — — — — — 
Other comprehensive income— — — (82)— (82)
Issuance of common stock due to Parent Company contributions9,819,708 1 51,201 — — 51,202 
Reverse recapitalization, net of transaction costs— — — — — — 
Balance as of September 30, 2021
298,560,017 $30 $845,685 $32 $(778,726)$67,021 
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VIRGIN ORBIT HOLDINGS, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Three and Nine Months Ended September 30, 2022
(In thousands, except per share data)
(Unaudited)
Common StockAdditional
Paid-in
Capital		Accumulated other
comprehensive loss		Accumulated
Deficit		Total
SharePar Value
Balance as of December 31, 2021
334,919,914 $34 $1,033,393 $(3)$(820,454)$212,970 
Net loss— — — — (62,570)(62,570)
Stock-based compensation— — 3,814 — — 3,814 
Other comprehensive loss— — — (61)— (61)
Balance as of March 31, 2022334,919,914 $34 $1,037,207 $(64)$(883,024)$154,153 
Net loss— — — — (33,292)(33,292)
Stock-based compensation— — 2,633 — — 2,633 
Exercise of stock options182,609 2 649 — — 651 
Other comprehensive loss— — — (28)— (28)
Balance as of June 30, 2022335,102,523 $36 $1,040,489 $(92)$(916,316)$124,117 
Net loss— — — — (43,643)(43,643)
Stock-based compensation— — 5,508 — — 5,508 
Exercise of stock options211,742 — 803 — — 803 
Issuance of common stock due to Convertible Note conversion831,356 — 2,733 — — 2,733 
Other comprehensive loss— — — (31)— (31)
Balance as of September 30, 2022
336,145,621 $36 $1,049,533 $(123)$(959,959)$89,487 
The accompanying notes are an integral part of the condensed consolidated financial statements.
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VIRGIN ORBIT HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2022 and 2021
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20222021
Cash flows from operating activities
Net loss
$(139,505)$(115,563)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation11,954 8,308 
Depreciation and amortization
9,646 10,783 
Inventory write-down
298 1,569 
Gain on sale of fixed asset disposal(90)— 
Write-off of right-of-use assets
70 — 
Non-cash investment in Sky and Space
— (1,706)
Change in fair value of equity investments
9,160 (4,852)
Change in fair value of liability classified warrants
(15,862)— 
Change in fair value of convertible note(3,153)— 
Changes in operating assets and liabilities:
Accounts receivable
103 2,035 
Inventory
(24,305)(24,345)
Prepaid expenses and other current assets
(4,888)(5,267)
Deferred transaction costs
— (230)
Other noncurrent assets
2,977 78 
Due to related party, net
(74)(83)
Accounts payable
9,391 5,127 
Other long-term liabilities
(966)(727)
Accrued liabilities
1,335 1,608 
Deferred revenue
(14,049)11,681 
Other, net
(33)(110)
Net cash used in operating activities
(157,991)(111,694)
Cash flows from investing activities:
Purchase of property and equipment
(17,115)(16,791)
Purchase of investment in Arqit
— (5,000)
Proceeds from sale of property and equipment
90 — 
Net cash used in investing activities
(17,025)(21,791)





The accompanying notes are an integral part of the condensed consolidated financial statements.

VIRGIN ORBIT HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows (continued)
Nine Months Ended September 30, 2022 and 2021
(In thousands) (Unaudited)

Nine Months Ended September 30,
20222021
Cash flows from financing activities:
Payments of finance lease obligations(227)(187)
Proceeds from the exercise of stock options1,455 1,733 
Advances to stock option holders— 18 
Parent Company contributions— 137,141 
Proceeds from convertible note50,000 — 
Net cash provided by financing activities
51,228 138,705 
Net (decrease) increase in cash and cash equivalents and restricted cash
(123,788)5,220 
Cash and cash equivalents and restricted cash at the beginning of the period
194,982 26,786 
Cash and cash equivalents and restricted cash at the end of the period
$71,194 $32,006 
Cash and cash equivalents
$71,194 $31,178 
Restricted cash
— 828 
Cash and cash equivalents and restricted cash
$71,194 $32,006 
Supplemental disclosures
Schedule for non-cash investing activities and financing activities
Conversion of long-term debt due to Parent Company non-cash contributions$— $235,108 
Deferred transaction costs in accounts payable and accrued liabilities$— $6,070 
Unpaid property, plant and equipment received$78 $105 





















The accompanying notes are an integral part of the condensed consolidated financial statements.
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VIRGIN ORBIT HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
a
(1)Organization and Business Operations

Virgin Orbit Holdings, Inc. (“Virgin Orbit”) and, together with, its wholly owned subsidiaries (the “Company,” “we,” “us” or “our”) are focused on the development, manufacture and related technologies of rockets for the purpose of conducting launch operations to place payloads into orbit. The Company is a vertically integrated aerospace company that provides customers with dedicated and rideshare small-satellite launch capabilities for various industries including government, research and education. We develop and manufacture our launch technology from a vertically-integrated manufacturing facility in Long Beach, California, with a testing facility in Mojave, California. As of the date of this Quarterly Report on Form 10-Q, we have successfully completed a total of four orbital launches since 2021, which we believe demonstrates the efficacy of our launch system. With the four completed orbital launches, we have delivered 33 satellites for commercial, civil and national security and defense customers to their desired orbits with high precision. Through our proprietary mobile launch system, we offer greater and more predictable access to space, enabling our vision of using space to drive positive and lasting change on Earth. The Company plans to conduct future commercial launches from other locations, including Cornwall in the UK later this year.

Since our founding in 2017, we have invested in research and development efforts to develop a unique air-launch system, comprised of Cosmic Girl, a modified Boeing 747 aircraft, and the LauncherOne rocket. Cosmic Girl serves as a reusable mobile launch pad, carrying LauncherOne aloft, and LauncherOne is a two-stage rocket that is the world’s first and only liquid-fueled, air-launched rocket to reach orbit successfully. This mobile system allows us to serve a broad array of applications and markets, providing customers with a highly differentiated solution to launch satellites relative to other existing small-satellite ground launch providers.

The Business Combination

The registrant was initially formed on January 11, 2021, as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. The registrant was formed as NextGen Acquisition Corp. II (“NextGen”) and, at the time of the consummation of the transactions described in the following paragraph (the “Business Combination”), NextGen changed its name to Virgin Orbit Holdings, Inc.

On August 22, 2021, the registrant entered into a merger agreement (the “Merger Agreement”) with Pulsar Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the registrant (“Pulsar Merger Sub”), and Vieco USA, Inc. (“Vieco USA”). On December 29, 2021, as contemplated by the Merger Agreement and following approval by the registrant’s shareholders at an extraordinary general meeting held December 28, 2021, the registrant filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which the registrant was domesticated and continues as a Delaware corporation, changing its name to “Virgin Orbit Holdings, Inc.” (the “Domestication”). Virgin Investments Limited, a company limited by shares under the laws of the British Virgin Islands (“VIL”), is the holder of a majority of our outstanding common stock.

Upon the closing of the Business Combination (the “Transaction Close” or the “Closing”), holders of all issued and outstanding Vieco USA common stock received a total of 303,320,884 shares of common stock at a deemed value of $10.00 per share after giving effect to the exchange ratio of approximately 1.250301 (the “Exchange Ratio”) and all holders of issued and outstanding Vieco USA options received options to purchase shares of Virgin Orbit (“Virgin Orbit Options”), covering 10,704,645 shares of common stock after giving effect to the Exchange Ratio.

The Business Combination was accounted for as a reverse recapitalization in accordance with ASC 805, Business Combinations. Under this method of accounting, NextGen was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of Virgin Orbit represented a continuation of the financial statements of Vieco USA with the Business Combination treated as the equivalent of Vieco USA issuing shares for the net assets of NextGen, accompanied by a recapitalization. The net assets of NextGen are stated historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Vieco USA in future reports of Virgin Orbit.
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VIRGIN ORBIT HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements


In accordance with guidance applicable to these circumstances, the equity structure has been recast in all comparative periods up to the Closing to reflect the number of shares of Virgin Orbit’s common stock, $0.0001 par value per share, issued to Virgin Orbit’s stockholders in connection with the Business Combination. As such, the shares and corresponding capital amounts and earnings per share related to Vieco USA common stock Vieco USA Options prior to the Business Combination have been retroactively recast as shares reflecting the Exchange Ratio.

Virgin Orbit common stock and warrants commenced trading on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “VORB” and “VORBW,” respectively, on December 29, 2021.

Liquidity and Going Concern

The accompanying unaudited condensed consolidated interim financial statements have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these unaudited condensed consolidated interim financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the condensed consolidated financial statements are issued and determined that substantial doubt exists about the Company’s ability to continue as a going concern. The Company has not generated positive cash flows from operations or sufficient revenues to provide sufficient cash flows to enable the Company to finance its operations internally, and may not be able to raise sufficient capital to do so. We have incurred significant losses since our inception and had an accumulated deficit of $960.0 million as of September 30, 2022. In June 2022, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with YA II PN, Ltd. (the “Investor”), pursuant to which we sold a convertible debenture and raised gross proceeds of $50.0 million, as discussed in Note 11. Convertible Note. Our cash and cash equivalents were $71.2 million and $194.2 million as of September 30, 2022 and December 31, 2021, respectively.

Pursuant to the requirements of ASC Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, our management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the unaudited condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within our control as of the date the unaudited condensed consolidated interim financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the unaudited condensed consolidated interim financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated interim financial statements are issued. In connection with the Company’s assessment of going concern considerations, management has determined that the liquidity condition 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 within 12 months. The condensed financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.

Management’s plans to mitigate an expected shortfall of capital to support future operations include expanding commercial operations, raising additional funds through borrowings or additional sales of securities or other sources, and managing our working capital. There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company or whether the Company will become profitable and generate positive operating cash flow. If the Company is unable to raise substantial additional
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VIRGIN ORBIT HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements

capital, operations and production plans may be scaled back or curtailed. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
COVID-19 Pandemic
The COVID-19 pandemic continues to directly and indirectly impact the Company’s business, results of operations and financial condition, including revenue, expenses, reserves and allowances. The Company continues to monitor developments that are highly uncertain, including supply chain disruptions and price increases, as well as the economic impact on domestic and international suppliers, customers, and markets. The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its current expected credit losses, the carrying value of the Company's intangible assets and other long-lived assets, and valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of September 30, 2022 and through the date of this report. As a result of these assessments, there were no impairments or material increases in expected credit losses or valuation allowances that impacted the Company's condensed financial statements as of and for the three and nine months ended September 30, 2022 and 2021. However, the Company's future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the condensed financial statements in future reporting periods.
(2)Summary of Significant Accounting Policies
(a)Basis of Presentation
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the regulations of the U.S. Securities and Exchange Commission. All intercompany transactions and balances between the various legal entities comprising the Company have been eliminated in consolidation. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022, or for any other interim period or for any other future year.
(b)Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (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. 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 statements with another public company which is neither an emerging growth company nor an emerging growth which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
(c)Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company bases these estimates on historical experience and
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VIRGIN ORBIT HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements

on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates. Significant estimates inherent in the preparation of the condensed consolidated financial statements include, but are not limited to, useful lives of property, plant and equipment, net, leases, income taxes including deferred tax assets and liabilities and impairment valuation, assumptions included in the valuation of the stock-based awards, assumptions included in the valuation of the Company’s common stock, contingencies, warrants, convertible note, and contract losses for cost estimates-to-complete.

(d)Revenue
The Company recognizes revenue when control of the promised goods and services is transferred to our customers in an amount that reflects the consideration it expects to be entitled to in exchange for those services. The Company’s launch service revenue contracts have been fixed-price contracts. To the extent actual costs vary from the cost upon which the price was negotiated, the Company will generate variable levels of profit or could incur a loss.
For promised goods, revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.
Launch Related Services

Small-satellite launch operations revenue is recognized for providing customer launch services. The Company’s launch service contracts generally consisting of multiple launches with each launch being allocated a fixed price and identified as distinct performance obligations. Revenue for each launch service is recognized at a point in time when the performance obligation is complete, which is typically at the point of launch. When the Company determines it is probable that costs to provide the services stipulated by the launch services agreement will exceed the allocated fixed price for each launch, the Company records a provision for the contract loss. Contract losses are recorded at the contract level and are recognized when known. To the extent the contract loss provision is less than the accumulated costs to fulfill the contracts, the Company records the provision net of inventory and net of contract assets in the condensed consolidated balance sheets. Launch service revenue was $30.9 million and $0.0 million for the three months ended September 30, 2022 and 2021, respectively, and $32.7 million and $6.0 million for the nine months ended September 30, 2022 and 2021, respectively.
Engineering Services

Engineering services revenue contracts obligate the Company to provide primarily research and studies services that together are one distinct performance obligation; the delivery of engineering services. The Company elected to apply the “as-invoiced” practical expedient to such revenues, and as a result, will bypass estimating the variable transaction price. Revenue is recognized as control of the performance obligation is transferred over time to the customer. Engineering services revenue was $0.0 million and $0.0 million for the three months ended September 30, 2022 and 2021, respectively, and $0.3 million and $1.2 million for the nine months ended September 30, 2022 and 2021, respectively.
Contract Balances
Contract assets are comprised of billed accounts receivable and unbilled receivables, which is the result of timing of revenue recognition, billings and cash collections. Amounts are generally billed as work progresses in accordance with agreed-upon milestones. The Company records accounts receivable when it has an unconditional right to consideration. Contract assets are classified as current if the invoice will be delivered to the customer within the succeeding 12-month period with the remaining recorded as long-term.
In addition, the Company evaluates whether or not it should capitalize the costs of fulfilling a contract. Such costs would be capitalized when they are not within the scope of other standards and: (1) are directly related to
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Notes to Condensed Consolidated Financial Statements

a contract; (2) generate or enhance resources that will be used to satisfy performance obligations; and (3) are expected to be recovered.
The Company began capitalizing contract costs associated with specific launch services contracts with customers as the Company determined technological feasibility was reached upon the Company’s successful demo launch in January 2021. As of September 30, 2022 and December 31, 2021, the Company recorded $0.5 million and $3.1 million, respectively, of contract assets, included in prepaid expenses and other current assets in the condensed consolidated balance sheets.
The Company has not incurred incremental costs for obtaining our contracts with customers.

Contract liabilities primarily relate to small-satellite launch operations and are recorded when cash payments are received or due in advance of performance. Cash payments for small-satellite launch services are classified as customer deposits until enforceable rights and obligations exist, when such deposits also become non-refundable. Customer deposits become non-refundable and are recorded as non-current deferred revenue following the Company’s delivery of the conditions of carriage to the customer and execution of an informed consent. Non-current deferred revenue was $9.2 million and $29.0 million as of September 30, 2022 and December 31, 2021, respectively. Current deferred revenue was $17.9 million and $12.2 million as of September 30, 2022 and December 31, 2021, respectively.
Payment terms vary by customer and type of revenue contract. The Company generally expects that the period of time between payment and transfer of promised goods or services will be less than one year. In such instances, the Company has elected the practical expedient to not evaluate whether a significant financing component exists.

These individual contract assets and liabilities are reported in a net position on a contract-by-contract basis on the condensed consolidated balance sheets at the end of each reporting period.
Remaining Performance Obligations
Remaining performance obligations are committed and represent non-cancellable contracted revenue that has not yet been recognized and will be recognized as revenue in future periods. Some contracts allow customers to cancel the contracts without a significant penalty if the Company’s launches are delayed beyond a specified period or if the Company does not achieve certain milestones, and the cancellable amount of contract value is not included in the remaining performance obligations.
As of September 30, 2022, the Company has multiple launch and engineering service revenue contracts for which it expects to transfer all remaining performance obligations to the customer by the fiscal year ending December 31, 2027. The Company does not disclose information about remaining performance obligations for (a) contracts with an original expected length of one year or less, (b) revenues recognized at the amount at which it has the right to invoice for services performed, or (c) variable consideration allocated to wholly unsatisfied performance obligations.
(e)Cost of Revenue

Cost of revenue related to launch services and engineering services consists of expenses related to materials and human capital, such as payroll and benefits. As the Company determined technological feasibility was reached upon the Company’s successful demo launch in January 2021, the Company began capitalizing costs for the production of the Company’s rockets, and has subsequently charged to cost of revenue the cost for rocket manufacturing including materials, labor and related mission launch costs including fuel, payroll and benefits for our launch and flight operations as well as the depreciation of the Company’s uniquely portable and reusable launch stage, Cosmic Girl (“Cosmic Girl”), facilities and equipment and other allocated overhead expenses. The costs of revenue were $40.4 million and $8.7 million for the three months ended September 30, 2022 and September 30, 2021, respectively. The costs of revenue were $61.3 million and $25.4 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.
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Notes to Condensed Consolidated Financial Statements

(f)Warrant Liability

The Company accounts for the warrants assumed in connection with the Business Combination in accordance with the guidance contained in ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the warrants as liabilities at their fair value and adjust the warrants to fair value at each reporting period. This liability is subject to remeasurement at each balance sheet date until exercised, and any change in fair value is recognized in the condensed consolidated statements of operations and comprehensive loss.
(g)Convertible Note
The Company elected to early adopt Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The Company has elected to apply the fair value option to the convertible note on the date that the Company first recognizes the convertible note on June 29, 2022. The Company acknowledges that its election to apply the fair value option is irrevocable. The Company recognized costs incurred upon issuance of the convertible note as an expense in its consolidated income statement for the nine months ended September 30, 2022. The convertible note will be classified and presented as a long-term liability on the Consolidated Balance Sheet as of September 30, 2022. Changes in fair value will be recorded in the statements of operations and changes in fair value related to credit risk will be recorded in other comprehensive loss.
(h)Other Summary of Significant Accounting Policies

There have been no other significant changes from the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission on March 31, 2022, as amended (the “2021 Annual Report on Form 10-K”).
The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s 2021 Annual Report on Form 10-K. Interim results are not necessarily indicative of the results for a full year.
(3)Recently Issued and Adopted Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”), in the form of Accounting Standards Updates (“ASU”).
Section 102(b)(1) of the JOBS Act allows emerging growth companies to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. As an emerging growth company, the Company 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 that the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the Company’s financial statements may not be comparable to the financial statements of another public company which is not an emerging growth company or an emerging growth which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on accounting for convertible note instruments by removing the separation models for: (1) convertible note with a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023 for smaller reporting companies, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020.
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Notes to Consolidated Financial Statements


Issued Accounting Standard Updates Not Yet Adopted

In May 2021, the FASB issued ASU 2021-04, Earning 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), which clarified and reduced diversity in an issuer's accounting for modifications of exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This update is effective for all entities for fiscal years beginning after December 15, 2021. The Company is currently assessing the potential impact of ASU 2021-04 to our condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides an exception to fair value measurement for revenue contracts acquired in business combinations. This update is effective for public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and all other entities for fiscal years beginning after December 15, 2023. The Company is currently assessing the potential impact of ASU 2021-08 to our condensed consolidated financial statements.

In September 2022, the FASB issued ASU No. 2022-04, "Liabilities-Supplier Finance Programs (Subtopic 405-50)." This standard requires disclosure of the key terms of outstanding supplier finance programs and a rollforward of the related obligations. The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The ASU becomes effective January 1, 2023, except for the rollforward requirement, which becomes effective January 1, 2024. The Company is currently assessing the potential impact of ASU 2022-04 to our condensed consolidated financial statements.
(4)Related Party Transactions

The Company licenses our brand name from certain entities affiliated with Virgin Enterprise Limited (“VEL”), a company incorporated in England. VEL is an affiliate of VIL. Under the trademark license agreement (“TMLA”), the Company has the exclusive and non-exclusive rights to use the brand name “Virgin Orbit” and the Virgin signature logo. On August 22, 2021, the TMLA was amended and restated and novated to Virgin Orbit in order for us to continue to have these certain rights to the “Virgin Orbit” name and brand and the Virgin signature logo following consummation of the Business Combination. Pursuant to the terms of the amended TMLA, we are obligated to pay VEL quarterly royalties equal to the greater of (a) 1% of revenue, or (b)(i) $40 thousand for each of four quarters prior to the Company’s first commercial launch, Tubular Bells, Part One, in June 2021; (b)(ii) $0.4 million for each of four quarters after the commercial launch date; (b)(iii) $0.8 million for each of the four quarters two years after commercial launch date. As of September 30, 2022, royalties payable was $0.8 million due to VEL. The royalties expense was $1.5 million for the nine months ended September 30, 2022. As of December 31, 2021, royalties payable was $72 thousand, which includes a prorated fee from the amended TMLA of $12 thousand. Based on the original TMLA dated March 1, 2017, royalties payable for the use of license were the greater of 1% of revenue, or $60 thousand per quarter, after the Company’s first commercial launch, Tubular Bells, Part One, in June 2021. Prior to this date, royalties payable for the use of license was the greater of 1% of revenue or $20 thousand per quarter.

On October 25, 2019, the Company entered into a transition services agreement (“TSA”) with Galactic Enterprises, LLC, f/k/a Virgin Galactic, LLC (“GEL”) primarily for certain operating and administrative services. The original agreement expired in October 2021, and a limited form of this agreement was extended through July 15, 2022. Under the original agreement, GEL provided pilot utilization services, finance and accounting services and insurance advisory services to the Company, and the Company provided propulsion engineering services, tank design support services, tank manufacturing services, and office space access and usage services, as well as business development and regulatory affairs services to GEL.  Under the limited extension, GEL provides pilot utilization services and the use of office space, and the Company provides GEL with propulsion engineering services, tank design support services, tank manufacturing services, and office space access and usage. Costs incurred for the TSA were not material for the three months ended September 30, 2022 and September 30, 2021. In addition to the TSA, the Company records direct charges from GEL for other general administrative expenses. There were $1 thousand in charges for the three months ended September 30, 2022 and $1 thousand in charges for the three months ended
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Notes to Condensed Consolidated Financial Statements

September 30, 2021, which were recorded as a reduction of selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss.
The Company has a receivable of $32 thousand and a payable of $42 thousand as of September 30, 2022 and December 31, 2021, respectively, due to Virgin Galactic Holdings, Inc. (“VGH”), the parent of GEL.

(5)    Fair Value Measurements

The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, respectively, and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.

Fair Value Measurements as of September 30, 2022
Level 1Level 2Level 3
Assets(in thousands)
Money market$50,037 $— $— 
Investments 2,815 — 1,523 
Total assets at fair value$52,852 $— $1,523 
Liabilities:
Derivative warrant liabilities - Public warrants$2,287 $— $— 
Derivative warrant liabilities - Private placement warrants— — 2,023 
Convertible note, net— — 44,147 
Total liabilities at fair value$2,287 $— $46,170 

Fair Value Measurements as of December 31, 2021
Level 1Level 2Level 3
Assets(in thousands)
Money market$154,630 $— $— 
Investments 13,498 — — 
Total assets at fair value$168,128 $— $— 
Liabilities:
Derivative warrant liabilities - Public warrants$10,713 $— $— 
Derivative warrant liabilities - Private placement warrants— — 9,475 
Total liabilities at fair value$10,713 $— $9,475 

Level 1 assets include investments traded within an active market, with an observable listed price, and money market funds that invest solely in U.S. government securities. The Company uses inputs such as actual trade data, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of our investments. Level 3 assets include investments where no observable traded price is available. The estimated fair value of the investment was determined using assumptions related to the unit price, expected volatility, risk-free interest rate, and observed historical transactions.

The Company’s warrant liability as of September 30, 2022 includes public and private placement warrants that were originally issued by NextGen and assumed by the Company as part of the Closing of the Business Combination (the “Public Warrants” and “Private Warrants,” respectively, or together, the “Public and Private Warrants”). The Public and Private Warrants are recorded on the condensed consolidated balance sheet at fair value. The carrying amount is subject to remeasurement at each balance sheet date. With each remeasurement, the carrying amount will be adjusted to fair value, with the change in fair value recognized in the Company’s condensed consolidated statements of operations and comprehensive loss. The Public Warrants are publicly-traded under the symbol “VORBW”, and the fair value of the Public Warrants at a specific date is determined by the closing price of the Public Warrants as of that date. As such, the Public Warrants are classified within Level 1 of the fair value hierarchy.

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Notes to Condensed Consolidated Financial Statements

For periods where no observable traded price is available, the fair value of the Private Placement Warrants has been estimated using a Monte-Carlo simulation model. For periods subsequent to the detachment of the Public Warrants from the Units, the fair value of the Public Warrants is based on the observable listed price for such warrants. The estimated fair value of the Public and Private Placement Warrants, prior to the Public Warrants being traded in an active market, was determined using Level 3 inputs. Inherent in a Monte-Carlo simulation model are assumptions related to the Unit price, expected volatility, risk-free interest rate, term to expiration, and dividend yield. The Unit price is based on the publicly traded price of the Units as of the measurement date. The Company estimated the volatility for the Public and Private Placement Warrants based on an iterative approach to recalculate the implied volatility using a Monte-Carlo simulation model from the historical traded prices of the warrants. The risk-free interest rate is based on interpolated U.S. Treasury rates, commensurate with a similar term to the Public and Private Placement Warrants. The term to expiration was calculated as the contractual term of the Public and Private Placement Warrants, commencing on the later of: (i) 30 days after the Closing or (ii) twelve months from the date of the closing of NextGen’s initial public offering. Finally, the Company does not anticipate paying a dividend. Any changes in these assumptions can change the valuation significantly.

The change in the fair value of the private warrant liabilities continue to be measured using Level 3 inputs, for the period from December 31, 2021 through September 30, 2022 as summarized below:
Private Placement Warrants
(in thousands)
Warrant liabilities at December 31, 2021$9,475 
Change in fair value of derivative warrant liabilities(7,452)
Warrant liabilities at September 30, 2022
$2,023 
The convertible note is recorded on the condensed consolidated balance sheet at fair value. The carrying amount is subject to remeasurement at each balance sheet date. With each remeasurement, the carrying amount will be adjusted to fair value, with the change in fair value recognized in the Company’s condensed consolidated statements of operations and comprehensive loss. As of September 30, 2022 fair value was determined to be $44.1 million based on the following: unit price, expected volatility, risk-free interest rate, term to expiration. Quarterly, the fair value of convertible note is remeasured using the Monte-Carlo model.
(6) Inventory
As of September 30, 2022 and December 31, 2021, inventory is comprised of raw materials, labor, and overhead costs incurred for the production of the Company’s rockets.
As of
September 30,
2022		December 31,
2021
(In thousands)
Raw materials
$31,617 $18,890 
Work in process
57,402 27,123 
Inventories, gross
89,019 46,013 
Provision for contract losses against inventory
(17,895)(11,626)
Reserve for inventory excess and obsolescence
(1,895)(460)
Inventory
$69,229 $33,927 

As of September 30, 2022, the Company determined inventory related to certain rocket builds were not recoverable. The change in provision for contract losses against inventory of $6.3 million and reserve for inventory excess and obsolescence of $1.4 million were recorded for the nine months ended September 30, 2022. During the three months ended September 30, 2022, change in provision for contract losses against inventory was $12.1 million and reserve for inventory excess and obsolescence of $1.0 million were recorded.
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Notes to Condensed Consolidated Financial Statements
(7) Property, Plant and Equipment, Net
Property, plant and equipment, net consists of the following as of September 30, 2022 and December 31, 2021:
 As of
 September 30,
2022		December 31,
2021
(In thousands)
Leasehold improvements
$23,882 $23,501 
Machinery and equipment
62,632 59,358 
Aircraft
8,000 8,000 
IT software and equipment
24,828 22,397 
Construction in progress
34,161 23,167 
 153,503 136,423 
Less: accumulated depreciation and amortization
(83,663)(74,998)
Property, plant and equipment, net
$69,840 $61,425 
Within IT software and equipment, the Company’s capitalized software totaled $1.4 million and $0.8 million, net of accumulated amortization of $7.9 million and $7.4 million, as of September 30, 2022 and December 31, 2021, respectively. No amortization expense is recorded until the software is ready for its intended use. For the three months ended September 30, 2022 and 2021, amortization expense related to capitalized software was $0.2 million and $0.1 million, respectively.

Depreciation expense recorded in the condensed consolidated statements of operations and comprehensive loss during the three and nine months ended September 30, 2022 and 2021 consisted of the following:
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2022202120222021
(In thousands)
Cost of revenue
$1,194 $— $2,179 $556 
Research and development, net
136 143 392 1,202 
Selling, general and administrative
1,375 2,848 5,673 7,429 
Total depreciation expense
$2,705 $2,991 $8,244 $9,187 
(8) Leases
The Company leases offices and other facilities and certain manufacturing and office equipment under long-term, non-cancelable operating and finance leases. Some leases include options to purchase, terminate, or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised. The Company does not recognize ROU assets and lease obligations for short-term leases.
The components of lease expense related to leases for the period are as follows:
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Notes to Condensed Consolidated Financial Statements

Three Months Ended
September 30,		Nine Months Ended
September 30,
 2022202120222021
(In thousands)
Lease Cost:
 
Operating lease expense
$222 $784 $2,050 $2,168 
Short-term lease expense
$1,302 $719 $2,594 $2,447 
Finance lease cost:
Amortization of right-of-use assets
$69 $64 $232 $192 
Interest on lease obligations
6 6 20 19 
Total finance lease cost
75 70 252 211 
Total lease cost
$1,599 $1,573 $4,896 $4,826 
The components of supplemental cash flow information related to leases for the period are as follows:
 Nine Months Ended September 30,
 20222021
(In thousands)
Cash flow information:
  
Cash paid for amounts included in the measurement of lease obligations for the period ended:
  
Operating cash flows for operating leases
$2,011 $2,018 
Operating cash flows for finance leases
$20 $19 
Financing cash flows for finance leases
$227 $187 
 
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
$549 $1,632 
Finance leases
$528 $— 
Termination of right-of-use asset, net
$1,300 $— 
 
Other information:
Weighted average remaining lease term:
Operating leases (in years)
88
Finance leases (in years)
21
 
Weighted average discount rates:
Operating leases
11.6 %11.0 %
Finance leases
5.4 %5.4 %
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Notes to Condensed Consolidated Financial Statements

The supplemental condensed consolidated balance sheet information related to leases for the period is as follows:
 As of
 September 30,
2022		December 31,
2021
(In thousands)
Finance leases
  
Long-term right-of-use assets
$564 $252 
 
Short-term finance lease liabilities
$288 $258 
Long-term finance lease liabilities
302 79 
Total finance lease liabilities
$590 $337 
 
Operating leases
Long-term right-of-use assets
$12,748 $14,433 
 
Short-term operating lease liabilities
$1,167 $1,384 
Long-term operating lease liabilities
12,498 13,999 
Total operating lease liabilities
$13,665 $15,383 

Lease Obligations
The Company has several non-cancelable operating leases primarily related to the lease of its manufacturing and testing facilities. These leases generally contain renewal options for periods ranging from 2 to 10 years and require the Company to pay all executory costs, such as maintenance and insurance. Certain lease arrangements have rent-free periods or escalating payment provisions, and the Company recognizes rent expense of such arrangements on a straight-line basis.
Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of September 30, 2022 are as follows:
Operating
Leases		Finance
Leases
(In thousands)
2022$670 $89 
20232,745 270 
20242,792 206 
20252,308 78 
20262,766 — 
Thereafter
9,803 — 
Total payments
$21,084 $643 
Less:
Imputed interest/present value discount
(7,419)(53)
Present value of lease liabilities
$13,665 $590 
    
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Notes to Consolidated Financial Statements

(9) Accrued Liabilities and Other Current Liabilities
A summary of the components of accrued liabilities as of September 30, 2022 and December 31, 2021 is as follows:
 As of
 September 30,
2022		December 31,
2021
(In thousands)
Accrued payroll
$3,634 $1,490 
Accrued vacation
4,028 3,966 
Accrued bonus
6,686 8,773 
Due to related party— 42 
Other accrued expenses and current liabilities
10,746 9,561 
Total accrued liabilities and other current liabilities
$25,094 $23,832 

(10) Warrants

As of September 30, 2022 and December 31, 2021, the Company’s public and private warrant liabilities includes public and private placement warrants that were originally issued by NextGen and subsequently assumed by the Company as part of the Closing of the Business Combination. The public and private placement warrants are recorded on the condensed consolidated balance sheet at fair value with the carrying amount subject to remeasurement to fair value as of any respective exercise date and as of each subsequent balance sheet date.

The Company remeasured the fair value of warrants at September 30, 2022 with changes recorded in earnings. In connection with the Company's remeasurement of the warrants to fair value, the Company recorded an unrealized gain of approximately $15.9 million for the nine months ended September 30, 2022.

Public Warrants

Each whole warrant entitles the holder to purchase one share of Virgin Orbit common stock at a price of $11.50 per share, subject to adjustment as discussed below, at any time after March 25, 2022, except as described below. Pursuant to the warrant agreement, a public warrant holder may exercise the public warrants only for a whole number of shares of common stock. The public warrants will expire five years from completion of the Business Combination (or December 29, 2026), or earlier upon redemption or liquidation.

Redemption of warrants when the price per share of common stock equals or exceeds $18.00.

The Company may redeem the public 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 to each warrant holder; and
•if, and only if, the last reported sale price of the 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 the notice of redemption is given to the warrant holders (the “Reference Value”) equals or exceeds $18.00 per share.

Redemption of warrants when the price per share of common stock equals or exceeds $10.00.

The Company may redeem the outstanding warrants:
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Notes to Condensed Consolidated Financial Statements

•in whole and not in part;
•at $0.10 per public warrant;
•upon a minimum of 30 days’ prior written notice of redemption to each warrant holder;
•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” of common stock; and
• if, and only if, the Reference Value equals or exceeds $10.00 per share.

Private Placement Warrants

The private placement warrants are identical to the public warrants, except that the private placement warrants and the common shares issuable upon the exercise of the private placement warrants were not transferable, assignable or salable until 30 days after the Closing, 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 under the heading “Redemption of warrants when the price per common share equals or exceeds $10.00,” so long as they are held by the initial purchasers or their permitted transferees. If the private placement warrants are held by someone other than the initial purchasers 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.

The following table provides quantitative information regarding the Private Placement Warrants Level 3 fair value inputs for the following measurement dates:
As of
September 30,
2022		December 31,
2021
Exercise price$11.50 $11.50 
Stock price$3.07 $8.04 
Option term (in years)4.255
Volatility48.5 %32.5 %
Risk-free interest rate4.13 %1.26 %

Third-Party PIPE Investor Warrant

In connection with the Closing of the Business Combination, the Company granted a third-party investor of the PIPE Investment (“Third-Party PIPE Investor”) a warrant to purchase (including via cashless exercise) 500,000 shares of Virgin Orbit common stock at an exercise price of $10.00 per share, which has been classified as equity in accordance with ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, the settlement of the instruments is indexed to shares of the Company’s common stock and qualifies for classification in equity. The Third-Party PIPE Investor warrant is (a) not transferable, (b) not subject to any redemption, termination (other than upon expiration of the exercise period) or right of rescission, (c) exercisable in whole or in part and (d) has an exercise period from the date of issuance to the earlier of (i) the five-year anniversary of the issuance of the Third-Party PIPE Investor warrant (or December 29, 2026) and (ii) a change in control of Virgin Orbit. The warrant shares shall (a) be listed on the Nasdaq or such other securities exchange as Virgin Orbit’s common stock is then listed on, (b) benefit from customary registration rights and (c) be subject to the restriction on transfer as stipulated by the lock-up agreement, dated August 22, 2021, by and between NextGen and the Third-Party PIPE Investor. The Third-Party PIPE Investor warrant was measured at the relative fair value at the Closing at $2.3 million as additional paid-in-capital in the condensed consolidated balance sheets.
(11) Convertible Note
    
On June 28, 2022 (the “Effective Date”), we entered into the Securities Purchase Agreement with the Investor pursuant to which we sold and issued to the Investor the debt on June 29, 2022 in the principal amount of $50.0 million, which is convertible into shares of our Common Stock subject to certain conditions and limitations set
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Notes to Condensed Consolidated Financial Statements
forth in the Securities Purchase Agreement and the debt. The Investor will use commercially reasonable efforts to convert $2.7 million in each 30-day period beginning on August 28, 2022, provided that certain conditions are satisfied as of each such period.

The note bears interest at an annual rate of 6.0% and has a maturity date of December 29, 2023. The debt provides a conversion right, in which any portion of the principal amount of the debt, together with any accrued but unpaid interest, may be converted into our Common Stock at a conversion price equal to the lower of (i) $4.64 or (ii) 95% of the average of the two lowest daily volume weighted average price of the Common Stock during the three (3) trading days immediately preceding the date of conversion (but not lower than a certain floor price, currently set at $2.52, that is subject to further adjustment in accordance with the terms of the debt).

The note may not be converted into Common Stock to the extent such conversion would result in the Investor and its affiliates having beneficial ownership of more than 9.99% of our then outstanding shares of Common Stock; provided that this limitation may be waived by the Investor upon not less than 65 days’ prior notice to us. The debt provides us, subject to certain conditions, with a redemption right pursuant to which we, upon three (3) business days’ prior notice to the investor in the case of a partial redemption or ten (10) business days’ notice in the case of a full redemption, may redeem, in whole or in part, any of the outstanding principal and interest thereon at a redemption price equal to 2.5% of the principal amount being redeemed on or before October 1, 2022, and thereafter at a redemption price equal to 5.0% of the principal amount being redeemed.

The note includes a repayment trigger base on if the daily volume-weighted average price (“VWAP”) of common stock is less than the floor price of $2.52 for (7) seven trading days during a period of (10) ten consecutive trading days, then the Company is required to make monthly payments, beginning on the 10th calendar day after the triggering date of $4,000,000 of principal plus the redemption premium (5% of the principal) plus accrued interest. The monthly repayment trigger will cease if the Company provides the investor a reset notice reducing the floor price, (floor price means $2.52 per share), limited to no more than 85% of VWAP and not less than $1.00 or the daily VWAP is greater than the floor price for (5) five consecutive trading days.

The Company and Investor entered into a registration rights agreement pursuant to which the Company is required to file a registration statement registering the resale by the Investor of any shares of the Company’s common stock issuable upon conversion and, subject to certain exceptions, maintain the effectiveness of that registration statement.

The Company accounts for the convertible note in accordance with the guidance contained in ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, under which the convertible note does not meet the criteria for equity treatment and must be recorded as a liability. Accordingly, the Company classifies the convertible note as a liability at fair value and remeasures the convertible note to fair value at each reporting period. This liability is subject to remeasurement at each balance sheet date until fully converted into common stock, and any change in fair value is recognized in the consolidated statements of operations and comprehensive loss.

The amount of proceeds the Company received from the Investor was the full face value of $50 million. There was no discount or premium issued with this debt. As of September 30, 2022, the Company had a principal balance of $47.3 million and accrued interest expense of $0.7 million.

The note will not be included in the computation of either basic or diluted EPS for the nine months ended September 30, 2022 in Note 15. Net Loss Per Share. This financial instrument is not be included in basic EPS because it does not represent participating securities. Further, the convertible Note has not be included in diluted EPS because the Company reported a net loss from continuing operations for the nine months ended September 30, 2022; thus, including these financial instruments would have an antidilutive effect on EPS.

The Company remeasured the fair value of convertible note at September 30, 2022 with change in fair value recorded in earnings as discussed in Note 5. Fair Value Measurements. In connection with the Company's remeasurement of the convertible note to fair value, the Company recorded an unrealized gain of approximately $3.2 million for the nine months ended September 30, 2022, resulting in a fair value balance of $44.1 million.

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VIRGIN ORBIT HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
The following table provides quantitative information regarding the Convertible Note Level 3 fair value inputs using the Monte-Carlo method for the following measurement dates:
As of
September 30,
2022		December 31,
2021
Stock price$3.07 N/A
Option term (in years)1.25N/A
Volatility93.9 %N/A
Risk-free interest rate4.01 %N/A

As of
September 30,
2022		December 31,
2021
(In thousands)
Convertible Note
Fair value as of June 30, 2022$50,000 N/A
Change in fair value reported in statement of operations(3,153)N/A
Convertible note issued during the period— N/A
Conversion of note to common stock(2,700)N/A
Ending fair value as of September 30, 2022$44,147 $— 

As of
September 30,
2022		December 31,
2021
(In thousands)
Convertible Note Accrued Interest
Accrued interest as of June 30, 2022$16 N/A
Accrued interest747 N/A
Accrued interest paid upon conversion(32)N/A
Accrued interest as of September 30, 2022$731 $— 
As of
September 30,
2022		December 31,
2021
Number of Common Shares Issued Upon Conversion
Common shares issued as of June 30, 2022$— N/A
Common shares issued831,356 N/A
Common shares issued as of September 30, 2022$831,356 $— 

(12) Income Taxes

Income tax expense was $0.0 million and $0.0 million for the three months ended September 30, 2022 and 2021, respectively. Income tax expense was $0.0 million and $0.0 million for the nine months ended September 30, 2022 and 2021, respectively. The effective income tax rate was nil for the three months ended September 30, 2022 and
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Notes to Consolidated Financial Statements

2021. The effective income tax rate was nil for the nine months ended September 30, 2022 and 2021. The Company’s effective tax rate differs from the U.S. statutory rate primarily due to a substantially full valuation allowance against our net deferred tax assets where it is more likely than not that some or all of the deferred tax assets will not be realized.
(13) Stockholders’ Equity

Common Stock

We have authority to issue 2,000,000,000 shares of common stock, par value $0.0001 per share.

Each holder of common stock is entitled to one vote for each share of common stock held by such holder. The holders of common stock are entitled to the payment of dividends when and as declared by the Board in accordance with applicable law and to receive other distributions from the Company. Any dividends declared by the Board to the holders of the then outstanding shares of common stock will be paid to the holders thereof pro rata in accordance with the number of shares of common stock held by each such holder as of the record date of such dividend. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the funds and assets of the Company that may be legally distributed to the Company’s stockholders will be distributed among the holders of the then outstanding shares of common stock pro rata in accordance with the number of shares of common stock held by each such holder.

Preferred Stock

We have the authority to issue 25,000,000 shares of preferred stock, par value $0.0001 per share. Our Board of Directors is authorized to determine the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect to each of our class of preferred stock.
Sponsor Earnback Securities

During the period between the Closing and the five-year anniversary of the Closing, NextGen Sponsor II LLC (“NextGen Sponsor”) has subjected the 1,319,980 Sponsor Earnback Shares (the “Sponsor Earnback Securities”) of issued and outstanding common stock and 1,015,190 Sponsor Earnback Warrants (the “Sponsor Earnback Warrants”) of issued and outstanding private placement warrants to transfer restrictions and potential forfeiture to the Company for no consideration until the occurrence of each tranche’s respective earnback triggering event. The 1,319,980 Sponsor Earnback Shares are comprised of two separate tranches of 659,990 shares per tranche and the 1,015,190 Sponsor Earnback Warrants are comprised of two separate tranches of 507,595 warrants per tranche. The earnback triggering events for the two respective tranches of the Sponsor Earnback Securities will be met upon the earlier of (i) the date on which the volume-weighted average trading sale price of one share of our common stock quoted on Nasdaq is greater than or equal to $12.50 and $15.00, respectively, for any 20 trading days within any 30 consecutive trading day period. The earnback triggering events were determined to be indexed to the Company’s common stock.

As of September 30, 2022, the earnback triggering events were not satisfied and the Sponsor Earnback Securities remained subject to the transfer restrictions and contingent forfeiture provisions.

Standby Equity Purchase Agreement

On March 28, 2022 (the “Effective Date”), we entered into a Standby Equity Purchase Agreement with (the “Investor”), pursuant to which we have the right from time to time at our option to sell to the Investor up to $250.0 million of our common stock, subject to certain conditions and limitations set forth in the Purchase Agreement. We have agreed with the Selling Stockholder not to sell to the Selling Stockholder any shares under the Standby Equity Purchase Agreement until the earlier of the date upon which (i) all amounts outstanding under the debt have been fully repaid or converted into shares of common stock or, (ii) neither the Selling Stockholder, nor any
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VIRGIN ORBIT HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements

affiliate of the Selling Stockholder, holds the debt , or (iii) the Selling Stockholder no longer has any right or ability to convert any portion of the debt into shares of common stock.

Upon the initial satisfaction of the conditions to the Investor’s obligation to purchase shares of common stock set forth in the Purchase Agreement (the “Commencement”), including that a registration statement registering the resale by the Investor of the shares of common stock under the Securities Act that may be sold to Investor by us under the Standby Equity Purchase Agreement (the “Initial Resale Registration Statement”) is declared effective by the Securities and Exchange Commission (the “SEC”) and a final prospectus relating thereto is filed with the SEC, we will have the right, but not the obligation, from time to time at our sole discretion until the first day of the month next following the 36-month period from and after the Effective Date, to direct the Investor to purchase up to a specified maximum amount of shares of common stock as set forth in the Standby Equity Purchase Agreement by delivering written notice (each, a “Notice”) to the Investor. The purchase price of the shares of common stock that we may sell to the Investor pursuant to the Standby Equity Purchase Agreement will be 97.5% of the average of the volume weighted average price of our common stock during each trading day in the three consecutive trading days commencing on the trading day following delivery of a Notice (other than any trading days excluded pursuant to the terms of the Standby Equity Purchase Agreement) (such period, the “Pricing Period”). The maximum amount to be sold pursuant to each Notice may not exceed $50 million, and a Notice cannot be delivered earlier than six trading days following the Pricing Period relating to any prior Notice. Any shares of common stock that may be sold by us under the Purchase Agreement will be sold in transactions exempt from registration under the Securities Act in reliance upon the exemption afforded under Section 4(a)(2).

The Standby Equity Purchase Agreement prohibits us from directing the Investor to purchase any shares of common stock pursuant to the Purchase Agreement if those shares, when aggregated with all other shares of our common stock then beneficially owned by the Investor and its affiliates, would result in the Investor and its affiliates having beneficial ownership of more than the 9.99% of our then outstanding shares of common stock. Additionally, under applicable Nasdaq rules, we may not issue to the Selling Stockholder more than 19.99% of the total number of shares of common stock that were outstanding immediately prior to the execution of the Standby Equity Purchase Agreement without prior stockholder approval, unless certain stipulations are met.

The Standby Equity Purchase Agreement contains customary registration rights, representations, warranties, conditions and indemnification obligations by each party. The representations, warranties and covenants contained in the Standby Equity Purchase Agreement were made only for purposes of the Standby Equity Purchase Agreement and as of specific dates, were solely for the benefit of the parties to such agreement and are subject to certain important limitations.

The Standby Equity Purchase Agreement also provides that we may request a pre-advance loan from the Investor in a principal amount not to exceed $50.0 million.

Subject to the terms of the Standby Equity Purchase Agreement, we have the right to terminate the Standby Equity Purchase Agreement at any time after Commencement, at no cost or penalty, upon five trading days’ prior written notice. No termination of the Standby Equity Purchase Agreement will affect the indemnification provisions contained within the Standby Equity Purchase Agreement, which will survive any termination of the Standby Equity Purchase Agreement.
(14) Stock-Based Compensation
The Company maintains a stock-based compensation plan pursuant to which it has granted stock options to certain eligible service providers.
Prior to Closing, Virgin Orbit maintained the 2017 Stock Incentive Plan (the “2017 Plan”) to purchase “VO Holdings, Inc. (“VO Holdings”) common stock, which became Virgin Orbit common stock as part of the Business Combination. As part of the consummation of the Business Combination, the adoption of the 2021 Stock Incentive Plan (the “2021 Plan”) replaces the 2017 Plan for issuance of new awards. Upon the consummation of the Business Combination, all outstanding stock options under the 2017 Plan, whether vested or unvested, were converted into options to purchase a number of shares of common stock of Virgin Orbit based on the Exchange Ratio, with a
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Notes to Condensed Consolidated Financial Statements

corresponding adjustment to the exercise price such that there was no change to the aggregate exercise price for such outstanding options. The 2017 Plan will continue to govern the outstanding awards granted under this plan.
In connection with the Business Combination, we adopted the 2021 Plan in order to facilitate the grant of cash and equity incentives to directors, employees and consultants of the Company, employees of the Company’s subsidiaries and other eligible consultants and to enable us and certain of our subsidiaries and affiliates to obtain and retain services of these individuals, which is essential to our long-term success. The 2021 Plan became effective on December 28, 2021, the date immediately preceding the consummation of the Business Combination. Stock options related to this 2021 Plan were first granted in January 2022.

Compensation expense is recognized only for those options expected to vest with forfeitures estimated based on historical experience and future expectations and is adjusted for forfeitures in the period they occur. Stock-based compensation awards are amortized on a straight-line basis over the graded vesting period based on continued service.

Stock Options
The following table includes the activity during the nine months ended September 30, 2022 for all stock options granted under the 2021 Plan:
Number of
shares(2)
Weighted
average
exercise 
price		Weighted
average
remaining
contractual
life
Aggregate intrinsic value(1)
 (In thousands)(In dollars)(In years)(In thousands)
Balances as of December 31, 2021
9,101 $3.78 6.35$35,014 
Granted
5,680 6.61 
Exercised
(394)3.70 
Forfeited options
(1,210)5.34 
Expired or cancelled options(271)3.84 
Balances as of September 30, 2022
12,906 $4.91 7.49$— 
 
Exercisable as of September 30, 2022
7,541 $3.98 6.40$— 
_______________
(1) Aggregate intrinsic value is calculated based on the difference between our closing stock price at period end and the exercise price, multiplied by the number of in-the-money options and represents the pre-tax amount that would have been received by the option holders, had they all exercised all their options at the period end date.
(2) Shares include time-based options and exclude the CEO milestone awards, totaling $1.6 million stock options described below.
Stock-based compensation expense recorded in the condensed consolidated statements of operations and comprehensive loss during the three and nine months ended September 30, 2022 and 2021 consisted of the following:
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (In thousands)
Cost of revenue
$959 $118 $1,635 $299 
Research and development
760 85 1,215 478 
Selling, general and administrative
3,789 5,357 9,104 7,531 
 $5,508 $5,560 $11,954 $8,308 
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Notes to Condensed Consolidated Financial Statements

As of September 30, 2022, and 2021, there was $16.1 million and $6.0 million, respectively, of total unrecognized stock-based compensation related to the unvested stock options granted. As of September 30, 2022, the total cost is expected to be recognized over a weighted average term of 3.0 years and 2.2 years, respectively. The total fair value of shares vested during the nine months ended September 30, 2022 and 2021 was $17.8 million and $3.7 million, respectively.
CEO Awards
Except with respect to the milestone and supplemental milestone awards granted to our CEO, Mr. Hart, described below, Mr. Hart’s stock options vest and become exercisable as to 25% of the underlying shares on the first anniversary of the applicable vesting commencement date, and thereafter as to the remaining 75% of the underlying shares in either (a) six substantially equal installments on each successive six-month anniversary of the vesting commencement date, or (b) twelve substantially equal installments on each successive quarterly anniversary of the applicable vesting commencement date, subject to continued employment through the applicable vesting date. In addition, Mr. Hart’s stock options will vest and become exercisable in full upon a termination of employment without “cause” within 24 months following a “change in control”, each as defined in the 2017 Plan.

On November 20, 2017, the Company granted Mr. Hart a milestone award of 757,978 stock options with an estimated grant date fair value approximating $2.1 million. Fifty percent of the stock options vested when we achieved our first commercial launch on June 30, 2021. Additionally, on March 17, 2021, the Company granted our CEO a supplemental milestone award of 845,317 stock options with an estimated grant date fair value approximating $2.5 million. On June 30, 2021, the day Virgin Orbit achieved the first commercial launch, Tubular Bells Part One, 50.0% of the milestone award vested. On December 31, 2021, the last day of the first calendar year in which the first commercial launch occurred, 33.3% of the supplemental milestone award vested. The remaining 50.0% of the milestone award and the remaining 66.7% of the supplemental milestone award will vest upon Mr. Hart’s continued service through the last day of the first calendar year in which the Company has five successful revenue-generating deployment launches of satellites into their respective intended orbits in such calendar year.
Stock Option Valuation

The Company uses the Black-Scholes option pricing model to determine the fair value of the awards. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price, as well as assumptions regarding complex and subjective variables. These variables include the expected stock price volatility over the term of the awards, risk-free interest rate, and expected dividends.

The weighted average assumptions used to value the option grants for the nine months ended September 30, 2022 are as follows:

2022
Expected life (in years)5.99
Volatility85 %
Risk-free interest rate1.64 %
Dividend yield— 

Restricted Stock Units

During the three months ended September 30, 2022, new RSUs were awarded to employees that vest over two years, with 25% vesting at each six month anniversary from the grant date. In addition, the RSUs awarded to our Board of Directors are comprised of two components: the initial award that vests ratably over three years and the annual award that has a one year cliff vest from the date of the annual meeting.

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VIRGIN ORBIT HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements

The following table sets forth the summary of RSUs activity granted under the 2021 Plan (dollars in thousands except per share data):
Number of
shares		Weighted
average
fair value
 (In thousands)(In dollars)
Balances as of December 31, 2021
— $— 
Granted
4,109 4.00 
Vested
— — 
Forfeited
(34)4.00 
Balances as of September 30, 2022
4,075 $4.00 

At September 30, 2022, the unrecognized stock-based compensation related to RSUs was $13.9 million, and is expected to be recognized over a weighted-average period of 1.8 years.

(15) Net Loss Per Share
The following table presents net loss per share and related information:
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Basic and diluted:
Net loss
$(43,643)$(38,590)$(139,505)$(115,563)
Weighted average common shares outstanding
335,416,139 294,124,548 335,101,146 283,496,703 
Basic and diluted net loss per share$(0.13)$(0.13)$(0.42)$(0.41)

Earnings per share calculations for all periods prior to the Business Combination have been retrospectively adjusted by the Exchange Ratio for the equivalent number of shares outstanding immediately after the Business Combination to effect the reverse recapitalization. Subsequent to the Business Combination, net loss per share is calculated based on the weighted average number of common stock then outstanding.

Basic and dilutive net loss per share is computed by dividing the net loss for the period by the weighted average number of common stock outstanding during the period. Basic and diluted net loss per share attributable to common stockholders are presented in conformity with the two-class method required for participating securities. The 1,319,980 Sponsor Earnback Shares are securities that do not contractually entitle the holders of such shares to participate in nonforfeitable dividends and do not contractually obligate the holders of such shares to participate in losses. The condensed consolidated statements of operations and comprehensive loss reflects a net loss for the period presented and, accordingly, no loss amounts have been allocated to the Sponsor Earnback Shares. The Sponsor Earnback Shares have also been excluded from basic and diluted net loss per share attributable to common stockholders as such shares of Virgin Orbit common stock are contingently recallable until the Sponsor Earnback Shares are no longer subject to transfer restrictions and contingent forfeiture provisions upon the satisfaction of the earnback triggering events.

As of September 30, 2022 and September 30, 2021, the Company has excluded the potential effect of warrants to purchase shares of common stock totaling 13,904,628 and 13,985,224 shares, respectively, the potential effect of outstanding Virgin Orbit Options to purchase shares of common stock totaling 12,907,151 shares (see Note 14. Stock-based Compensation), and the convertible note (see Note 11. Convertible Note) in the calculation of diluted loss per share, as the effect would be anti-dilutive due to losses incurred. The 1,015,190 Sponsor Earnback Warrants are excluded as the underlying shares are contingently recallable until the Sponsor Earnback Warrants are no longer subject to transfer restrictions and contingent forfeiture provisions upon the satisfaction of the earnback triggering
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Notes to Condensed Consolidated Financial Statements
events. The number of shares issuable under the convertible note is 15,407,166 and is not included in basic EPS because it does not represent participating securities.
(16) Investments in Noncontrolled Entity
Arqit PIPE Investment
On May 12, 2021, the Company entered into a binding term sheet (the “Term Sheet”) and a subscription agreement to commit to contribute $5.0 million to Arqit Limited (“Arqit”) in a PIPE transaction (the “Arqit PIPE Investment”) in exchange for 500,000 ordinary shares at $10.00 per share, subject to and contingent upon the closing of a planned merger transaction (the “Arqit Transaction”) between Arqit and Centricus Acquisition Corp., a SPAC unaffiliated with the Company.

On September 3, 2021, the Arqit Transaction was consummated, and the Company made the Arqit PIPE Investment, which was recorded as a financial asset in investments in the condensed consolidated balance sheets. The fair value of the Arqit PIPE Investment was $12.0 million as of December 31, 2021, and $2.8 million as of September 30, 2022. During the three and nine months ended September 30, 2022, the Company recorded an unrealized loss of $0.3 million and $9.2 million, respectively, from the Arqit PIPE Investment in the condensed consolidated statements of operations and comprehensive loss.
On September 7, 2021, Arqit delivered $5.0 million to the Company as a non-refundable deposit towards an executed launch service agreement for up to five launches, with $1.0 million of such deposit to be applied towards the price of each remaining launch services commencing with the second launch, if Arqit requires fewer than five launch services, and the remainder to be applied towards the price of the first launch service. As of September 30, 2022 and December 31, 2021, the Company recorded $5.0 million as a customer deposit in non-current deferred revenue on the condensed consolidated balance sheets.
(17) Commitments and Contingencies
(a)Purchase commitments
The Company has non-cancelable purchase commitments as of September 30, 2022, primarily related to supply and engineering services providers. The purchase commitments as of September 30, 2022 are as follows:
 Payments Due by Periods
Commitments and obligationsLess than
1 year
(remaining)		1 – 3 years3 – 5 yearsMore than
5 years		Total
 (In thousands)
Purchase commitments
$23,090 $21,875 $— $— $44,965 
Amounts purchased under these arrangements for the nine months ended September 30, 2022 and 2021 were $3.7 million and $0.7 million, respectively.
(b)Litigation and Claims
From time to time, the Company is party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. The Company determines when and how much to accrue for and disclose related to legal and other contingencies. Accordingly, the Company discloses contingencies deemed to be reasonably possible and accrues loss contingencies when, in consultation with legal advisors, it is concluded that a loss is probable and reasonably estimable. Significant judgment is required to determine both probability and the estimated amount. The Company reviews these provisions on a quarterly basis and adjust these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. The outcome of legal matters and litigation is inherently uncertain. Therefore, if one or more of these legal matters were resolved against us for amounts in excess of management’s expectations, the
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Notes to Condensed Consolidated Financial Statements

Company’s results of operations, and financial condition, including in a particular reporting period, could be materially adversely affected.
On June 4, 2019, the Company filed a complaint in the U.S. District Court for the Southern District of New York as OneWeb, one of the Company’s largest customers, cancelled 35 of planned 39 launches. Subsequently on March 27, 2020, OneWeb filed for Chapter 11 Bankruptcy which terminated the entire launch service agreement entered with the Company during its bankruptcy process by September 18, 2020, resulting in a release of performance rights and performance obligations. As of the date of the issuance of these condensed consolidated financial statements, the claim with the bankruptcy court and disposition of the Company’s complaint remains outstanding.
For the nine months ended September 30, 2022 and 2021, there were no other material legal proceedings.
(c)Contingencies
The Company identified certain contracts with multiple customers where the expected costs to fulfill the contract will be in excess of the estimated transaction price. As of September 30, 2022, the Company determined that it was probable that the costs to provide the services as stipulated by the amended launch services agreement would exceed the allocated firm fixed price of each launch. As such, the Company has recorded provisions for contract losses for a total of $18.6 million through September 30, 2022, including, as part of the Business Combination, the Company is providing a concession launch service for a Third-Party PIPE Investor. Accordingly, the Company recorded a contract loss reserve of $4.1 million as of December 31, 2021 based on the estimate of the cost to fulfill this obligation, offset to additional paid in capital as this is considered to be a transaction cost or cost of capital.
Consistent with the accounting of its firm fixed price contracts, the Company continually reviews cost performance and estimates-to-complete at least quarterly and in many cases more frequently. Adjustments to original estimates for a contract’s revenue, estimated costs at completion and estimated profit or loss are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications occur. The impact of revisions in estimate of completion for all types of contracts are recognized on a cumulative catch-up basis in the period in which the revisions are made.
(18) Subsequent Events

Convertible Note

On November 4, 2022, the Company sold and issued to Virgin Investments Limited (“VIL”) a senior unsecured convertible note (the “Convertible Note”) in the principal amount of $25.0 million, which is convertible into shares of the Company’s common stock or other Qualified Securities (as defined below), subject to certain conditions and limitations set forth in the Convertible Note. The Company sold and issued the Convertible Note pursuant to a subscription agreement, dated as of November 4, 2022 (the “Subscription Agreement”), between the Company, VIL and the Company’s domestic subsidiaries named therein that are jointly and severally guaranteeing the Company’s obligations under the Convertible Note (the “Guarantors”). The Company will use the net proceeds from the Convertible Note for working capital.

The Convertible Note contains customary events of default, bears interest at an annual rate of 6.0% (or 10.0% during the continuance of an event of default under the Convertible Note), payable in cash semi-annually, and has a maturity date of November 4, 2024, unless earlier repurchased, converted or redeemed in accordance with its terms prior to such date. Subject to any limitations under the rules of Nasdaq Stock Market, the Convertible Note will automatically convert into Qualified Securities (as defined below) at a conversion price equal to the purchase price paid by investors in the relevant Qualified Financing (as defined below) if, prior to the earliest to occur of November 4, 2024, any Fundamental Change Effective Date and the effective date of any Merger Event (each as defined in the Convertible Note), the Company consummates a bona fide third-party financing of its common stock or securities convertible into or exchangeable for the Company’s for gross cash proceeds of at least $50.0 million (excluding any
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VIRGIN ORBIT HOLDINGS, INC.
Notes to Consolidated Financial Statements
securities purchased by VIL or its affiliates) in one or more related and substantially similar and simultaneous transactions at the same price (a “Qualified Financing” and the securities sold in such Qualified Financing, the “Qualified Securities”). VIL will have the option to convert all or a portion of the Convertible Note in accordance with such terms in a financing by the Company that would have been a Qualified Financing but for the gross cash proceeds in such financing being less than $50.0 million, with such conversion effected as described above as if such financing were a Qualified Financing. Additionally, on or after October 15, 2024, VIL has the right to convert all or any portion of the Convertible Note into shares of common stock at an initial conversion rate of 345.5425 shares of common stock per $1,000 principal amount of the Convertible Note (subject to adjustments as provided in the Convertible Note, the “Fixed Conversion Rate”). In the event of a Fundamental Change, a Merger Event (each as defined in the Convertible Note) or a redemption of the Convertible Note by the Company, or if any automatic conversion in connection with a Qualified Financing would be subject to limitations set forth in the relevant rules of Nasdaq Stock Market, VIL has the right to convert the Convertible Note at the Fixed Conversion Rate. Prior to the Maturity Date, the Company may redeem all or part of the Convertible Note for cash at a redemption price equal to 100% of the principal amount of the Convertible Note to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Convertible Note contains a covenant that restricts the Company’s and the Guarantors’ ability to incur liens on the Company’s and the Guarantors’ assets and properties without VIL’s consent. If the Company undergoes a Fundamental Change (as defined in the Convertible Note), then, subject to certain conditions, VIL may require the Company to repurchase for cash all or any portion of the Convertible Note at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Note to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. Initially, a maximum of 8,638,563 shares of the common stock may be issued upon conversion of the Convertible Note at the Fixed Conversion Rate, subject to adjustment provisions included in the Convertible Note. The Convertible Note is not freely transferable without our written consent in whole or in part until the one-year anniversary of the issuance date unless a default under the Convertible Note has occurred and is continuing. On or after such anniversary, the Convertible Note will be freely transferable in whole or in part by VIL, subject to any restrictions under the Securities Act.

The Company has evaluated subsequent events from September 30, 2022 through November 8, 2022, the date at which the condensed consolidated financial statements were available to be issued and concluded there were no other subsequent events to recognize in the condensed consolidated financial statements.


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Item 2. Management's Discussion and Analysis Of Financial Condition and Results of Operations

The following discussion and analysis provides information that Virgin Orbit’s management believes is relevant to an assessment and understanding of Virgin Orbit’s condensed consolidated results of operations and financial condition. You should read this discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited financial statements and related notes as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with filed with the SEC on March 31, 2022, as amended (the “2021 Annual Report on Form 10-K”). This discussion may contain forward-looking statements based upon Virgin Orbit’s current expectations, estimates and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed in the sections entitled “Part II, Item 1A. Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

Vieco USA, Inc. entered into a merger agreement (the “Merger Agreement”) with NextGen Acquisition Corp. II (“NextGen”) on August 22, 2021. The transactions contemplated by the terms of the Merger Agreement (the “Business Combination”) were completed on December 29, 2021, in conjunction with which NextGen changed its name to Virgin Orbit Holdings, Inc. (hereafter referred to as “Virgin Orbit, the “Company,” “we,” “us” or “our”, unless the context otherwise requires).
Overview
We are a vertically integrated space company that provides customers dedicated and rideshare small-satellite launch capabilities. Our philosophy is to operate a mobile launch system that can launch “at any time, to any orbit.” Our vision is to use space to drive positive and lasting change on Earth, from connecting communities to advancing scientific initiatives; supporting America’s and other nations’ space presence, and helping create the next generation of world-changing space technology.
Since our founding in 2017, we have invested in research and development efforts to develop a unique air-launch system, comprised of Cosmic Girl, a modified Boeing 747 aircraft, and the LauncherOne rocket. Cosmic Girl serves as a reusable mobile launch pad, carrying aloft LauncherOne, a two-stage rocket that is the world’s first and only liquid-fueled, air-launched rocket to reach orbit successfully. This mobile system allows us to serve a broad array of applications and end markets, providing customers with a highly differentiated solution to launch satellites relative to other existing small-satellite ground launch providers.

We believe there is near- and medium-term acceleration in the growth of the space market, driven by rapid advances in launch and satellite technology. As a result, there has been a proliferation of private sector space companies pursuing the growing demand for space solutions across multiple applications. There are numerous private small-satellite launch companies (focused on developing rockets to carry satellites of less than 1,000 kg to 500 km low Earth orbit), but to our knowledge, only five small-satellite launch providers in the U.S. have successfully delivered launch payloads to their intended orbits — Astra Space, Northrop Grumman, Rocket Lab, SpaceX, and Virgin Orbit. As one of the few proven small-satellite launch providers, we believe we are well-positioned to benefit from these attractive industry tailwinds. As of the date of this Quarterly Report on Form 10-Q, we have successfully completed a total of four orbital launches since 2021, which we believe demonstrates the efficacy of our launch system. With the four completed orbital launches, we have delivered 33 satellites to their desired orbits with high precision. The Company plans to conduct future commercial launches from other locations, including Cornwall in the UK later this year.

By utilizing an air-launch system via Cosmic Girl and the LauncherOne rocket, we believe that we offer the agility, flexibility and responsiveness that small-satellite customers need to achieve their mission objectives. Our launches have delivered satellites to orbit for customers across commercial, civil and national security and defense markets, both domestically and internationally. Leveraging the successes from these launches, we have been able to secure approximately $143.1 million of binding backlog agreements as of September 30, 2022.

We develop and manufacture our launch technology from a vertically-integrated manufacturing facility in Long Beach, California. Leveraging advanced, state-of-the-art manufacturing capabilities, including automation and additive manufacturing technologies, we believe we have the necessary key investments, technologies and production ramp plans in place to meet the medium-term demand for our launch business. Prior to the Business Combination, Virgin Group Holdings Limited (“Virgin Group”) and Mubadala Investment Company PJSC (“Mubadala”) and its subsidiaries invested approximately $1 billion of capital to found, scale and grow the business.
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We have been primarily focused on and engaged in designing and developing launch solutions for small-satellites since our inception in 2017. We have incurred net losses of $139.5 million and $115.6 million for the nine months ended September 30, 2022 and 2021, respectively, and expect to incur significant losses in the near term.

Since achieving commercialization in January 2021, we have continued and expect to continue to make significant investments in capital expenditures to build and expand our production for commercial small-satellite launches, hire top-tier leaders and innovators, and continue to invest in research and development. However, as discussed below under “Liquidity and Capital Resources - Going Concern and Sources of Liquidity,” our history of losses and the possibility that we may not be able to raise sufficient capital to finance our operations raise substantial doubt regarding our ability to continue as a going concern. Our ability to capitalize on industry tailwinds and execute on our growth strategy will depend on our ability to access additional capital.

Business Combination

On August 22, 2021, NextGen Acquisition Corp. II (“NextGen”) via Pulsar Merger Sub, Inc. (“Pulsar Merger Sub”) and Vieco USA entered into a merger agreement (the “Merger Agreement”) which contemplated Pulsar Merger Sub merging with and into Vieco USA, with Vieco USA surviving the merger as a wholly owned subsidiary of NextGen (the “Business Combination”). On December 29, 2021, as contemplated by the Merger Agreement, we consummated the Business Combination and changed our name to Virgin Orbit Holdings, Inc. The Business Combination was accounted for as a reverse recapitalization. Virgin Orbit common stock and warrants commenced trading on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “VORB” and “VORBW,” respectively, on December 29, 2021.

See Note 1, “Organization and Business Operations—Business Combination” in the notes to the condensed consolidated financial statements included in this Quarterly Report for further details.
Key Factors Affecting Our Performance

We believe that our future success and financial performance depend on several factors that present significant opportunities for our business, but also pose risks and challenges, including those discussed below and in Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q.
Customer Demand

Since our first test flight in 2020, a broad range of potential customers, including national security organizations, commercial satellite providers, and civil service providers have shown significant interest in our service. Our commercial customers include satellite and constellation providers such as Arqit and SatRevolution. Civil customers mostly fall within our spaceport and launch offerings for civil space agencies with customers including, NASA, Spaceport Cornwall in the United Kingdom, Spaceport Japan at Oita Airport in Japan, and Alcantara Launch Center in Brazil. Outside of spaceports, we also provide dedicated launch services for civil space agencies such as NASA, and we expect to provide such services to other governments which have space agencies but lack the infrastructure for domestic space launches. Some national security and defense customers include the United States Space Force, the U.S. Air Force, National Reconnaissance Office and the Missile Defense Agency. Leveraging our four successful orbital launches in 2021 and 2022, we have been able to secure approximately $143.1 million of binding backlog agreements as of September 30, 2022.
We also believe there is near- and medium-term growth potential in the space market, driven by rapid advances in launch and satellite technology. As a result, there has been a proliferation of private sector space companies pursuing the growing demand for space solutions across multiple applications. As one of the few proven small-satellite launch providers to have successfully delivered payloads to their intended orbit, we believe we are well-positioned to benefit from these attractive industry tailwinds. Therefore, we plan to leverage our existing launch capabilities and our track record as a systems integrator to provide end-to-end value-added services for Internet of Things (“IoT”) and Earth Observation (“EO”) applications through the combination of agreements with satellite operators and a satellite constellation we will own and operate. Using a satellite-as-a-service model, we expect to deploy our own satellites in the next few years to serve government and commercial, both domestically and internationally.
Technology Innovation
We design, build, test, and launch LauncherOne in-house and operate at the forefront of composite structures, liquid rocket engines, ultra-responsive launch systems, ruggedized avionics, optimized flight software, automated flight safety systems, and advanced manufacturing techniques. We believe the synergy of these technologies enables greater responsiveness to the commercial and government small-satellite markets. Our unique air-launch system launches satellites into space from a
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rocket carried beneath the wing of a modified Boeing 747-400, meaning it has greater flexibility, mobility and responsiveness than other satellite launch systems. To continue establishing market share and attracting customers, we plan to continue our substantial investments in research and development for the continued enhancements of LauncherOne and commercialization of future generations of our rockets.
Manufacturing Capacity
As we plan to continue to scale our production of rockets for our small-satellite services, we are making significant investments in capital expenditures for building and enhancing our manufacturing capacity and facilities. We expect our capital expenditures to continue to increase for the next several years. The amount and timing of our future manufacturing capacity requirements, and resulting capital expenditures, will depend on many factors, including the pace and results of our research and development efforts to meet technological development milestones, our ability to develop and manufacture rockets, our ability to achieve sales, and customer demand for our rockets at the levels we anticipate. Our headquarters in Long Beach, California has combined facility space of 195,000 square feet and is used for design, engineering, manufacturing, integration, assembly, test activities, payload processing and encapsulation. As of September 30, 2022, we had approximately five rockets in production and the processes, technology and machinery/tooling to support a production capacity of approximately 20 rockets annually.
Global Pandemic

The COVID-19 pandemic and the protocols and procedures we implemented in response to the pandemic caused delays to our business and operations, which led to accumulated impacts to both schedule and cost efficiency and some delays in operational and maintenance activities, including delays in our test flight program. While we are no longer experiencing delays from these measures, the longevity and extent of the COVID-19 pandemic remain uncertain, including due to the emergence and impact of the COVID-19 variants. Measures we may need to take in the future and challenges that result from the pandemic could affect our operations necessary to complete the development of our spaceflight systems, our scheduled flight test programs and commencement of our commercial flights. See the section entitled Part II, Item 1A. "Risk Factors" for further discussion of the impacts of the COVID-19 pandemic on our business.
Components of Results of Operations
Revenue
Launch Related Services

Small-satellite launch operations revenue is recognized for providing customer launch services by placing payloads into orbit. Revenue for each customer payload is recognized at a point in time when the performance obligation is complete, which is typically at the point of launch. We began recognizing revenue for launch services in January 2021 from our initial launch with NASA. Our second launch was completed in June 2021, with successful deployments of payloads in each of our core offerings: commercial, civil and defense. As of the date of this Quarterly Report on Form 10-Q, we successfully completed four orbital launches since 2021, out of Mojave, California. To date, we have delivered 33 satellites to their desired orbits with high precision. We generated $32.7 million and $6.0 million of launch related service revenue during the nine months ended September 30, 2022 and 2021, respectively, from launch related services. We expect a significant portion of our future revenue growth to be derived from further commercialization of our small-satellite launch operations and expansion of our portfolio of space offerings.
Engineering Services
We also generate revenue by providing engineering services, which primarily relates to research and studies, to our customers. Revenue is recognized as control of the performance obligation is transferred over time to the customer. As of September 30, 2022, we have five engineering service revenue contracts for which we expect to transfer all remaining performance obligations to the customers by the year ended December 31, 2027. We expect that we will continue to earn revenue from engineering services, but that such revenue will represent a smaller portion of our future revenue growth compared to launch services. We generated $0.3 million and $1.2 million for the nine months ended September 30, 2022 and 2021, respectively, from engineering services.
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Cost of Revenue

Cost of revenue relates to launch services and engineering services, which primarily includes costs for materials and human capital, such as payroll and benefits for our launch and flight operations. We expect that we will continue to incur cost of revenue from launch services and engineering services. Since LauncherOne achieved technological feasibility in January 2021, we began capitalizing and subsequently charging to cost of revenue the costs incurred to launch small-satellites. Costs associated with launch services include the costs for rocket manufacturing, overhead, and launch. Costs for rocket manufacturing include materials, labor, fuel, payroll and benefits for our launch and flight operations as well as the depreciation of Cosmic Girl, maintenance and depreciation of facilities and equipment and other allocated overhead expenses. As we continue to grow our revenue from further commercialization of our small-satellite launch operations and expansion of our portfolio of space offerings, we expect that our cost of revenue will increase.
Gross Profit and Gross Margin
Gross profit is calculated as revenue less cost of revenue. Gross margin is the percentage obtained by dividing gross profit by its revenue. Our gross profit and gross margin have varied historically based on the mix of revenue from small-satellite launch services and engineering services. Although our gross profit and gross margin may continue to vary by offering as we scale our business, we expect our overall gross profit and gross margin to improve over time.
Selling, General and Administrative Expense
Selling, general and administrative expenses consist of personnel-related expenses related to general corporate functions, primarily including executive management and administration, finance and accounting, legal, business development, and government affairs, as well as certain allocated costs. Personnel-related expenses primarily include salaries and benefits. Allocated costs include costs related to information technology, facilities, human resources and safety. Personnel-related expenses also include allocated sustaining activities relating to launch operations and production processes support, including required launch system maintenance, updates and documentation.

As we continue to grow, we expect that our selling, general and administrative costs will increase. We also expect to incur additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general liability and director and officer insurance, investor relations and professional services.
Research and Development Expense
We conduct research and development activities to develop existing and future technologies that advance our satellite launch and space solution offerings. Research and development activities include basic research, applied research, concept formulation studies, design, development and related test program activities. Costs incurred to develop our LauncherOne rockets primarily include equipment, material, labor and overhead. Costs incurred for performing test flights primarily include labor and fuel expenses for launch and flight operations. Research and development costs also include rent, maintenance, and depreciation of facilities and equipment and other allocated overhead expenses. We plan to continue to make substantial investments in research and development for the continued enhancements of LauncherOne and the development of a third stage modified LauncherOne for additional services. As LauncherOne achieved technical feasibility in January 2021, we began capitalizing the production costs of our LauncherOne rockets.
Interest Expense, net
Interest expense, net relates to the cost of financing our convertible note, finance lease obligations, cost of financing our director and officer insurance, and income from interest bearing demand deposit accounts
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Change in fair value of equity investments
Change in fair value of equity investments consists of the changes in fair value of our equity investments.

Change in fair value of liability classified warrants

Change in fair value of liability classified warrants relates to remeasurement of our public and private placement warrants to fair value as of any respective exercise date and as of each subsequent balance sheet date.

Change in fair value of convertible note

Change in fair value of convertible note relates to remeasurement of our convertible note to fair value as of any respective conversion date and as of each subsequent balance sheet date.

Other Income
Other income consists of sources of income that are not related to our primary operations, including miscellaneous non-operating items, such as income recognized from non-ordinary course of business activities.
Income Tax Provision
Our provision for income taxes consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in the tax law. We maintain a valuation allowance against the full value of our U.S. and state net deferred tax assets because we believe it is more likely than not that the recoverability of these deferred tax assets will not be realized.
Results of Operations

The following table sets forth our results of operations for the periods presented. The period-to-period comparisons of financial results are not necessarily indicative of future results.
(In thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue
$30,907 $2 $33,023 $7,230 
Cost of revenue
40,396 8,697 61,264 25,370 
Gross loss
(9,489)(8,695)(28,241)(18,140)
Selling, general and administrative expenses
30,745 27,163 91,016 67,126 
Research and development expenses
10,263 9,035 30,201 38,482 
Operating loss
(50,497)(44,893)(149,458)(123,748)
Other income, net:
Change in fair value of equity investments(340)4,852 (9,160)4,852 
Change in fair value of liability classified warrants4,182 — 15,862 — 
Change in fair value of convertible note3,153 — 3,153 — 
Interest expense, net(508)(6)(588)(19)
Other income
367 1,457 690 3,352 
Total other income, net:6,854 6,303 9,957 8,185 
Loss before income taxes
(43,643)(38,590)(139,501)(115,563)
Provision for income taxes
— — 4 — 
Net loss
$(43,643)$(38,590)$(139,505)$(115,563)
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For the Three and Nine Months Ended September 30, 2022 Compared to the Three and Nine Months Ended September 30, 2021
Revenue
(In thousands, except %)
Three Months Ended
September 30,		$
change		%
change		Nine Months Ended September 30,$
change		%
change
2022202120222021
(In thousands, except %)(In thousands, except %)
Revenue
$30,907 $2 $30,905 N/M$33,023 $7,230 $25,793 357 %
Revenue increased by $30.9 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, which was primarily attributable to launch related service revenues completed during the three months ended September 30, 2022 compared to no launch related service revenue during the three months ended September 30, 2021.
Revenue increased by $25.8 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, which was primarily attributable to increase in launch related service revenues completed during the nine months ended September 30, 2022.
Cost of Revenue and Gross Loss
(In thousands)
Three Months Ended
September 30,		$
change		%
change		Nine Months Ended September 30,$
change		%
change
2022202120222021
Revenue
$30,907 $2 $30,905 N/M$33,023 $7,230 $25,793 357 %
Cost of revenue
40,396 8,697 31,699 364 %61,264 25,370 35,894 141 %
Gross loss
$(9,489)$(8,695)$(794)9 %$(28,241)$(18,140)$(10,101)56 %
Gross margin
(31)%N/M  (86)%(251)%  
Cost of revenue increased by $31.7 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to costs of launch related service revenue, additional provisions for contract losses booked on future launches, manufacturing variances, and inventory adjustments to net realizable value related to certain rocket builds that were not recoverable.

For the nine months ended September 30, 2022, the increase of $35.9 million in cost of revenue is primarily due to costs of launch related service revenue, additional provisions for contract losses booked on future launches, manufacturing variances, and inventory adjustments to net realizable value related to certain rocket builds that were not recoverable.

Gross loss increased by $0.8 million, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Gross loss increased by $10.1 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.
Selling, General and Administrative Expenses
(In thousands)
Three Months Ended
September 30,		$
change		%
change		Nine Months Ended September 30,$
change		%
change
2022202120222021
Selling, general and administrative expenses
$30,745 $27,163 $3,582 13 %$91,016 $67,126 $23,890 36 %
Selling, general and administrative expenses increased by $3.6 million, or 13%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, which was due to the net increase of $3.6 million primarily due to general corporate expenses related to new public company costs which includes directors and officers insurance, professional and legal fees, stock-based compensation, training, brand license fees, equipment maintenance and travel
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expenses and changes in expense classification of certain development expenses for facilities and overhead due to sustaining expenses after achieving technological feasibility for both the launch operations and production processes.

Selling, general and administrative expenses increased by $23.9 million, or 36%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, which was primarily attributable to the increase in facilities and overhead of approximately $8.1 million due to our change in expense classification of certain development expenses to sustaining expenses after achieving technological feasibility for both the launch operations and production processes and the increase general corporate expenses of $15.7 million primarily related to new public company costs for directors and officers insurance, professional and legal fees, stock-based compensation, advertising, brand license, marketing, equipment maintenance, development labor, and travel expenses.

Research and Development Expenses
(In thousands)
Three Months Ended
September 30,		$
change		%
change		Nine Months Ended September 30,$ change%
change
2022202120222021
Research and development
expenses
$10,263 $9,035 $1,228 14 %$30,201 $38,482 $(8,281)(22)%
Research and development expenses increased by $1.2 million, or 14%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, which was primarily attributable to the increase in research and development personnel-related expenses of approximately $3.5 million, partially offset by the decrease in facilities, overhead and general corporate expenses of approximately $2.2 million due to the transition from development into sustaining activities for both launch operations and production processes.
Research and development expenses decreased by $8.3 million, or 22%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, which was primarily attributable to the decrease in contract labor of approximately $3.0 million and approximately $5.1 million of lower facilities, overhead and general corporate expenses due to the transition from development into sustaining activities for both launch operations and production processes.
Change in fair value of equity investments
(In thousands)
Three Months Ended
September 30,		$
change		%
change		Nine Months Ended September 30,$
change		%
change
2022202120222021
Change in fair value of equity investments
$(340)$4,852 $(5,192)(107)%$(9,160)$4,852 $(14,012)(289)%
The change in fair value of equity investments of $5.2 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was attributable to changes in unrealized gains (losses) from the equity investment in Arqit that was acquired during the third quarter of 2021.
The change in fair value of equity investments of $14.0 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was attributable to changes in unrealized gains (losses) from the equity investment in Arqit.
Change in fair value of liability classified warrants
(In thousands)
Three Months Ended
September 30,		$
change		%
change		Nine Months Ended September 30,$
change		%
change
2022202120222021
Change in fair value of liability classified warrants
$4,182 $— $4,182 N/A$15,862 $— $15,862 N/A
There was a $4.2 million and $15.9 million change in fair value of liability classified warrants for the three and nine months ended September 30, 2022, respectively, as a result of a decrease in the price of our common stock. The public and private placement warrants were assumed by the Company from NextGen as part of the Business Combination on
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December 29, 2021. The public and private placement warrants are recorded on the balance sheet at fair value with the carrying amount subject to remeasurement to fair value as of any respective exercise date and as of each subsequent balance sheet date.
Change in fair value of convertible note
(In thousands)
Three Months Ended
September 30,		$
change		%
change		Nine Months Ended September 30,$
change		%
change
2022202120222021
Change in fair value of convertible note
3,153 — $3,153 N/A3,153 — $3,153 N/A
There was a $3.2 million decrease in fair value of convertible note for the three and nine months ended September 30, 2022 primarily attributable to increased interest rates for comparable financing instruments. The convertible note was sold and issued to YA II PN, Ltd. (the “Investor”) on June 29, 2022 in the principal amount of $50.0 million, which is convertible into shares of our common stock. The convertible note is recorded on the balance sheet at fair value with the carrying amount subject to remeasurement to fair value as of each subsequent balance sheet date.
Interest Expense, Net
(In thousands)
Three Months Ended
September 30,		$
change		%
change		Nine Months Ended September 30,$
change		%
change
2022202120222021
Interest expense, net
$(508)$(6)$(502)N/M$(588)$(19)$(569)N/M
Interest expense, net increased $0.5 million, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily attributable to accrued interest of $0.8 million related to the convertible note, offset by the increase in money market interest income of $0.3 million.
Interest expense, net increased $0.6 million, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily attributable to accrued interest of $0.8 million related to the convertible note, interest expense for financing of our director and officer insurance of $0.1 million, offset by the increase in money market interest income of $0.3 million.
Other Income
(In thousands)
Three Months Ended
September 30,		$
change		%
change		Nine Months Ended September 30,$
change		%
change
2022202120222021
Other income, net
$367 $1,457 $(1,090)(75)%690 3,352 $(2,662)(79)%

Other income decreased by $1.1 million, or (75)% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily as a result of the non-refundable deposit of $1.2 million for Sky and Space Global Limited (“SAS”) in consideration for the termination of the launch service agreement (“LSA”), offset by other SAS income during the three months ended September 30, 2022.
Other income decreased by $2.7 million, or (79)% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to a non-refundable deposit of $1.2 million for Sky and Space Global Limited (“SAS”) in consideration for the termination of the launch service agreement (“LSA”) and initial recognition of the initial ordinary shares of SAS issued to us in consideration for the termination of the LSA of $1.7 million as an equity investment, offset by other SAS income during the nine months ended September 30, 2022.
Provision for Income Taxes
Provision for income taxes was immaterial for the three and nine months ended September 30, 2022 and 2021. We have accumulated net operating losses at the federal and state level for the time period during which we had not yet began
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commercial operations. We maintain a substantially full valuation allowance against net deferred tax assets. The income tax expenses are primarily related to minimum state filing fees in the states where we have operations.
Liquidity and Capital Resources
Liquidity Requirements
We expect our expenses to increase in connection with ongoing activities, particularly as we continue to advance the development of our technologies, commercialize our satellite launch operations and continue to develop our space solution offerings, and continue to build and expand our production of rockets and aircraft.
Specifically, we expect our operating expenses to increase as we:
•scale up our facilities, manufacturing processes and capabilities to support expanding our volume of rockets;
•pursue further research and development on our satellite launches and space solution offerings, including those related to our research and education efforts;
•hire additional personnel in research and development, manufacturing operations, testing programs and maintenance as we increase the volume of our satellite launches and expand our space solution offerings;
•seek regulatory approval for any changes, upgrades, or improvements to our technologies and operations in the future; and
•hire additional personnel in management to support the expansion of our operational, financial and information technology functions as a public company.
We have several non-cancelable leases primarily related to the lease of our manufacturing and testing facilities. These leases generally contain renewal options for periods ranging from three to ten years and require us to pay all executory costs, such as maintenance and insurance. Our total remaining lease obligation as of September 30, 2022 is $21.7 million, with $0.8 million due in less than one year. We also have non-cancelable purchase commitments as of September 30, 2022 primarily related to supply and engineering services providers. Total non-cancelable purchase commitments due in the next five years is approximately $45.0 million, with $23.1 million due in less than one year.

Additionally, we are expanding our satellite launch operations and space solution offerings since commercialization. As of September 30, 2022, we had five rockets in various stages of production and one carrier aircraft in operation. We expect to accelerate our production of rockets to reach an annual production capacity of approximately 20 rockets. We have significantly reduced the per unit cost of producing rockets since production began. As such, we anticipate the costs to manufacture additional rockets to continue to decrease on a per unit basis as we advance and scale up our manufacturing processes and capabilities. However, the recent commercialization of our satellite launch and space solution offerings and the anticipated expansion of our rocket production have unpredictable costs and are subject to significant risks, uncertainties and contingencies, many of which are beyond our control, that may affect the timing and magnitude of these anticipated expenditures. Many of these risks and uncertainties are described in more detail in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q. Our future capital requirements will depend on many factors, including rate of revenue growth, ability to reduce costs per unit, the expansion of research and development activities, hiring additional personnel, and investment in manufacturing operations. We may sell equity securities or debt securities or secure other debt financing in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such equity securities in subsequent transactions, our current investors may be materially diluted. Any debt financing, if available, may involve restrictive covenants and could reduce our operational flexibility or profitability.

Going Concern and Sources of Liquidity

The unaudited condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these unaudited condensed consolidated interim financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

Prior to the Business Combination, our operations participated in cash management and funding arrangements managed by Virgin Investment Limited (“VIL”). Only cash and cash equivalents held in bank accounts legally owned by our entities are reflected in the consolidated balance sheets. Cash and cash equivalents held in bank accounts legally owned by the Parent
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Company were not directly attributable to us for any of the periods presented. Transfers of cash, both to and from us, have been reflected as a contribution from or a distribution to the Parent Company in the consolidated balance sheets and as a financing activity on the accompanying consolidated statements of cash flows.

Our principal sources of liquidity following the Business Combination have been our cash and cash equivalents, including proceeds from our issuance and sale of a convertible debenture to the Investor (described more fully below) Yorkville and of a convertible note to VIL, and any additional capital that may be obtained through borrowings or additional sales of securities. As of September 30, 2022, we had an accumulated deficit of $960.0 million and cash and cash equivalents of $71.2 million. Our net loss and net cash used in operating activities for the nine months ended September 30, 2022 was $139.5 million and $158.0 million, respectively. We have not generated positive cash flows from operations or sufficient revenues to provide sufficient cash flows to enable us to finance our operations internally, and may not be able to raise sufficient capital to do so. As a result of the Company’s assessment of going concern considerations, management has determined that the liquidity condition raises substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans to mitigate an expected shortfall of capital to support future operations include expanding commercial operations, raising additional funds through borrowings or additional sales of securities or other sources, and managing our working capital. There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company or whether the Company will become profitable and generate positive operating cash flow. If the Company is unable to raise substantial additional capital, operations and production plans may be scaled back or curtailed. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Convertible Debenture with YA II PN, Ltd.

In June 2022, we entered into a securities purchase agreement (the “Purchase Agreement”) with the Investor, pursuant to which we sold and issued to the Investor a convertible debenture in the principal amount of $50.0 million, which is convertible into shares of our common stock, subject to certain conditions and limitations set forth in the Purchase Agreement. The Investor is obligated to use commercially reasonable efforts to convert $2.7 million of the convertible debenture in each 30-day period beginning on August 28, 2022, provided that the certain conditions are satisfied as of each such period.

The convertible debenture bears interest at an annual rate of 6.0% and has a maturity date of December 29, 2023. The convertible debenture provides a conversion right, in which any portion of the principal amount of the convertible debenture, together with any accrued but unpaid interest, may be converted into shares of our common stock at a conversion price equal to the lower of (i) $4.64 or (ii) 95% of the average of the two lowest daily volume weighted average price of our common stock during the three (3) trading days immediately preceding the date of conversion (but not lower than a certain floor price, currently set at $2.52, that is subject to further adjustment in accordance with the terms of the convertible debenture).

The convertible debenture may not be converted into common stock to the extent such conversion would result in the Investor and its affiliates having beneficial ownership of more than 9.99% of our then outstanding shares of common stock; provided that this limitation may be waived by the Investor upon not less than 65 days’ prior notice to us. The convertible debenture provides us, subject to certain conditions, with a redemption right pursuant to which, upon three business days’ prior notice to the Investor in the case of a partial redemption or ten business days’ notice in the case of a full redemption, we may redeem, in whole or in part, any of the outstanding principal and interest thereon at a redemption price equal to 2.5% of the principal amount being redeemed up until October 1, 2022, and thereafter at a redemption price equal to 5.0% of the principal amount being redeemed.

Standby Equity Purchase Agreement

In March 2022, we entered into a standby equity purchase agreement (the “SEPA”) with the Investor, pursuant to which we have the right from time to time at our option to sell to the Investor up to $250.0 million of our common stock, subject to certain conditions and limitations set forth in the SEPA.

Upon the initial satisfaction of the conditions to the Investor's obligation to purchase shares of common stock set forth in the SEPA (the “Commencement”), including that a registration statement registering the resale by the Investor of the shares of common stock under the Securities Act that may be sold to the Investor by us under the SEPA is declared effective by the SEC and a final prospectus relating thereto is filed with the SEC, we will have the right, but not the obligation, from time to time at our sole discretion until the first day of the month next following the 36-month period from and after the
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date of the SEPA, to direct the Investor to purchase up to a specified maximum amount of shares of common stock as set forth in the SEPA by delivering written to the Investor. The purchase price of the shares of common stock that we may sell to the Investor pursuant to the SEPA will be 97.5% of the average of the volume weighted average price of our common stock during each trading day in the three (3) consecutive trading days commencing on the trading day following delivery of such a notice (other than any trading days excluded pursuant to the terms of the Purchase Agreement). The maximum amount to be sold pursuant to each notice may not exceed $50 million, and a notice cannot be delivered earlier than six trading days following the pricing period relating to any prior Notice. Any shares of common stock that may be sold by us under the SEPA will be sold in transactions exempt from registration under the Securities Act in reliance upon the exemption afforded under Section 4(a)(2).

The SEPA prohibits us from directing the Investor to purchase any shares of common stock pursuant to the SEPA if those shares, when aggregated with all other shares of our common stock then beneficially owned by the Investor and its affiliates, would result in the Investor and its affiliates having beneficial ownership of more than the 9.99% of our then outstanding shares of common stock. Additionally, under applicable Nasdaq rules, we may not issue to the Investor more than 19.99% of the total number of shares of common stock that were outstanding immediately prior to the execution of the SEPA without prior stockholder approval, unless certain stipulations are met. The SEPA also provides that we may request a pre-advance loan from the Investor in a principal amount not to exceed $50.0 million. Subject to the terms of the SEPA, we have the right to terminate the SEPA at any time after Commencement, at no cost or penalty, upon five (5) trading days’ prior written notice. In connection with the execution of the Purchase Agreement in June 2022, we agreed with the Investor not to sell to the Investor any shares under the SEPA until the earlier of the date upon which (i) all amounts outstanding under the convertible debenture have been fully repaid or converted into shares of common stock or (ii) the Investor no longer has any right or ability to convert any portion of the convertible debenture into shares of common stock.

We have agreed with the Investor not to sell to the Investor any shares under the SEPA until the earlier of the date upon which (i) all amounts outstanding under the convertible debenture purchased from us by the Investor have been fully repaid or converted into shares of common stock or (ii) the Investor no longer has any right or ability to convert any portion of the convertible debenture into shares of common stock.

Convertible Note with Virgin Investments Limited

On November 4, 2022, we sold and issued to VIL a senior unsecured convertible note (the “Convertible Note”) in the principal amount of $25.0 million, which is convertible into shares of our common stock or other Qualified Securities (as defined below), subject to certain conditions and limitations set forth in the Convertible Note. We sold and issued the Convertible Note pursuant to a subscription agreement, dated as of November 4, 2022 (the “Subscription Agreement”), between us, VIL and our domestic subsidiaries named therein that are jointly and severally guaranteeing our obligations under the Convertible Note (the “Guarantors”). We will use the net proceeds from the Convertible Note for working capital.

The Convertible Note contains customary events of default, bears interest at an annual rate of 6.0% (or 10.0% during the continuance of an event of default under the Convertible Note), payable in cash semi-annually, and has a maturity date of November 4, 2024, unless earlier repurchased, converted or redeemed in accordance with its terms prior to such date. Subject to any limitations under the rules of Nasdaq Stock Market, the Convertible Note will automatically convert into Qualified Securities (as defined below) at a conversion price equal to the purchase price paid by investors in the relevant Qualified Financing (as defined below) if, prior to the earliest to occur of November 4, 2024, any Fundamental Change Effective Date and the effective date of any Merger Event (each as defined in the Convertible Note), we consummate a bona fide third-party financing of our common stock or securities convertible into or exchangeable for our common stock for gross cash proceeds of at least $50.0 million (excluding any securities purchased by VIL or its affiliates) in one or more related and substantially similar and simultaneous transactions at the same price (a “Qualified Financing” and the securities sold in such Qualified Financing, the “Qualified Securities”). VIL will have the option to convert all or a portion of the Convertible Note in accordance with such terms in a financing by us that would have been a Qualified Financing but for the gross cash proceeds in such financing being less than $50.0 million, with such conversion effected as described above as if such financing were a Qualified Financing. Additionally, on or after October 15, 2024, VIL has the right to convert all or any portion of the Convertible Note into shares of common stock at an initial conversion rate of 345.5425 shares of common stock per $1,000 principal amount of the Convertible Note (subject to adjustments as provided in the Convertible Note, the “Fixed Conversion Rate”). In the event of a Fundamental Change, a Merger Event (each as defined in the Convertible Note) or a redemption of the Convertible Note by us, or if any automatic conversion in connection with a Qualified Financing would be subject to limitations set forth in the relevant rules of Nasdaq Stock Market, VIL has the right to convert the Convertible Note at the Fixed Conversion Rate. Prior to the Maturity Date, we may redeem all or part of the Convertible Note for cash at a redemption price equal to 100% of the principal amount of the Convertible Note to be
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redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Convertible Note contains a covenant that restricts our and the Guarantors’ ability to incur liens on our and the Guarantors’ assets and properties without VIL’s consent. If we undergo a Fundamental Change (as defined in the Convertible Note), then, subject to certain conditions, VIL may require us to repurchase for cash all or any portion of the Convertible Note at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Note to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. Initially, a maximum of 8,638,563 shares of the common stock may be issued upon conversion of the Convertible Note at the Fixed Conversion Rate, subject to adjustment provisions included in the Convertible Note.
Cash Flows
Historical Cash Flows
The following table summarizes our cash flows for the nine months ended September 30, 2022 and 2021:
Nine Months Ended September 30,
(In thousands)
20222021
Cash used in operating activities
$(157,991)$(111,694)
Cash used in investing activities
(17,025)(21,791)
Cash provided by financing activities
51,228 138,705 
Net (decrease) increase in cash and cash equivalents
$(123,788)$5,220 
Net Cash Used in Operating Activities
For the nine months ended September 30, 2022, net cash used in operating activities was $158.0 million primarily consisting of $139.5 million of net loss, adjusted for $12.0 million of non-cash and cash charges, and a decrease in net operating assets and liabilities of $30.5 million. The non-cash charges primarily included the charges in stock-based compensation of $12.0 million, depreciation and amortization of $9.6 million, the change in fair value of the equity investment in Arqit of $9.2 million, inventory write-down of $0.3 million, offset by the decrease for the change in fair value of liabilities classified as warrants of $15.9 million and the change in fair value of convertible note of $3.2 million. The net change in cash operating assets and liabilities are primarily due to the increase in inventory of $24.3 million, decrease in deferred revenue of $14.0 million and accounts payable of $9.4 million. For the nine months ended September 30, 2021, net cash used in operating activities was $111.7 million primarily consisting of $115.6 million of net loss, adjusted for $14.1 million of non-cash and cash charges and a decrease in net operating assets and liabilities of $10.2 million. Deferred revenue decreased due to launch related service revenues recognized during the nine months ended September 30, 2021. The non-cash charges primarily included charges for depreciation and amortization of $10.8 million, stock-based compensation of $8.3 million inventory write-down of $1.6 million offset by the decrease for the change in fair value of equity investment in Arqit of $4.9 million and the non-cash initial investment in SAS of $1.7 million. The net change in cash operating assets and liabilities are primarily due to the increase in inventory of $24.3 million and deferred revenue of $11.7 million.
Net Cash Used in Investing Activities
For the nine months ended September 30, 2022 and 2021, net cash used in investing activities was $17.0 million and $21.8 million, respectively. The nine months ending September 30, 2022 primarily consisted of $17.1 million for purchases of property and equipment. The nine months ending September 30, 2021 primarily consisted of $16.8 million for purchases of property and equipment and $5.0 million of investment in Arqit.
Cash Provided by Financing Activities
Net cash provided by financing activities was $51.2 million for the nine months ended September 30, 2022, consisting primarily of $50.0 million cash proceeds on convertible note, $1.5 million in proceeds from the exercise of stock options, offset by $0.2 million payments for finance lease obligations. Net cash provided by financing activities was $138.7 million for the nine months ended September 30, 2021, consisting primarily of equity contributions received from the Parent Company of $137.1 million, $1.7 million of proceeds from stock options exercised, offset by $0.2 million payments of finance lease obligations.
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Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report are prepared in accordance with GAAP. We evaluated the development and selection of our critical accounting policies and estimates and believe that the following involve a higher degree of judgment or complexity and are most significant to reporting our results of operations and financial position and are therefore discussed as critical. The following critical accounting policies reflect the significant estimates and judgements used in the preparation of our condensed consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions due to the inherent uncertainty involved in making those estimates and any such differences may be material. We re-evaluate our estimates on an ongoing basis.
We believe that the following accounting policies involve a high degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our condensed consolidated financial condition and results of our operations. Refer to Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report for a description of other significant accounting policies.

There have been no material changes in the critical accounting policies previously identified in our 2021 Annual Report on Form 10-K.
Recent Accounting Pronouncements
Please refer to Note 3 - Recently Issued Accounting Pronouncements to our condensed consolidated financial statements included elsewhere in this Quarterly Report for a description of recently issued accounting pronouncements.
Emerging Growth Company Accounting Election
Section 102(b)(1) of the JOBS Act exempts “emerging growth companies” as defined in Section 2(A) of the Securities Act, from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. Virgin Orbit is an “emerging growth company” and has elected to take advantage of the benefits of this extended transition period.
Virgin Orbit will use this extended transition period for complying with new or revised accounting standards that have different effective dates for public business entities and non-public business entities until the earlier of the date Virgin Orbit (a) is no longer an emerging growth company or (b) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. The extended transition period exemptions afforded by Virgin Orbit’s emerging growth company status may make it difficult or impossible to compare Virgin Orbit’s financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of this exemption because of the potential differences in accounting standards used. Refer to Note 2 of our condensed consolidated financial statements included elsewhere in this Quarterly Report for the recent accounting pronouncements adopted and the recent accounting pronouncements not yet adopted as of September 30, 2022.
Virgin Orbit will remain an “emerging growth company” under the JOBS Act until the earliest of (a) December 31, 2026, (b) the last date of Virgin Orbit’s fiscal year in which Virgin Orbit has total annual gross revenue of at least $1.07 billion, as increased for inflation, (c) the last date of Virgin Orbit’s fiscal year in which Virgin Orbit is deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (d) the date on which Virgin Orbit has issued more than $1.0 billion in non-convertible debt securities during the previous three years.
Item 3. Quantitative and Qualitative Disclosures About Market Risk 

During the nine months ended September 30, 2022, there were no material changes to the information contained in Part II, Item 7A of the Company’s 2021 Annual Report on Form 10-K.

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Item 4. Controls and Procedures
Background and Remediation of Material Weaknesses

In connection with the audit of our consolidated financial statements as of and for the year ended December 31, 2020, we identified two material weaknesses in our internal control over financial reporting for which we continue to remediate. 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.
The first material weakness is related to the lack of sufficient personnel to execute, review and approve all aspects of the financial statement close and reporting process. This material weakness may not allow for the proper segregation of duties and the ability to close our books and records and report our results, including required disclosures, on a timely basis. The second material weakness arises from the need to augment IT and application controls in our financial reporting.
We have begun the process of, and we are focused on, designing and implementing effective internal controls measures to improve our internal control over financial reporting and remediate the material weaknesses. Our efforts include several actions:
•we are designing and implementing additional review procedures within our accounting and finance department to provide more robust and comprehensive internal controls over financial reporting that address the relative financial statement assertions and risks of material misstatement within our business processes;
•we are actively recruiting additional personnel, in addition to engaging and utilizing third party consultants and specialists, to supplement our internal resources and segregate key functions within our business processes, if appropriate;
•we are designing and implementing IT and application controls in our financially significant systems to address our relative information processing objectives;
•we are enhancing our system’s role-based access and implementing automated controls to help improve the reliability of our process and reporting; and
•finally, we are designing and implementing additional integration in our financially significant systems to provide the IT processes alongside efforts in business processes, which are supporting our internal control over financial reporting.

As of the date of this Quarterly Report on Form 10-Q, we have completed the following actions:

•we designed additional review procedures within our accounting and finance department to provide more robust and comprehensive internal controls over financial reporting that address the relative financial statement assertions and risks of material misstatement within our business processes;

•we hired additional personnel, and have engaged third party consultants and specialists to supplement our internal resources; and

•we designed IT and application controls in our financially significant systems to address our relative information processing objectives.

The actions that we are taking are subject to ongoing senior management review, as well as oversight of the audit committee of our Board of Directors. We also may conclude that additional measures may be required to remediate the material weaknesses or determine to modify the remediation plans described above. We will not be able to conclude that we have remediated the material weaknesses until the applicable controls are fully implemented and operate for a sufficient period of time and management has concluded, through formal testing, that these controls are operating effectively. We will continue to monitor the design and effectiveness of these and other processes, procedures, and controls and make any further changes management deems appropriate.

The material weaknesses described above did not result in any material misstatements in our financial statements or disclosures. Based on additional procedures and post-closing review, management concluded that the consolidated
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financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. While we continue to remediate the material weaknesses described above, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of September 30, 2022 due to the material weaknesses in our internal control over financial reporting described above.

However, after giving full consideration to these material weaknesses, and the additional analyses and other procedures that we performed to ensure that our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q were prepared in accordance with U.S. GAAP, our management has concluded that our condensed consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. GAAP.

Changes in Internal Control over Financial Reporting

Other than as described above, there have been no material changes in our internal control over financial reporting in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended September 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1.    Legal Proceedings
We are, from time to time, subject to various claims, lawsuits and other legal and administrative proceedings arising in the ordinary course of business. Some of these claims, lawsuits and other proceedings may involve highly complex issues that are subject to substantial uncertainties, and could result in damages, fines, penalties, non-monetary sanctions or relief. However, we do not consider any such claims, lawsuits or proceedings that are currently pending, individually or in the aggregate, to be material to our business or likely to result in a material adverse effect on our future operating results, financial condition or cash flows. The outcome of legal matters and litigation, however, is inherently uncertain and therefore if one or more of these legal matters were resolved against us for amounts in excess of our expectations, our results of operations, and financial condition, including in a particular reporting period, could be materially adversely affected.
Item 1A. Risk Factors

In addition to the risks and uncertainties discussed above under “Cautionary Note Regarding Forward-Looking Statements,” you should carefully consider the specific risks set forth herein. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described in this Quarterly Report are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business. The following discussion should be read in conjunction with the financial statements and notes to the financial statements included herein.
Risks Related to Our Business and Industry

We will require additional financing to expand our operations and grow our business, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our research and development, operations or commercialization efforts, which could have a material adverse effect on our business, financial condition, results of operations and prospects, including the possibility that a lack of funds could cause our business to fail and liquidate with little or no return to investors.

Since inception, our operations have consumed substantial amounts of cash, which was funded primarily through cash flows financed by our previous corporate parent, Vieco 10 (“Vieco 10”) until December 29, 2021, the date on which Virgin Orbit consummated the transaction that resulted in its business becoming a public company. Our net losses were $139.5 million and $115.6 million for the nine months ended September 30, 2022 and 2021, respectively. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. While we have generated limited revenue from our initial launches, we only began commercial launch operations in 2021, and it is difficult for us to predict our future operating results. As a result, our losses may be larger than anticipated, and we may not achieve profitability when expected, or at all, and even if we do, we may not be able to maintain or increase our profitability. Our ability to generate profit will depend on our ability to grow our operations and drive operational efficiencies in our business to generate better margins. Assuming we have access to adequate capital to fund our operating plan, we expect our operating expenses to increase over the next several years as we increase the number of our launches each year, continue to attempt to streamline our manufacturing process, hire additional employees, increase marketing efforts, expand our sales resources, expand our commercial and civil operations, national security and defense services, including franchise spaceports and dedicated aircraft for military use, and space solutions and continue research and development efforts relating to new products and technologies. These efforts may be more costly than we expect, and we may not succeed in increasing our revenue sufficiently to offset these expenses or realize the benefits we anticipate. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving or maintaining profitability or positive cash flow. Our future growth and operating performance may fail to meet investor or analyst expectations, or we may have future negative cash flow or losses resulting from our investment in acquiring customers or expanding our operations. In addition, other unanticipated costs may arise.

Additional factors may further accelerate our need for additional financing, including if our revenues are lower than expected, or if our costs and expenses on a go-forward basis are higher than expected; furthermore, our operating plan may change as a result of many factors, including those currently unknown to us, and we may need to seek additional funds sooner than planned, in each case, through public or private equity, debt financings or other sources. We may sell equity securities or debt securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, our current investors may be materially diluted. Any debt financing,
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if available, may involve restrictive covenants and could reduce our operational flexibility or profitability. Our management continues to monitor market conditions and pursue additional sources of capital.

Additional funding may not be available to us on acceptable terms, or at all, and any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop, enhance or operate our launch services, improve our operating infrastructure, acquire complementary businesses and technologies, or develop and expand marketing and sales resources or engage in commercialization efforts. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations. If adequate funds are not available on a timely or reasonable basis, we may be required to delay, limit, reduce or terminate our research and development, operations or commercialization efforts. We could be forced to sell or dispose of certain of our rights or assets. Any inability to raise adequate funds on commercially reasonable terms could have a material adverse effect on our business, financial condition, results of operations and prospects, including the possibility that a lack of funds could cause our business to fail and liquidate with little or no return to investors.

Our losses from operations and liquidity conditions raise substantial doubt regarding our ability to continue as a going concern.

As of September 30, 2022, we have not generated positive cash flows from our operations or generated sufficient revenues to provide sufficient cash flows to enable us to finance our operations internally. We have incurred significant losses since our inception and had an accumulated deficit of $960.0 million as of September 30, 2022 and we expect to continue to incur net losses. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date of the issuance of the unaudited interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Our ability to continue as a going concern is dependent on our ability to generate cash flows from operations and find additional sources of funding through either equity offerings, debt financings, or a combination of any such transactions.

Management is exploring plans to mitigate an expected shortfall of capital to support future operations include expanding commercial operations, raising additional funds through borrowings or additional sales of securities or other sources, and managing our working capital. However, there is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to us or whether we will become profitable and generate positive operating cash flow. If we are unable to raise substantial additional capital, our operations and production plans may be scaled back or curtailed. . If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to the Company, there is substantial doubt that the Company will be able to continue as a going concern. If the foregoing plans are unsuccessful and we are unable to continue as a going concern, you could lose all or part of your investment in the Company.
The success of our business will be highly dependent on our ability to effectively market and sell our launch services for small low Earth orbit (“LEO”) satellites, our national security and defense services and space solutions, and to convert contracted revenues and our pipeline of potential contracts into actual revenues.
We have generated only limited revenue from launching payloads, and we expect that our success will be highly dependent, especially in the foreseeable future, on our ability to effectively market and sell our launch services for small LEO satellites. We expect that our success will also be highly dependent on our ability to effectively market and sell our launch services in connection with national security and defense services, such as missile defense targets and hypersonic applications, and space solutions, including IoT solutions. We have limited experience in marketing and selling such services and applications, and if we are unable to utilize our current or future sales organization effectively in order to adequately target and engage our potential customers, our business may be adversely affected. We also expect to expand our marketing services as part of our expansion in the near future. There can be no assurance that our investment in this regard will be successful or result in revenue growth.
We also expect that our success will be highly dependent on our ability to convert contracted revenues and our pipeline of potential contracts into actual revenues. We have received interest from a wide range of customers across various satellite applications or use cases, both in the public and private sectors. Our contracted revenues and our estimated pipeline may not fully convert into actual revenues because a majority of our customers have the right to terminate their launch service agreements if our launches are delayed beyond a specified period or if we do not achieve certain milestones. We may experience delays or we may not meet these milestones, in which case the value of our contracted revenues may be significantly lower than our current estimates. Additionally, if we are unable to keep up with the demand for our launch services from a production and delivery perspective, we may not be in a position to deliver on our contracted revenues or
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our pipeline of potential contracts. Customers may also experience defaults or bankruptcies, which may impact our ability to convert contracted revenues and our pipeline of potential contracts into actual revenues. For example, for the year ended December 31, 2020, our revenues were impacted by the bankruptcy of our largest commercial customer. See Note 17. Commitments and Contingencies in the notes to the condensed consolidated financial statements included in this Quarterly Report for further details.
We remain in active discussions with potential customers and anticipate an increase in contracted revenue as the small-satellite and satellite constellation markets and demand for national security and defense services and space solutions, such as IoT services, continue to develop. Our success depends, in part, on our ability to attract new customers and retain existing customers in a cost-effective manner. Notwithstanding our estimated contracted revenue, we expect that we will need to make significant investments in order to attract new customers. Our sales growth is dependent upon our ability to implement strategic initiatives, and these initiatives may not be effective in generating sales growth. In addition, marketing campaigns, which we have not historically utilized, can be expensive and may not result in the acquisition of customers in a cost-effective manner, if at all. Further, as our brand becomes more widely known, future marketing campaigns or brand content may not attract new customers at the same rate as past campaigns or brand content.
We may be unable to attract new customers or our number of customers may decline materially or fluctuate as a result of many factors, including, among other things:
•dissatisfaction with the quality of, or pricing of, our launch services or with changes we make to our launch services;
•competition in the launch services industry;
•negative publicity related to our brand;
•lack of market acceptance of our business model, particularly in new geographies where we seek to expand such as the United Kingdom, Brazil and Japan;
•changes to government defense spending levels; or
•the unpredictable nature of the impact of the COVID-19 pandemic and its variants or a future outbreak of disease or similar public health concern.
In addition, if we are unable to provide high-quality support to customers or help resolve issues in a timely and acceptable manner, our ability to attract and retain customers could be adversely affected. If we are unable to attract new customers or retain existing customers for any of these reasons among others, our business, financial condition and results of operations will be harmed.
The market for launch services for small LEO satellites and space solutions is not well established, is still emerging and may not achieve the growth potential we expect or may grow more slowly than expected.
The market for launch services for small LEO satellites and space solutions, such as IoT services, is not yet well established and is still emerging. Our estimates for the total addressable launch market and satellite market are based on a number of internal and third-party estimates, including our contracted revenue, the number of potential customers who have expressed interest in our services, assumed prices and production costs for our rockets, assumed launch cadence, our ability to leverage our current manufacturing and operational processes and general market conditions. While we believe our assumptions and the data underlying our estimates are reasonable, these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors. As a result, our estimates of the annual total addressable market for our services, as well as the expected growth rate for the total addressable market for our services, may prove to be incorrect.

Our ability to grow our business depends on the successful operation and performance of our launch systems and related technology and our ability to introduce new enhancements or services in a timely manner, which are subject to many uncertainties, some of which are beyond our control.
Our current forecasts depend on our ability to make further enhancements to our rockets design and specifications, including our ability to make further cost reductions and increases to the efficiency of our rockets, for example, through increases in rocket payload capacity. If we do not complete these enhancements in our anticipated timeframes or at all, our
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ability to grow our business will be adversely affected. The successful enhancement of our launch systems and development of related technology involves many uncertainties, some of which are beyond our control, including:
•timing of finalizing launch systems enhancements;
•our ability to obtain additional applicable approvals, licenses or certifications from regulatory agencies, if required, and maintaining current approvals, licenses or certifications;
•performance of our manufacturing facilities despite risks that disrupt productions, such as natural disasters and hazardous materials;
•performance of a limited number of suppliers for certain raw materials and supplied components;
•performance of our third-party contractors that support our research and development activities;
•our ability to maintain rights from third parties for intellectual properties critical to our research and development activities;
•our ability to maintain sufficient financing to fund our planned operations and capital expenditures;
•our ability to continue funding and maintain our current research and development activities; and
•the impact of the COVID-19 pandemic and its variants on us, our customers, suppliers and distributors, and the global economy.
Furthermore, the development of space solutions will require leveraging our existing launch capabilities and our track record as a systems integrator to offer smart mobility and smart logistics services and data analytics. If we are unable to introduce these new enhancements, services or leverage our capabilities in a timely and cost-effective manner, our sales, profitability and our ability to grow our business could be adversely impacted.
We may not be able to convert our contracted revenue or potential contracts into actual revenue.

We expect that our success will be highly dependent on our ability to convert contracted revenues and our pipeline of potential contracts into actual revenues. Our contracted revenues and our estimated pipeline may not fully convert into actual revenues because a majority of our customers has the right to terminate their launch service agreements if we do not achieve certain milestones, such as the timely completion of project reviews, or other termination rights stemming from launch delays. We may experience delays or we may not meet these milestones, in which case the value of our contracted revenues may be significantly lower than our current estimates. Additionally, we may determine not to consummate a binding business relationship with a counterparty with whom we only have a non-binding letter of intent or memorandum of understanding. We remain in active discussions with potential customers and anticipate an increase in contracted revenue as the markets for small-satellite launch, satellite constellations, national security and defense services and space solutions continue to develop.
Some of our existing launch service agreements include provisions allowing the customers to terminate the contracts for convenience, with a termination penalty for at least the amounts already paid, or to terminate the contracts for cause (for example, if we do not achieve certain milestones on a timely basis). If any of our significant launch service agreements is terminated and not replaced, our results of operations may differ materially and adversely from those anticipated. In addition, our contracts with government customers often contain provisions with additional rights and remedies favorable to such customers that are not typically found in commercial contracts. As a result, we may not receive some revenue from these orders, and any contracted revenue we report may not be indicative of our future actual revenue.
Many events may cause a delay in our ability to fulfil our existing or future orders, or cause planned launches not to be completed at all, some of which may be out of our control, including unexpected weather patterns, maintenance issues, technical issues, natural disasters, changes in governmental regulations or in the status of our regulatory approvals or applications or other events that force us to cancel or reschedule launches, which could have a material adverse effect on our business, financial condition and results of operations.
We routinely conduct hazardous operations when testing and launching our rockets, which could result in damage to property or persons. Unsatisfactory performance or failure of our rockets and related technology at launch or during
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operations could reduce customer confidence and have a material adverse effect on our business, financial condition and results of operations.
We manufacture and operate highly sophisticated launch systems that depend on complex technology. While we have built operational processes to ensure that the design, manufacture, performance and servicing of our launch systems meet rigorous quality standards, there can be no assurance that we will not experience operational or process failures and other problems, including through manufacturing or design defects, pilot error, cyber-attacks or other intentional acts, that could result in potential safety risks. Any actual or perceived safety issues may result in significant reputational harm to our businesses, including the loss of customer confidence in our business, in addition to tort liability, maintenance, increased safety infrastructure and other costs that may arise.

Such issues with our launch systems could result in delaying or cancelling planned launches, increased regulation or other systemic consequences. In particular, given the importance of Cosmic Girl for our launch operations, if an anomaly or defect were to be detected in Cosmic Girl, which would delay use of the aircraft, we would not be able to provide launch services for a significant amount of time. Likewise, damage to or unexpected and prolonged maintenance of Cosmic Girl would impact our launch cadence until repair, replacement or maintenance is completed.
Our inability to meet our safety standards or adverse publicity affecting our reputation as a result of accidents, mechanical failures, or damages to customer payloads could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to adapt to and satisfy customer demands in a timely and cost-effective manner, or if we are unable to manufacture our rockets at a quantity and quality that our customers demand, our ability to grow our business may suffer.
The success of our business depends in part on effectively managing and maintaining our launch services, manufacturing additional rockets and satellites, conducting a sufficient number of launches to meet customer demand and providing customers with an experience that meets or exceeds their expectations. Even if we succeed in developing rockets consistent with our targeted timeline, we could thereafter fail to develop the ability to produce these rockets at quantity with a quality management system that ensures that each unit performs as required or could fail to anticipate and respond in a timely and cost-effective manner to changes in market preferences. Any delay in our ability to produce rockets at our expected rate of production and with a reliable quality management system could have a material adverse effect on our business, financial condition and results of operations. Any event or circumstance resulting in reduced market acceptance of our launch services could reduce our sales. Unanticipated shifts in market preferences may also result in excess inventory and underutilized manufacturing capacity. For example, a market shift away from IoT services could result in significantly less space solutions demand and therefore reduced demand for our launch services.
In addition, if our current or future launch services do not meet expected performance or quality standards, this could cause operational delays. Further, launch operations within restricted airspace require advance scheduling and coordination with government agencies, range owners and other users, and any high priority national defense assets will have priority in the use of these resources, which may impact our cadence of our launch operations or could result in cancellations or rescheduling. Any operational or manufacturing delays or other unplanned changes to our ability to conduct our launches could have a material adverse effect on our business, financial condition and results of operations.
We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.
If our operations continue to grow as planned, of which there can be no assurance, we will need to expand our business development, research and development, customer and commercial strategy, products and services, supply chain, and manufacturing functions. We will also need to continue to leverage our manufacturing and operational systems and processes, and there is no guarantee that we will be able to scale the business and manufacture our rockets as currently planned or within the planned timeframe. The continued expansion of our business may also require additional manufacturing and operational facilities, as well as space for administrative support with regard to national security, defense services and space solutions, and there is no guarantee that we will be able to find suitable locations or partners for the manufacture and operation of our rockets and other equipment. Further, as we continue to grow our revenue from expansion of our portfolio of space offerings and further our commercialization of our small-satellite launch operations, we expect that our costs will increase. For example, increases in costs will include the quarterly royalty expenses that will ramp-up under the TMLA.
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Our continued growth could increase the strain on our resources, and we could experience operating difficulties, including difficulties in hiring, training and managing an increasing number of employees, finding manufacturing capacity to produce our rockets and other equipment, and delays in production and launches or deployment of national security and defense services and space solutions. These difficulties may result in the erosion of our brand image, divert the attention of management and key employees and impact financial and operational results. In addition, in order to continue to expand our presence around the globe, we expect to incur substantial expenses as we continue to attempt to streamline our manufacturing process, increase our launch cadence, hire more employees, and continue research and development efforts relating to new products and technologies and expand internationally. If we are unable to drive commensurate growth, these costs, which include lease commitments, headcount and capital assets, could result in decreased margins, which could have a material adverse effect on our business, financial condition and results of operations.
Our prospects and operations may be adversely affected by changes in market preferences and economic conditions that affect demand for our launch services.
Because our business is currently concentrated on launching small LEO satellites, we are vulnerable to changes in market preferences or other market changes, such as general economic conditions, energy and fuel prices, recession and fears of recession, interest rates, tax rates and policies, inflation, war and fears of war, inclement weather, natural disasters, terrorism and outbreak of viruses or widespread illness. The global economy has in the past, and will in the future, experience recessionary periods and periods of economic instability. During such periods, our potential customers may choose not to expend the amounts that we anticipate based on our expectations with respect to the addressable market for launch and satellite services. Significant investment into larger systems by the government or commercial players could have a negative impact on the demand for small LEO satellites. There could be a number of other effects from adverse general business and economic conditions on our business, including insolvency of any of our third-party suppliers or contractors, decreased market confidence, decreased interest in space solutions, decreased discretionary spending and reduced customer or governmental demand for LEO launch vehicles and satellites, which could have a material adverse effect on our business, financial condition and results of operations.
Adverse publicity stemming from any incident involving us or our competitors could have a material adverse effect on our business, financial condition and results of operations.
We are at risk of adverse publicity stemming from any public incident involving our company, our people or our brand. If our rockets or payloads or those of one of our competitors were to be involved in a public incident, accident or catastrophe, this could create an adverse public perception of satellite launch or manufacturing activities and result in decreased customer demand for launch and satellite services, which could cause a material adverse effect on our business, financial conditions and results of operations. Further, if our rockets or other equipment were to be involved in a public incident, accident or catastrophe, we could be exposed to significant reputational harm or potential legal liability. Any reputational harm to our business could cause customers with existing contracts with us to cancel their contracts and could significantly impact our ability to make future sales. The insurance we carry may be inapplicable or inadequate to cover any such incident, accident or catastrophe. In the event that our insurance is inapplicable or not adequate, we may be forced to bear substantial losses from an incident or accident.
Due to the unique structure of our launch operations, there is the possibility that an accident or catastrophe could lead to the loss of human life or a medical emergency.
We rely on human involvement to conduct our launch operations and undertake regular maintenance of our rockets, elements of which involve hazardous operations. In our test and launch operations, our technicians must approach the rocket to connect and disconnect hoses and pipes through which the propellant, RP-1 fuel and liquid oxygen, flows into the rocket. In addition, during launch and any flight test with a fully loaded rocket, two pilots and two launch engineers are on board Cosmic Girl. While we believe that the design and operation of our systems and the safety procedures we follow enable us to manage and limit the risk of an accidental combustion of the propellant or any other catastrophe related to the launch operations, including the operation of Cosmic Girl, these processes involve hazardous operations which may result in the loss of human life or a medical emergency for our technicians, pilots and launch engineers.
Increased congestion from the proliferation of LEO constellations could materially increase the risk of potential collisions with space debris and limit or impair the growth of the small LEO satellite market.

Recent years have seen increases in the number of satellites deployed to low earth orbits, and publicly announced plans calling for many thousands of additional satellite deployments over the next decade. The proliferation of these LEO constellations and the increased launch activity to deliver them will greatly increase the number of objects in orbit. This
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change could materially increase the potential risks of collisions occurring among satellites and space debris. The potential for such incidences could limit or impair the growth of the small LEO satellite market, as potential customers may be less inclined to use our launch services to deliver payloads into low earth orbits.

In addition, the redundant processes we have in place may not eliminate the risk that the release mechanism governing deployment of the rocket may malfunction, thereby potentially producing detrimental effects to the payload stack.
Certain future operational facilities may require significant expenditures in capital improvements and operating expenses to develop and foster basic levels of service needed by our launch operations, and the ongoing need to maintain existing operational facilities requires us to expend capital.
Increasing the manufacturing rate of our rockets, including the production rate of our rockets, may require significant capital expenditures, and in the future we may be required to make similar expenditures to expand, improve or construct additional facilities for the manufacture and testing of our rockets. In addition, as our existing facilities in Long Beach, California mature, our business will require capital expenditures for the maintenance, renovation and improvement of these locations to remain competitive. This creates an ongoing need for capital, and, to the extent we cannot fund capital expenditures from cash flows from operations, we will need to borrow or otherwise obtain funds. If we cannot access the capital we need, we may not be able to execute our growth strategy, take advantage of future opportunities or respond to competitive pressures. If the costs of funding new locations or renovations or enhancements at existing locations exceed budgeted amounts or the time for building or renovation is longer than anticipated, our business, financial condition and results of operations could be materially adversely affected.
We rely on a limited number of suppliers for certain raw materials and supplied components. We may not be able to obtain sufficient raw materials or supplied components to meet our manufacturing and operating needs, or obtain such materials on favorable terms, which could impair our ability to fulfill our orders in a timely manner or increase our costs of production.
Our ability to manufacture our rockets is dependent upon sufficient availability of raw materials and supplied components, including hydrogen, helium, liquid oxygen and nitrogen which are used in our rockets and RP-1 (which is our rocket fuel), some of which are sourced from a limited number of suppliers. Our reliance on suppliers to secure these raw materials and supplied components exposes us to volatility in the prices and availability of these materials. We may not be able to obtain sufficient supply of raw materials or supplied components, on favorable terms or at all, which could result in delays in the manufacture of our rockets or increased costs.
In addition, we have in the past and may in the future experience delays in manufacturing or operations as we go through the requalification process with any replacement third-party supplier, as well as the limitations imposed by the International Traffic in Arms Regulations (the “ITAR”), the Export Administration Regulations (the “EAR”) and other restrictions on transfer of sensitive technologies.
Prolonged disruptions in the supply of any of our key raw materials or components, difficulty qualifying new sources of supply, implementing use of replacement materials or new sources of supply or any volatility in prices could have a material adverse effect on our ability to operate in a cost-efficient, timely manner and could cause us to experience cancellations or delays of scheduled launches, customer cancellations or reductions in our prices and margins, any of which could have a material adverse effect on our business, financial condition and results of operations.
We and our suppliers rely on complex systems and components, which involves a significant degree of risk and uncertainty in terms of operational performance and costs.
We and our suppliers rely on complex systems and components for the operation and assembly of our launch systems and services, which involves a significant degree of uncertainty and risk in terms of operational performance and costs. These components may suffer unexpected malfunctions from time to time and may require repairs and spare parts to resume operations, which may not be readily available when needed. Unexpected malfunctions of these components may significantly affect the intended operational efficiency. Operational performance and costs can be difficult to predict and are often influenced by factors outside of our control, such as, but not limited to, scarcity of natural resources, environmental hazards and remediation, difficulty or delays in obtaining governmental permits, damages or defects in various components, industrial accidents, fire, seismic activity and natural disasters. Should operational risks materialize, they may result in monetary losses, delays, unanticipated fluctuations in production, environmental damage, administrative fines, increased insurance costs and potential legal liabilities, all which could have a material adverse effect on our business, financial condition and results of operations.
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If we experience unexpected costs to fulfill a launch service contract in excess of the estimated transaction price, we would have to record an estimated contract loss provision which could adversely affect our financial results.
Our launch service contracts generally consist of multiple launches with each launch being allocated a fixed price and identified as distinct performance obligations. Revenue for each launch service is recognized at a point in time when the performance obligation is complete, which is typically at the point of launch. When we determine it is probable that costs to provide the services stipulated by a launch services agreement will exceed the allocated fixed price for each launch, we record a provision for a contract loss. Contract losses are recorded at the contract level and are recognized when known. The provision for contract losses outstanding as of September 30, 2022 was $18.6 million of contract losses and $17.9 million recorded as a reduction to inventory on the condensed consolidated balance sheets.
Consistent with the accounting of our firm fixed price contracts, we continually review cost performance and estimates-to-complete at least quarterly and in many cases more frequently. Adjustments to original estimates for a contract’s revenue, estimated costs at completion and estimated profit or loss are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications occur. The impact of revisions in estimate of completion for our launch service contracts are recognized on a cumulative catch-up basis in the period in which the revisions are made. Our future results of operations would be adversely affected to the extent we incur unanticipated contract losses on our fixed-price contracts.
We face intense competition in the commercial launch industry and other industries in which we may operate.
We face intense competition in the commercial launch industry. Currently, our primary competitors in the U.S. market for commercial launch of small-satellites to LEO are SpaceX and RocketLab. In addition, we are aware of several entities actively engaged in developing commercial launch capabilities for small and medium sized payloads, including Relativity, Astra Space, Inc., ABL, and Firefly, among others. We also face competition from foreign launch companies, such as Arianespace, Vega and launch providers in China and India, as well as potential new competitors in other countries.
Some of our current and potential competitors are larger and have substantially greater resources than we have and expect to have in the future. They may also be able to devote greater resources to the development of their current and future technologies or the promotion and sale of their offerings, or offer lower prices. Our current and potential competitors may also establish cooperative or strategic relationships amongst themselves or with third parties that may further enhance their resources and offerings. Further, it is possible that domestic or foreign companies or governments, some with greater experience in the aerospace industry or greater financial resources than we possess, will seek to provide products or services that compete directly or indirectly with ours in the future. Any such foreign competitor, for example, could benefit from subsidies from, or other protective measures by, its home country.
We believe our ability to compete successfully as a commercial provider of launch services does and will depend on a number of factors, which may change in the future due to increased competition, including the price of our offerings, customer confidence in the safety of our offerings, customer satisfaction with the services we offer, and the frequency and availability of our launch services. If we are unable to compete successfully, this could cause a material adverse effect on our business, financial condition and results of operations.
We expect to invest significant resources in developing new offerings and exploring the application of our proprietary technologies for other uses in national security and defense services and space solutions, and those opportunities may never materialize.
While our primary focus for the foreseeable future will be on commercializing launch services, we may invest significant resources in developing new technologies, services, products and offerings related to our national security and defense services and space solutions. Development of some of these new technologies, services, products and offerings, such as those related to our national security and defense services, are tied to existing contractual obligations. However, we may not realize the expected benefits of these investments. Relatedly, we may be subject to competition from our competitors within the launch industry, some of which may have substantially greater monetary and knowledge resources than we have and expect to have in the future to devote to the development of these technologies. Further, under the terms of the TMLA, our ability to operationalize some of the technologies may be dependent upon the consent of VEL. Such competition or any limitations on our ability to take advantage of such technologies could impact our market share, which could have a material adverse effect on our business, financial condition and results of operations.
Such research and development initiatives may also have a high degree of risk and involve unproven business strategies and technologies with which we have limited operating or development experience. They may involve claims and liabilities (including, but not limited to, personal injury claims), expenses, regulatory challenges and other risks that we may not be
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able to anticipate. There can be no assurance that consumer demand for such initiatives will exist or be sustained at the levels that we anticipate, or that any of these initiatives will gain sufficient traction or market acceptance to generate sufficient revenue to offset any new expenses or liabilities associated with these new investments. Further, any such research and development efforts could distract management from current operations, and would divert capital and other resources from our more established offerings and technologies. Even if we were to be successful in developing new products, services, offerings or technologies, regulatory authorities may subject us to new rules or restrictions in response to our innovations that may increase our expenses or prevent us from successfully commercializing new products, services, offerings or technologies.
We conduct a significant portion of our business pursuant to government contracts, including with the U.S. government, which are subject to unique risks including early termination, audits, investigations, sanctions and penalties.
We derive significant revenue from contracts with the U.S. government and plan to enter into further contracts with the U.S. and foreign governments in the future. By 2025, we expect a substantial portion of our revenues to be earned pursuant to U.S. and foreign government contracts. Business conducted pursuant to such contracts is subject to extensive procurement regulations, including the Federal Acquisition Regulation, and other unique risks.
These government contracts customarily contain provisions that give the government substantial rights and remedies, many of which are not typically found in commercial contracts and which are unfavorable to contractors. For instance, most U.S. government agencies include provisions that allow the government to unilaterally terminate or modify contracts for convenience, and in that event, the counterparty to the contract may generally recover only its incurred or committed costs and settlement expenses and profit on work completed prior to the termination. If the government terminates a contract for default, the defaulting party may be liable for any extra costs incurred by the government in procuring undelivered items from another source.
Some of our federal government contracts are subject to the approval of appropriations being made by the U.S. Congress to fund the expenditures under these contracts. Funding may be reduced or withheld as part of the U.S. Congressional appropriations process due to fiscal constraints, changes in U.S. national security strategy and/or priorities or other reasons. Further uncertainty with respect to ongoing programs could also result if the U.S. government finances its operations through temporary funding measures such as “continuing resolutions” rather than full-year appropriations.
In addition, government contracts normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These requirements include, for example:
•specialized disclosure and accounting requirements unique to government contracts;
•financial and compliance audits that may result in potential liability for price adjustments, recoupment of government funds after such funds have been spent, civil and criminal penalties, or administrative sanctions such as suspension or debarment from doing business with the U.S. government;

•extraneous technical and quality related audits to obtain insight and oversight;

•public disclosures of certain contract and company information; and
•mandatory socioeconomic compliance requirements, including labor requirements, non-discrimination and affirmative action programs and environmental compliance requirements.

Certain contracts with the U.S. government require us to maintain a facility security clearance and be effectively insulated from foreign ownership, control and influence (“FOCI”) under the National Industrial Security Program. While we have not had in the past, and do not expect to have, any difficulties maintaining our facility security clearance, failure to maintain a required FOCI mitigation agreement with the U.S. Department of Defense (“DoD”) and to comply with such agreement and applicable U.S. government industrial security regulations (including but not limited to the National Industrial Security Program Operating Manual) could result in invalidation or termination of our facility security clearance, which would mean that we would not be able to enter into future contracts with the U.S. government requiring such clearances, and may result in the loss of our ability to complete certain existing contracts with the U.S. government.
Government contracts are also generally subject to greater scrutiny by the government, which can initiate reviews, audits and investigations regarding our compliance with government contract requirements. In addition, if we fail to comply with government contract laws, regulations and contract requirements, our contracts may be subject to termination, and we may
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be subject to financial and/or other liability under our contracts, the Federal Civil False Claims Act (“False Claims Act”) (including treble damages and other penalties), or criminal law. The False Claims Act’s “whistleblower” provisions also allow private individuals, including present and former employees, to sue on behalf of the U.S. government. Any penalties, damages, fines, suspension, or damages could cause a material adverse effect on our business, financial condition and results of operations.
Changes in levels of U.S. government defense spending or overall acquisition priorities could negatively impact our financial position and results of operations.
We derive a substantial portion of our revenue from the U.S. government, primarily from defense related programs. Levels of U.S. defense spending are very difficult to predict and may be impacted by numerous factors, such as the evolving nature of national security threats, U.S. foreign policy, the domestic political environment, macroeconomic conditions and the ability of the U.S. government to enact relevant legislation such as authorization and appropriations bills.
The Bipartisan Budget Act of 2019 raised preexisting spending limits on federal discretionary defense and non-defense spending for fiscal years 2020 and 2021 (“FY20” and “FY21,” respectively), reducing budget uncertainty and the risk of sequestration. Although FY20 and FY21 appropriations have been enacted, the timeliness of future appropriations for government departments and agencies remains a recurrent risk. A lapse in appropriations for government departments or agencies would result in a full or partial government shutdown, which could impact our operations. Alternatively, Congress may fund government departments and agencies with one or more “continuing resolutions” rather than full-year appropriations; however, this could restrict the execution of certain program activities and delay new programs or competitions. In addition, long-term uncertainty remains with respect to overall levels of defense spending beyond FY22 and it is likely that the U.S. government discretionary spending levels will continue to be subject to pressure.
In addition, there continues to be uncertainty with respect to future acquisition priorities and program-level appropriations for the DoD and other government agencies (including NASA), including tension between modernization and sustainment investments, within the overall budgetary framework described above. Future budget cuts or investment priority changes, including changes associated with the authorizations and appropriations process could result in reductions, cancellations, and/or delays of existing contracts or programs. Any of these impacts could have a material adverse effect on our results of operations, financial position and cash flows.
Failures in our technology infrastructure could damage our business, reputation and brand and substantially harm our business and results of operations.
If our main data center were to fail, or if we were to suffer an interruption or degradation of services at our main data center, we could lose important manufacturing and technical data, which could harm our business. Our facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures and similar events. In the event that our or any of our third-party providers’ systems or service abilities are hindered by any of the events discussed above, our ability to operate may be impaired. A decision to close the facilities without adequate notice, or other unanticipated problems, could adversely impact our operations. Any of the aforementioned risks may be augmented if our or any of our third-party providers’ business continuity and disaster recovery plans prove to be inadequate. The facilities also could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. Any security breach, including personal data breaches, or incident, including cybersecurity incidents, that we experience could result in unauthorized access to, misuse of or unauthorized acquisition of our or our customers’ data, the loss, corruption or alteration of this data, interruptions in our operations or damage to our computer hardware or systems or those of our customers. Moreover, negative publicity arising from these types of disruptions could damage our reputation. We may not carry sufficient business interruption insurance to compensate us for losses that may occur as a result of any events that cause interruptions in our service. Significant unavailability of our services due to attacks could cause users to cease using our services and could have a material adverse effect on our business, financial condition and results of operations.
In addition, we use complex proprietary software in our technology infrastructure, which we seek to continually update and improve. Replacing such systems is often time-consuming and expensive, and can also be intrusive to daily business operations. Further, we may not always be successful in executing these upgrades and improvements, which may occasionally result in a failure of our systems. We may experience periodic system interruptions from time to time. Any slowdown or failure of our underlying technology infrastructure could harm our business, reputation and ability to acquire and serve our customers, which could materially adversely affect our results of operations. Our disaster recovery plan or those of our third-party providers may be inadequate, and our business interruption insurance may not be sufficient to compensate us for the losses that could occur.
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Our networks and those of our third-party service providers may be vulnerable to security risks.
The secure transmission of confidential, classified or export-controlled information in encrypted form over public networks is a critical element of our operations. Our networks, and those of our third-party service providers, including AWS, may be vulnerable to unauthorized access, computer viruses and other security problems, including our inadvertent dissemination of non-public, classified or export-controlled information. Persons who circumvent security measures or gain access to customer information could wrongfully use our or our customers’ information or cause interruptions or malfunctions in our operations, any of which could have a material adverse effect on our business, financial condition and results of operations.
Additionally, our reputation could be damaged. If an actual, threatened or perceived breach of our or our third-party service providers’ security were to occur, or if we were to inadvertently release confidential customer or supplier information, the market perception of the effectiveness of our security measures could be harmed. We and/or our third-party service providers may be required to expend significant resources to protect against the threat of any such security breaches or to alleviate problems, including reputational harm and litigation, caused by any breaches. Any security measures implemented by us or our service providers may prove to be inadequate and have an adverse effect on our business, financial condition and operating results.
Cyber-attacks and other security breaches could have an adverse effect on our business, harm our reputation and expose us to liability. Cybersecurity incidents could disrupt our business or result in the loss of critical and confidential or classified information.
Our business may be impacted by disruptions to our own or third-party information technology (“IT”) infrastructure, which could result from (among other causes) cyber-attacks on or failures of such infrastructure or compromises to its physical security, as well as from damaging weather or other acts of nature. Cyber-based risks, in particular, are evolving and include, but are not limited to, both attacks on our IT infrastructure and attacks on the IT infrastructure of third parties (both on premises and in the cloud) attempting to gain unauthorized access to our confidential or other proprietary information, classified or export-controlled information, or information relating to our employees, customers and other third parties. Cyber-based risks could also include attacks targeting the security, integrity and/or availability of the hardware, software and information installed, stored or transmitted in our rockets and systems. Such attacks could disrupt our systems or those of third parties, impact business operations, result in unauthorized release of confidential or otherwise protected information, and corrupt our data or that of third parties.
The threats we face vary from attacks common to most industries to more advanced and persistent, highly organized adversaries, including nation states, which target us and other defense contractors. We continue to make investments and adopt measures designed to enhance our protection, detection, response, and recovery capabilities, and to mitigate potential risks to our technology, products, services and operations from potential cyber-attacks. However, our current measures are limited, and it is possible that intrusions or potential vulnerabilities could go undetected for an extended period or that the measures we have taken or will take are inadequate to protect against, or adequately respond to or mitigate, the effects of such cyber-attacks. We could potentially be subject to production downtimes, operational delays, other detrimental impacts on our operations, the compromise of confidential or otherwise protected information, misappropriation, destruction or corruption of data, security breaches, other manipulation or improper use of our or third-party systems, networks or products, financial losses from remedial actions, loss of business, or potential liability, penalties, fines and/or damage to our reputation, any of which could have a material adverse effect on our business, competitive position, financial condition and results of operations. Due to the evolving nature of such risks, the impact of any potential incident cannot be predicted.
Due to our hybrid work environment, we may face increased business continuity and cyber risks that could significantly harm our business and operations.
The COVID-19 pandemic has caused us to modify our business practices by migrating a portion of our employees to a primarily remote setup where they access our servers remotely through home or other networks to perform their job responsibilities. While some of our operations can be performed remotely and are operating effectively at present, there is no guarantee that this will continue or that we will continue to be as effective while working remotely because our team is dispersed, many employees and contractors may have additional personal needs to attend to (such as looking after children as a result of school closures or a family member who becomes sick), employees may become sick themselves and be unable to work, and any unavailability of or unreliable home Internet may affect work continuity and efficiency. As COVID-19 conditions improve and restrictions are lifted, similar uncertainties exist with the return to work process, particularly in light of the spread of COVID-19 variants.
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Additionally, while we put in place additional safeguards to protect data security and privacy, a remote workforce places additional pressure on our user infrastructure and third parties that are not easily mitigated, including additional dependencies on third-party communication tools, such as instant messaging and online meeting platforms.
We are highly dependent on our senior management team and other highly skilled personnel, and if we are not successful in attracting or retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our success depends, in significant part, on the continued services of our senior management team and on our ability to attract, motivate, develop and retain a sufficient number of other highly skilled personnel, including engineers, manufacturing and quality assurance, design, finance, marketing, sales and support personnel. Our senior management team has extensive experience in the aerospace industry, and we believe that their depth of experience is instrumental to our continued success. The loss of any one or more members of our senior management team, for any reason, including resignation or retirement, could impair our ability to execute our business strategy and have a material adverse effect on our business, financial condition and results of operations.
Competition for qualified highly skilled personnel can be strong, and we can provide no assurance that we will be successful in attracting or retaining such personnel now or in the future. As we expand our business, our estimates of the required team size to support our estimated launch rates may require increases in staffing levels that may require significant capital expenditure. Further, any inability to recruit, develop and retain qualified employees may result in high employee turnover and may force us to pay significantly higher wages, which may harm our profitability. Additionally, we do not carry key man insurance for any of our management executives, and the loss of any key employee or our inability to recruit, develop and retain these individuals as needed, could have a material adverse effect on our business, financial condition and results of operations.
Any acquisitions, partnerships or joint ventures that we enter into could disrupt our operations and have a material adverse effect on our business, financial condition and results of operations.
From time to time, we may evaluate potential strategic acquisitions of businesses, including partnerships or joint ventures with third parties. We may not be successful in identifying acquisition, partnership and joint venture candidates. In addition, we may not be able to continue the operational success of such businesses or successfully finance or integrate any businesses that we acquire or with which we form a partnership or joint venture. We may have potential write-offs of acquired assets and/or an impairment of any goodwill recorded as a result of acquisitions. Furthermore, the integration of any acquisition may divert management’s time and resources from our core business and disrupt our operations or may result in conflicts with our business. Any acquisition, partnership or joint venture may not be successful, may reduce our cash reserves, may negatively affect our earnings and financial performance and, to the extent financed with the proceeds of debt, may increase our indebtedness. We cannot ensure that any acquisition, partnership or joint venture we make will not have a material adverse effect on our business, financial condition and results of operations.
We are subject to many hazards and operational risks that can disrupt our business, including interruptions or disruptions in service at our primary facilities, which could have a material adverse effect on our business, financial condition and results of operations.
Our operations are subject to many hazards and operational risks inherent to our business, including general business risks, product liability and damage to third parties, our infrastructure or properties and the facilities of our third-party contractors and suppliers that may be caused by fires, earthquakes, tsunamis and other natural disasters or severe weather, power losses, telecommunications failures, terrorist attacks, disruptive political events, epidemic outbreaks, human errors and similar events. Additionally, our manufacturing and launch operations are hazardous at times and may expose us to safety risks, including environmental risks and health and safety hazards to our employees or third parties.
Moreover, while Cosmic Girl anticipates having multiple launch locations around the world from which she can take off, our initial launch operations are currently launched from the Mojave Air and Space Port based in Mojave, California. Likewise, our payload processing is undertaken at our payload processing facility in Long Beach, California. Any significant interruption due to any of the above hazards and operational risks to the manufacturing or operation of our payload processing and space launch systems at one of our primary facilities, including from weather conditions, natural disasters, growth constraints, performance by third-party providers (such as electric, utility or telecommunications providers), failure to properly handle and use hazardous materials, failure of computer systems, power supplies, fuel supplies, infrastructure damage, disagreements with the owners of the land on which our facilities are located, or damage
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sustained to the runway could result in manufacturing delays or the delay or cancellation of our planned commercial launches and, as a result, could have a material adverse effect on our business, financial condition and results of operations.
For example, severe weather, such as rainfall, snowfall or extreme temperatures, may impact the ability of our launches to be carried out as planned, resulting in additional expense to reschedule, thereby reducing our sales and profitability. Terrorist attacks, actual or threatened acts of war or the escalation of current hostilities, or any other military or trade disruptions impacting our domestic or foreign suppliers of components of our products, may impact our operations by, among other things, causing supply chain disruptions and increases in commodity prices, which could adversely affect our raw materials or transportation costs. These events also could cause or act to prolong an economic recession in the United States or abroad. To the extent these events also impact one or more of our suppliers or contractors or result in the closure of any of their facilities or our facilities, we may be unable to maintain or increase our launch schedules or fulfill our other contracts.
Moreover, the disaster recovery and business continuity plans we have in place currently may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans and, more generally, any of these events could cause consumer confidence and spending to decrease, which could adversely impact our commercial launch operations. Our insurance coverage may also be inadequate to cover our liabilities related to such hazards or operational risks. We may also be unable to maintain adequate insurance in the future at rates we consider reasonable and commercially justifiable, and insurance may not continue to be available on terms as favorable as our current arrangements. The occurrence of a significant uninsured claim, or a claim in excess of the insurance coverage limits maintained by us, could have a material adverse effect on our business, financial condition and results of operations.
The COVID-19 pandemic has negatively affected and could continue to negatively affect various aspects of our business, make it more difficult for us to meet our obligations to our customers, and result in reduced demand for our services, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Any outbreak of contagious diseases or other adverse public health developments, including with respect to COVID-19 or otherwise, could have a material adverse effect on our business operations. These impacts to our operations have included, and could again in the future include, disruptions or restrictions on the ability of our employees’ and customers’ to travel or our ability to pursue collaborations and other business transactions, travel to customers, and oversee the activities of our third-party manufacturers and suppliers. We may also be impacted by the temporary closure of the facilities of suppliers, manufacturers or customers.
While travel restrictions and business closures have largely lifted, we are continuing to monitor and assess the effects of the COVID-19 pandemic on our operations; however, we cannot at this time accurately predict what effects these conditions will ultimately have on our operations due to uncertainties relating to the severity of the disease, the duration of the outbreak and outbreak of further variants. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our services and impact our operating results.
We have identified two material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of 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.
As a public company, we are generally required, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for each Annual Report on Form 10-K to be filed with the SEC, starting with our annual report for the year ending December 31, 2022. This assessment, pursuant to Section 404(a) of the Sarbanes-Oxley Act, will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Additionally, once we are no longer an emerging growth company, pursuant to Section 404(b) of the Sarbanes-Oxley Act, we will be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. If we are unable to establish or maintain appropriate internal control over financial reporting or implement these additional requirements in a timely manner or with adequate compliance, it could result in material misstatements to our consolidated financial statements, failure to meet our reporting obligations on a timely basis, increases in compliance costs, and subject us to adverse regulatory consequences, all of which may adversely affect investor confidence in, and the value of, our common stock.

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A company’s internal control over financial reporting is a process designed by, or under the supervision of, that company’s principal executive and principal financial officers, or persons performing similar functions, and influenced by that company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. In connection with the audit of our consolidated financial statements as of and for the year ended December 31, 2020, we identified two material weaknesses in our internal control over financial reporting for which we continue to remediate. 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.
The first material weakness is related to the lack of sufficient personnel to execute, review and approve all aspects of the financial statement close and reporting process. This material weakness may not allow for the proper segregation of duties and the ability to close our books and records and report its results, including required disclosures, on a timely basis. The second material weakness arises from the need to augment information technology and application controls in our financial reporting.
We have begun the process of, and are focused on, designing and implementing effective internal controls measures to improve our internal control over financial reporting and remediate the material weaknesses. Our remediation efforts include several actions:
•we are designing and implementing additional review procedures within our accounting and finance department to provide more robust and comprehensive internal control over financial reporting that address the relative financial statement assertions and risks of material misstatement within our business processes;
•we are actively recruiting additional personnel, in addition to engaging and utilizing third party consultants and specialists, to supplement our internal resources and segregate key functions within our business processes, if appropriate;
•we are designing and implementing IT and application controls in our financially significant systems to address our relative information processing objectives; and
•we are enhancing our system’s role-based access and implementing automated controls to help improve the reliability of our process and reporting.

•finally, we are designing and implementing additional integration in our financially significant systems to provide the IT processes alongside efforts in business processes, which are supporting our internal control over financial reporting.

As of the date of this Quarterly Report on Form 10-Q, we have completed the following actions:

•we designed additional review procedures within our accounting and finance department to provide more robust and comprehensive internal controls over financial reporting that address the relative financial statement assertions and risks of material misstatement within our business processes;

•we hired additional personnel, and have engaged third party consultants and specialists to supplement our internal resources; and

•we designed IT and application controls in our financially significant systems to address our relative information processing objectives.

However, while we have designed and implemented measures to remediate our existing material weaknesses, we cannot predict the success of such measures or the outcome of our assessment of these measures at this time. Our current controls and any new controls that we are developing may become inadequate because of changes in conditions in our business, personnel, IT systems and applications, or other factors. We can give no assurance that these measures will remediate either of the deficiencies in internal control or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal
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control over financial reporting could result in errors in our financial statements that may lead to a restatement of our financial statements or cause us to fail to meet our reporting obligations.

We may become involved in litigation that may materially adversely affect us.
From time to time, we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business, including intellectual property, commercial, product liability, employment, class action, whistleblower and other litigation and claims, and governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management’s attention and resources, cause us to incur significant expenses or liability or require us to change our business practices. Because of the potential risks, expenses and uncertainties of litigation, we may, from time to time, settle disputes, even where we believe that we have meritorious claims or defenses. 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 or results of operations.
Risks Related to Intellectual Property
If we fail to adequately protect our proprietary intellectual property rights, our competitive position could be impaired and we may lose valuable assets, generate reduced revenue and incur costly litigation to protect our rights.
Our success depends, in part, on our ability to protect and maintain our proprietary intellectual property rights, including certain methodologies, practices, tools, technologies, technical expertise and other proprietary know-how we utilize in designing, developing, implementing and maintaining applications and processes used in our launch systems and related technologies. To date, we have relied primarily on a combination of trade secrets, trademarks and non-disclosure agreements to protect our intellectual property, and intend to continue to rely on these and other means, including patent protection, in the future. Our trademark applications may not be granted, any trademark registrations that may be issued to us may not sufficiently protect our intellectual property, and our intellectual property rights may be challenged by third parties. Any of these scenarios may result in limitations in the scope of our intellectual property or restrictions on our use of our intellectual property or may adversely affect the conduct of our business.
Further, although we enter into non-disclosure and invention assignment agreements with our employees, enter into non-disclosure agreements with our customers, consultants, suppliers and other parties with whom we have strategic relationships and business alliances and enter into intellectual property assignment agreements with our consultants and suppliers, no assurance can be given that these agreements will be effective in controlling access to and distribution of our technology and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products.
Additionally, monitoring unauthorized use of our intellectual property is difficult and costly, and the steps we have taken or will take to prevent misappropriation may not be successful. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources. The laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and mechanisms for enforcement of intellectual property rights in some foreign countries may be inadequate. Therefore, our intellectual property rights may not be as strong or as easily enforced outside of the United States. Failure to adequately protect our intellectual property rights could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue which would adversely affect our business, prospects, financial condition, results of operations and cash flows. To the extent we expand our international activities, our exposure to unauthorized copying and use of our technologies and proprietary information may increase. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our technology and intellectual property.
The “Virgin” brand is not under our control, and negative publicity related to the Virgin brand name could materially adversely affect our business.
We believe the “Virgin” brand, which is integral to our corporate identity, represents quality, innovation, creativity, fun, a sense of competitive challenge and employee-friendliness. We are licensed to use the “Virgin” brand in our business pursuant to a license granted under the TMLA from VEL, an entity affiliated with the Virgin Group. We expect to rely on the general goodwill of our customers and our pilots and employees towards the Virgin brand as part of our internal corporate culture and external marketing strategy.
We will not own the Virgin brand or any other Virgin-related assets, and we will license the right to use the Virgin brand pursuant to the TMLA. The Virgin brand is also licensed to and used by a number of other companies unrelated to us and
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in a variety of industries, and the integrity and strength of the Virgin brand will depend in large part on the efforts of the licensor and any other licensees of the Virgin brand and how the brand is used, promoted and protected by them, which will be outside of our control. Consequently, any adverse publicity in relation to the Virgin brand name or its principals, or in relation to another Virgin-branded company over which we have no control or influence, could have a material adverse effect on our business, financial condition and results of operations.
In addition, the license to the Virgin brand granted to us under the TMLA will expire in no later than thirty years under the terms of the agreement and there is no guarantee that we will renew or replace the TMLA on commercially reasonable terms or at all. In addition, there are certain circumstances under which the TMLA may be terminated in its entirety. In addition, VEL may elect not to renew the TMLA at the end of the initial 10-year term or the first 10-year renewal term. Termination or non-renewal of the TMLA would eliminate our rights to use the Virgin brand and may result in our having to negotiate a new or reinstated agreement with less favorable terms or cause us to lose our rights under the TMLA, including our right to use the Virgin brand, which would require us to change our corporate name and undergo other significant rebranding efforts. These rebranding efforts may require significant resources and expenses and may affect our ability to attract and retain customers, all of which may have a material adverse effect on our business, contracts, financial condition, operating results, liquidity and prospects.
Protecting and defending against intellectual property claims may have a material adverse effect on our business.
Our success depends in part upon successful prosecution, maintenance, enforcement and protection of our owned and licensed intellectual property, including the Virgin brand that we license from VEL, a member of the Virgin Group. Under the TMLA, VEL holds the right to take actions to obtain, maintain, enforce and protect the Virgin brand. Should VEL determine not to maintain, enforce or protect the Virgin brand or other licensed intellectual property, we could be materially harmed.
To protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Such litigation could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology, as well as any costly litigation or diversion of our management’s attention and resources, could disrupt our business, as well as have a material adverse effect on our financial condition and results of operations. The results of intellectual property litigation are difficult to predict and may require us to stop using certain technologies or offering certain services or may result in significant damage awards or settlement costs. There is no guarantee that any action to defend, maintain or enforce our owned or licensed intellectual property rights will be successful, and an adverse result in any such proceeding could have a material adverse impact on our business, financial condition, operating results and prospects.
In addition, we may from time to time face allegations that we are infringing, misappropriating or otherwise violating the intellectual property rights of third parties, including the intellectual property rights of our competitors. We may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Irrespective of the validity of any such claims, we could incur significant costs and diversion of resources in defending against them, and there is no guarantee any such defense would be successful, which could have a material adverse effect on our business, contracts, financial condition, operating results, liquidity and prospects.
Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could divert the time and resources of our management team and harm our business, our operating results and our reputation.
Risks Related to Legal, Regulatory, Accounting and Tax Matters
If we commercialize outside the United States, we will be exposed to a variety of risks associated with international operations that could materially and adversely affect our business.
As part of our growth strategy, we plan to leverage our initial U.S. operations to expand internationally. We have publicly announced plans to launch from the United Kingdom, Brazil and Japan. As such, we expect that we will be subject to additional risks related to entering into international business relationships, including:
•restructuring our operations to comply with local regulatory regimes;
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•identifying, hiring and training highly skilled personnel;
•unexpected changes in tariffs, trade barriers and regulatory requirements, including ITAR, EAR and Office of Foreign Assets Control (“OFAC”);
•economic weakness, including inflation, in foreign economies and markets;

•the impact of geo-political instability, civil unrest, war and/or events of terrorism, such as the ongoing armed military conflict between Russia and Ukraine, and any related volatility and disruption in the global markets;
•compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
•foreign taxes, including withholding of payroll taxes;
•the need for U.S. government approval to operate our launch systems outside the United States;
•foreign currency fluctuations, which could result in increased operating expenses and reduced revenue;
•government appropriation of assets;
•workforce uncertainty in countries where labor unrest is more common than in the United States; and
•disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign Corrupt Practices Act (“FCPA”), OFAC regulations and U.S. anti-money laundering regulations, as well as exposure of our foreign operations to liability under these regulatory regimes.
Our business is subject to a wide variety of extensive and evolving government laws and regulations. Failure to comply with such laws and regulations could have a material adverse effect on our business.
We are subject to a wide variety of laws and regulations relating to various aspects of our business, including with respect to our launch operations, employment and labor, health care, tax, privacy and data security, health and safety, and environmental issues. Laws and regulations at the foreign, federal, state and local levels frequently change, especially in relation to new and emerging industries, and we cannot always reasonably predict the impact from, or the ultimate cost of compliance with, current or future regulatory or administrative changes. We monitor these developments and devote a significant amount of management’s time and external resources towards compliance with these laws, regulations and guidelines, and such compliance places a significant burden on management’s time and other resources, and it may limit our ability to expand into certain jurisdictions. Moreover, changes in law, the imposition of new or additional regulations or the enactment of any new or more stringent legislation that impacts our business could require us to change the way we operate and could have a material adverse effect on our business, financial condition and results of operations.
Failure to comply with these laws, such as with respect to obtaining and maintaining licenses, certificates, authorizations and permits critical for the operation of our business, may result in civil penalties or private lawsuits, or the suspension or revocation of licenses, certificates, authorizations or permits, which would prevent us from operating our business. For example, conducting commercial launches in the United States requires licenses and permits from certain agencies of the Department of Transportation, including the Federal Aviation Administration (the “FAA”), and review by other agencies of the U.S. Government, including the DoD, Department of State, NASA, and the Federal Communications Commission (the “FCC”). License approval includes an interagency review of safety, operational, national security, and foreign policy and international obligations implications, as well as a review of foreign ownership. Delays in FAA action allowing us to conduct commercial launches could adversely affect our ability to operate our business and our financial results.
Moreover, regulation of our industry is still evolving, and new or different laws or regulations could affect our operations, increase direct compliance costs for us or cause any third-party suppliers or contractors to raise the prices they charge us because of increased compliance costs.
Application of these laws to our business may negatively impact our performance in various ways, limiting the collaborations we may pursue, further regulating the export and re-export of our products, services, and technology from the United States and abroad, and increasing our costs and the time necessary to obtain required authorization. The adoption of a multi-layered regulatory approach to any one of the laws or regulations to which we are or may become subject, particularly where the layers are in conflict, could require alteration of our manufacturing processes or operational
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parameters which may adversely impact our business. We may not be in complete compliance with all such requirements at all times and, even when we believe we are in complete compliance, a regulatory agency may determine that we are not.
We are subject to stringent U.S. export and import control laws and regulations. Unfavorable changes in these laws and regulations or U.S. government licensing policies, our failure to secure timely U.S. government authorizations under these laws and regulations, or our failure to comply with these laws and regulations could have a material adverse effect on our business, financial condition and results of operation.
Our business is subject to stringent U.S. import and export control laws and regulations as well as economic sanctions laws and regulations. We are required to import and export our products, software, technology and services, as well as run our operations in the United States, in full compliance with such laws and regulations, which include the EAR, the ITAR, and economic sanctions administered by the Treasury Department’s OFAC. Similar laws that impact our business exist in other jurisdictions. These foreign trade controls prohibit, restrict, or regulate our ability to, directly or indirectly, export, deemed export, re-export, deemed re-export or transfer certain hardware, technical data, technology, software, or services to certain countries and territories, entities, and individuals, and for end uses. If we are found to be in violation of these laws and regulations, it could result in civil and criminal, monetary and non-monetary penalties, the loss of export or import privileges, debarment and reputational harm.
Pursuant to these foreign trade control laws and regulations, we are required, among other things, to (i) maintain a registration under the ITAR, (ii) determine the proper licensing jurisdiction and export classification of products, software, and technology, and (iii) obtain licenses or other forms of U.S. government authorization to engage in the conduct of our launch business. The authorization requirements include the need to get permission to release controlled technology to foreign persons. Changes in U.S. foreign trade control laws and regulations, or reclassifications of our products or technologies, may restrict our operations. The inability to secure and maintain necessary licenses and other authorizations could negatively impact our ability to compete successfully or to operate our business as planned. Any changes in the export control regulations or U.S. government licensing policy, such as those necessary to implement U.S. government commitments to multilateral control regimes, may restrict our operations. Given the great discretion the government has in issuing or denying such authorizations to advance U.S. national security and foreign policy interests, there can be no assurance we will be successful in our future efforts to secure and maintain necessary licenses, registrations, or other U.S. government regulatory approvals.
We are subject to U.S. and foreign anti-corruption and anti-money laundering laws and regulations. We can face criminal liability and other serious consequences for violations, which can harm our business.
We are subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act and possibly other anti-corruption and anti-money laundering laws in countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors and other third-parties who act on the company’s behalf from authorizing, promising, offering or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We maintain policies and procedures designed to promote compliance with the anti-corruption laws. However, we cannot provide assurance that our internal controls will always prevent and detect noncompliance, and we can be held liable for the corrupt or other illegal activities of our employees, agents, contractors and other third parties who act on our behalf, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences.
We are subject to environmental regulation and may incur substantial costs.
We are subject to federal, state, local and foreign laws, regulations and ordinances relating to the protection of the environment, including those relating to emissions to the air, discharges to surface and subsurface waters, safe drinking water, greenhouse gases and the management of hazardous substances, oils and waste materials. Federal, state and local laws and regulations relating to the protection of the environment may require a current or previous owner or operator of real estate to investigate and remediate hazardous or toxic substances or petroleum product releases at or from the property. Under federal and many state laws, generators of waste materials, and current and former owners or operators of facilities, can be subject to liability for investigation and remediation costs at locations that have been identified as requiring response actions. Compliance with environmental laws and regulations can require significant expenditures. In addition, we could incur costs to comply with such current or future laws and regulations, the violation of which could lead to substantial fines and penalties.
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We may have to pay governmental entities or third parties for property damage and for investigation and remediation costs that they incurred in connection with any contamination at our current and former properties or at third-party sites where we have sent hazardous substances for disposal without regard to whether we knew of or caused the presence of the contaminants. Liability under these laws may be strict, joint and several, meaning that we could be liable for the costs of cleaning up environmental contamination regardless of fault or the amount of waste directly attributable to us. Even if more than one person may have been responsible for the contamination, each person covered by these environmental laws may be held responsible for all of the clean-up costs incurred. Environmental liabilities could arise and have a material adverse effect on our financial condition and performance. We do not believe, however, that pending environmental regulatory developments in this area will have a material effect on our capital expenditures or otherwise materially adversely affect our operations, operating costs, or competitive position.
Environmental, social and governance matters may impact our business and reputation.
Increasingly, in addition to the importance of their financial performance, companies are being judged by their performance on a variety of environmental, social and governance (“ESG”) matters, which are considered to contribute to the long-term sustainability of companies’ performance.
A variety of organizations measure the performance of companies on ESG topics, and the results of these assessments are widely publicized. In addition, investment in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of ESG measures to their investment decisions. Topics taken into account in such assessments include, among others, companies’ efforts and impacts on climate change and human rights, ethics and compliance with law, diversity and the role of companies’ board of directors in supervising various sustainability issues.
ESG goals and values are embedded in our core mission and vision, and we actively take into consideration their expected impact on the sustainability of our business over time and the potential impact of our business on society and the environment, including offsetting or reducing carbon emissions and sound pollution from launches. However, in light of investors’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet society’s expectations as to our proper role. This could lead to risk of litigation or reputational damage relating to our ESG policies or performance.
Further, our emphasis on ESG issues may not maximize short-term financial results and may yield financial results that conflict with the market’s expectations. We have and may in the future make business decisions that may reduce our short-term financial results if we believe that the decisions are consistent with our ESG goals, which we believe will improve our financial results over the long-term. These decisions may not be consistent with the short-term expectations of our stockholders and may not produce the long-term benefits that we expect, in which case our business, financial condition, and operating results could be harmed.
Changes in tax laws or regulations may increase tax uncertainty and adversely affect results of our operations and our effective tax rate.
We will be subject to taxes in the United States and certain foreign jurisdictions. Due to economic and political conditions, tax laws and tax rates in various jurisdictions, including the United States, may be subject to change. Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws or their interpretation. In addition, we may be subject to income tax audits by various tax jurisdictions. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution by one or more taxing authorities could have a material impact on the results of our operations.
Additional Risks Related to Ownership of Our Securities and Operating as a Public Company
The price of our common stock and warrants may be volatile.
The price of our common stock, as well as our warrants, may fluctuate due to a variety of factors, including:
•changes in the industries in which we and our customers operate;
•developments involving our competitors;

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•developments involving other companies where our directors, executive officers or significant stockholders have affiliations, even if those developments are not related to our business or those parties’ ties to us;

•changes in laws and regulations affecting our business;
•variations in our operating performance and the performance of its competitors in general;
•actual or anticipated fluctuations in our quarterly or annual operating results;
•publication of research reports by securities analysts about us or our competitors or our industry;
•the public’s reaction to our press releases, its other public announcements and its filings with the SEC;
•actions by stockholders, including the sale by them of any of their shares of our common stock;
•additions and departures of key personnel;
•commencement of, or involvement in, litigation involving us;

•changes in our capital structure, such as future issuances of securities or the incurrence of additional debt or convertible debt;
•the volume of shares of our common stock available for public sale; and
•general economic and political conditions, such as the effects of the COVID-19 outbreak, recessions, interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability and acts of war or terrorism.
These market and industry factors may materially reduce the market price of our common stock and Warrants regardless of our operating performance.
We do not intend to pay cash dividends for the foreseeable future.

We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors (the “Board”) and will depend on our financial condition, results of operations, capital requirements, restrictions contained in the Stockholders’ Agreement and future agreements and financing instruments, business prospects and such other factors as our Board deems relevant.
If analysts do not publish research about our business or if they publish inaccurate or unfavorable research, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that analysts publish about our business. We do not have any control over these analysts. If one or more of the analysts who cover our common stock downgrade their rating or publish inaccurate or unfavorable research about our business, the price of our common stock could decline. If few analysts cover us, the demand for our common stock could decrease and our common stock price and trading volume may decline. Similar results may occur if one or more of these analysts stop covering us in the future or fail to publish reports on it regularly.
We may be subject to securities litigation, which is expensive and could divert management attention.
The market price of our common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm our business.
We may issue shares of preferred stock or additional shares of common stock, which would dilute the interest of our stockholders and could cause the price of our common stock to decline.

Our certificate of incorporation authorizes us to issue up to 2,000,000,000 shares of common stock and up to 25,000,000 shares of preferred stock.
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To raise capital, we may sell common stock, preferred stock, convertible securities or other equity securities in one or more transactions, at prices and in a manner we determine from time to time. We may sell shares or other securities in any other offering at a price per share that is less than the price per share paid by our current stockholders, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. In accordance with applicable law, we may also issue common stock or preferred stock for other purposes as our Board deems appropriate. Any such issuance:

•may significantly dilute the equity interest of our then-current stockholders;

•may subordinate the rights of holders of shares of common stock if one or more classes of preferred stock are created, and such preferred shares are issued with rights senior to those afforded to our common stock; and

•may adversely affect the prevailing market price for our common stock.

Future resales of our common stock may cause the market price of our securities to drop significantly, even if our business is doing well.

Following the expiration of the applicable lock-ups agreed to by certain of our stockholders in connection with the Business Combination, those stockholders will not be restricted from selling such shares of our common stock, other than by applicable securities laws. As such, sales of a substantial number of shares of our common stock in the public market could occur at any time following the expiration, lapse or waiver of such lock-ups. 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 our common stock.
As restrictions on resale end and registration statements are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in our share price or the market price of our common stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
The obligations associated with being a public company involve significant expenses and require significant resources and management attention, which may divert from our business operations.

As a public company, we are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires the filing of annual, quarterly and current reports with respect to a public company’s business and financial condition. The Sarbanes-Oxley Act requires, among other things, that a public company establish and maintain effective internal control over financial reporting. As a result, we will incur significant legal, accounting and other expenses that we did not previously incur. Our entire management team and many of our other employees will need to devote substantial time to compliance, and may not effectively or efficiently manage our transition into a public company. We are also subject to more stringent state law requirements. For example, prior to being declared unconstitutional by Los Angeles Super Courts in 2022, SB 826 generally required public companies with principal executive offices in California to have a minimum number of females on the company’s board of directors, and AB 979 generally required public companies with principal executive offices in California to have a minimum number of persons from specified underrepresented communities on the company’s board of directors. It is possible that the State of California could appeal one or both of the prior court decisions. While we will seek to comply with both SB 826 and AB 979 as promptly as practicable to the extent such are laws are in effect, the current composition of our Board does not satisfy the requirements of either SB 826 or AB 979. If either were to remain in effect, we could be fined by the California Secretary of State, with a $100,000 fine for the first violation of each and a $300,000 for each subsequent violation, and our reputation may be adversely affected.
These rules and regulations will result in us incurring substantial legal and financial compliance costs and will make some activities more time-consuming and costly. For example, these rules and regulations will likely make it more difficult and more expensive for us to obtain director and officer liability insurance, and it may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be difficult for us to attract and retain qualified people to serve on its board of directors, its board committees or as executive officers.

VIL is able to control the direction of our business, and the concentrated ownership of our common stock will prevent you and other stockholders from influencing significant decisions.

Under our Stockholders’ Agreement entered into with Vieco 10, VIL assumed the rights of Vieco 10 and Fifteenth Investment Company LLC (“Fifteenth”) became a Voting Party under the Stockholders’ Agreement (the “Stockholders’
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Agreement”), except that Fifteenth has the right to designate one designee for election to the Board for as long as Fifteenth continues to own at least 7.5% of the outstanding shares of our common stock. Pursuant to the terms of the Stockholders’ Agreement, we are required to take all necessary action to cause VIL’s specified designees to be nominated to serve on the Board. For so long as VIL holds a majority of our common stock, it will be able to control the composition of the Board, which in turn will be able to control all matters affecting us, subject to the terms of the Stockholders’ Agreement, including:
•any determination with respect to our business direction and policies, including the appointment and removal of officers and, in the event of a vacancy on the Board, additional or replacement directors;
•any determinations with respect to mergers, business combinations or disposition of assets;
•determination of our management policies;
•our financing policy;
•our compensation and benefit programs and other human resources policy decisions; and
•the payment of dividends on our common stock.

Even if VIL were to control less than a majority of the total outstanding shares of our common stock, it will be able to influence the outcome of corporate actions so long as it owns a significant portion of the total outstanding shares of our common stock. Specifically, under the terms of the Stockholders’ Agreement, for so long as VIL continues to beneficially own at least 25% of the shares of our common stock, in addition to any vote or consent of the stockholders or the Board as required by law, we and our subsidiaries must obtain VIL’s prior written consent to engage in:

•a business combination or similar transaction having a fair market value (“FMV”) of $10.0 million or more;
•a non-ordinary course sale of assets or equity interest having a FMV of $10.0 million or more;
•a non-ordinary course acquisition of any business or assets having a FMV of $10.0 million or more;
•an acquisition of equity interests having a FMV of $10.0 million or more;
•approval of any non-ordinary course investment having a FMV of $10.0 million or more, other than any investment expressly contemplated by our annual operating budget then in effect;
•an issuance or sale of any of our or our subsidiaries’ capital stock, other than an issuance of shares of capital stock upon the exercise of options to purchase shares of our capital stock;
•making any dividends or distribution to our stockholders other than redemptions and those made in connection with the cessation of services of employees;
•incurring indebtedness outside of the ordinary course in an amount greater than $25.0 million in a single transaction or $100.0 million in aggregate consolidated indebtedness;
•amendment of the terms of the Stockholders’ Agreement or the Registration Rights Agreement (the “Registration Rights Agreement”);
•a liquidation or similar transaction;
•transactions with any interested stockholder pursuant to Item 404 of Regulation S-K;
•increasing or decreasing the size of the Board; or
•engaging of any professional advisors for any of the foregoing matters listed above.

Furthermore, for so long as VIL continues to beneficially own at least 10% of the shares of our common stock, in addition to any vote or consent of the stockholders or the Board as required by law, we and our subsidiaries must obtain VIL’s prior written consent to engage in:
•any business combination or similar transaction;
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•amendment of the terms of the Stockholders’ Agreement or the Registration Rights Agreement;
•a liquidation or related transaction; or
•an issuance of capital stock in excess of 5% of our or our subsidiaries’ then issued and outstanding shares, other than issuances upon the exercise of options in accordance with their respective terms.

Because the interests of VIL may differ from our interests or the interests of our other stockholders, actions that VIL takes with respect to us may not be favorable to us or our other stockholders.

We are a controlled company within the meaning of the Nasdaq listing standards, and, as a result, qualify for, and may rely on, exemptions from certain corporate governance requirements. You may not have the same protections afforded to stockholders of companies that are subject to such requirements.

VIL and Fifteenth control a majority of the voting power of our common stock. As a result, we are considered a “controlled company” within the meaning of the Nasdaq listing standards. Under these rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements of Nasdaq, including those that would otherwise require our Board to have a majority of independent directors and require that we either establish compensation and nominating and corporate governance committees, each comprised entirely of independent directors, or otherwise ensure that the compensation of our executive officers and nominees for directors are determined or recommended to our Board by the independent members of our Board. For so long as we qualify as a “controlled company,” we may, at our sole discretion, rely on some or all of these exemptions. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

If we cease to be a “controlled company” in the future, we will be required to comply with the Nasdaq listing standards, which may require replacing a number of our directors and will require development of certain other governance-related policies and practices (including adopting written charters for each committee and instituting annual performance evaluations). These and any other actions necessary to achieve compliance with such rules may increase our legal and administrative costs, will make some activities more difficult, time-consuming and costly and may also place additional strain on its personnel, systems and resources.
We are currently an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and to the extent we have taken advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are currently an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
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. We have 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, we, 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 our financial statements 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 accountant standards used.
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If we cease to be an emerging growth company, we will no longer be able to take advantage of certain exemptions from reporting, and, absent other exemptions or relief available from the SEC, we will also be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We will incur additional expenses in connection with such compliance and our management will need to devote additional time and effort to implement and comply with such requirements.
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 equals or exceeds $250 million as of the end of that year’s second fiscal quarter, or (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year or the market value of our ordinary shares held by non-affiliates equals or exceeds $700 million as of the end of that year’s second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.
Delaware law and our organizational documents contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.
Our organizational documents and the Delaware General Corporation Law (“DGCL”) contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, and therefore depress the trading price of our common stock. These provisions could also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the current members of the Board or taking other corporate actions, including effecting changes in our management. Among other things, the organizational documents include provisions regarding:
•providing for a classified board of directors with staggered, three-year terms;
•the ability of the Board to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
•subject to the terms of the Stockholders’ Agreement, the Board will have the exclusive right to expand the size of the Board and to elect directors to fill a vacancy created by the expansion of Board or the resignation, death or removal of a director, which will prevent stockholders from being able to fill vacancies on the Board;
•once we no longer qualify as a “controlled company” under the Nasdaq listing standards, our stockholders will not be able to act by written consent, which will force stockholder action to be taken at an annual or special meeting of stockholders;
•our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
•the limitation of the liability of, and the indemnification of, our directors and officers;
•the ability of the Board to amend the bylaws, which may allow the Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt;
•advance notice procedures with which stockholders must comply to nominate candidates to the Board or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Board and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us; and
•expansive negative consent rights for VIL, which provide that as long as VIL maintains certain ownership thresholds to appoint a director under the Stockholders’ Agreement, the written consent of VIL is required to enter into certain business combinations or related transactions.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our Board or management.
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The provisions of our certificate of incorporation requiring exclusive forum in the Court of Chancery of the State of Delaware and the federal district courts of the United States for certain types of lawsuits may have the effect of discouraging certain lawsuits, including derivative lawsuits and lawsuits against our directors and officers, by limiting plaintiffs’ ability to bring a claim in a judicial forum that they find favorable.

Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, in the event that the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) and any appellate court thereof will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action, suit or proceeding brought on our behalf, (ii) any action, suit or proceeding asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or stockholders to us or to our stockholders, (iii) any action, suit or proceeding arising pursuant to any provision of the DGCL or our Bylaws or our Certificate of Incorporation (as either may be amended from time to time), (iv) any action, suit or proceeding as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (v) any action, suit or proceeding asserting a claim against us or any current or former director, officer or stockholder governed by the internal affairs doctrine. The Certificate of Incorporation also provides that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. 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.

For the avoidance of doubt, this provision is intended to benefit and may be enforced by us, our officers and directors, the underwriter for any offering giving rise to such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering.

These provisions may have the effect of discouraging certain lawsuits, including derivative lawsuits and lawsuits against our directors and officers, by limiting plaintiffs’ ability to bring a claim in a judicial forum that they find favorable. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation or bylaws has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in the Certificate of Incorporation to be inapplicable or unenforceable in such action.

While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

Our certificate of incorporation limits liability of our non-employee directors, VIL, Fifteenth and the Sponsor and their respective affiliates and representatives’ liability to us for breach of fiduciary duty and could also prevent us from benefiting from corporate opportunities that might otherwise have been available to us.

Our certificate of incorporation provides that, to the fullest extent permitted by law, and other than corporate opportunities that are expressly presented to one of our directors or officers in his or her capacity as such, our non-employee directors, VIL, Fifteenth. and the Sponsor and their respective affiliates and representatives:

•will not have any fiduciary duty to refrain from (i) engaging in and possessing interests in other business ventures of every type and description, including those engaged in the same or similar business activities or lines of business in which we or any of our subsidiaries now engages or proposes to engage or (ii) competing with us or any of our affiliates, subsidiaries or representatives, on their own account, or in partnership with, or as an employee, officer, director or shareholder of any other Person (other than us or any of our subsidiaries);

• will have no duty to communicate or present such transaction or matter to us or any of our subsidiaries, as the case may be; and

• will not be liable to us or our stockholders or to any of our subsidiaries for beach of any duty (fiduciary, contractual or otherwise) as one of our stockholders or directors by reason of the fact that such Person, directly or indirectly, pursues or acquires such opportunity for itself, herself or himself, directs such opportunity to another Person or does not present such opportunity to us or any of our subsidiaries, affiliates or representatives.
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We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you.

We have the ability to redeem the outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant if, among other things, the last reported sale price of our 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 equals or exceeds $18.00 per share (as adjusted for share splits, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like). Redemption of the outstanding warrants as described above 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, we expect would be substantially less than the market value of your warrants. None of the private placement warrants will be redeemable by us (subject to limited exceptions) so long as they are held by our Sponsor or its permitted transferees.

In addition, we have the ability to redeem the outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.10 per warrant if, among other things, the last reported sale price of our 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 equals or exceeds $10.00 per share (as adjusted for share splits, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like). In such a case, the holders will be able to exercise their warrants prior to redemption for a number of shares of common stock determined based on the redemption date and the fair market value of our common stock. The value received upon exercise of the warrants (i) may be less than the value the holders would have received if they had exercised their warrants at a later time where the underlying share price is higher and (ii) may not compensate the holders for the value of the warrants, including because the number of ordinary shares received is capped at 0.361 shares of common stock per warrant (subject to adjustment) irrespective of the remaining life of the warrants.

The terms of the warrants may be amended in a manner adverse to a holder if holders of at least 65% of the then outstanding public warrants approve of such amendment.

The warrants are governed by a Warrant Agreement between the Warrant Agent (as defined herein) and Virgin Orbit. The Warrant Agreement provides that (a) the terms of the warrants may be amended without the consent of any holder for the purpose of (i) curing any ambiguity or correct any mistake, including to conform the provisions of the Warrant Agreement to the description of the terms of the warrants and the Warrant Agreement, or defective provision or (ii) 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 under the Warrant Agreement and (b) all other modifications or amendments require the vote or written consent of at least 65% of the then outstanding public warrants; provided that any amendment that solely affects the terms of the private placement warrants or any provision of the Warrant Agreement solely with respect to the private placement warrants will also require at least 65% of the then outstanding private placement warrants.

Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least 65% of the then outstanding public warrants approve of such amendment. Our ability to amend the terms of the public warrants with the consent of at least 65% 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, shorten the exercise period or decrease the number of shares of common stock purchasable upon exercise of a warrant.

You may only be able to exercise your public warrants on a “cashless basis” under certain circumstances, and if you do so, you will receive fewer shares of common stock from such exercise than if you were to exercise such warrants for cash.

The Warrant Agreement provides that in the following circumstances holders of warrants who seek to exercise their warrants will not be permitted to do for cash and will, instead, be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act: (i) if the common stock issuable upon exercise of the warrants are not registered under the Securities Act in accordance with the terms of the Warrant Agreement; (ii) if we have so elected and the common stock are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act; and (iii) if we have so elected and we call the public warrants for redemption. If you exercise your public warrants on a cashless basis, you would pay the warrant exercise price by surrendering the warrants for that number of common stock equal to the quotient obtained by dividing (x) the product of the number of common stock underlying the warrants, multiplied by the excess of the “fair market value” of our common stock (as defined in the next sentence) over the exercise price of the warrants by (y) the fair market value. The “fair market value” is the average reported closing price of the common stock for the 10 trading days ending on the third
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trading day prior to the date on which the notice of exercise is received by the warrant agent or on which the notice of redemption is sent to the holders of warrants, as applicable. As a result, you would receive fewer shares of common stock from such exercise than if you were to exercise such warrants for cash.

The 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 our warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with us.

The Warrant Agreement provides that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the Warrant Agreement, including under the Securities 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 we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We will waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum.
Notwithstanding the foregoing, these provisions of the Warrant Agreement will 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 of our warrants shall be deemed to have notice of and to have consented to the forum provisions in our Warrant Agreement. If any action, the subject matter of which is within the scope the forum provisions of the 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 our 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 us, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our Warrant Agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we 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.

Investors should not rely on outdated financial projections.

In connection with the Business Combination, we disclosed certain projections regarding our potential financial performance in future years. As previously disclosed, these projections were prepared for internal use, capital budgeting and other management purposes, including to capture the initial revenue and profit opportunity of our various solution offerings, were finalized in August 2021 and were not updated to reflect events after that date. Also, as previously disclosed, the projected financial information was not prepared with a view toward complying with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, or GAAP with respect to forward-looking financial information. Readers were cautioned not to rely on the prospective financial information because actual results were likely to differ materially from the prospective financial information, and not to look upon the projections as “guidance” of any sort.

The projected financial information disclosed in connection with the Business Combination is outdated and does not represent the current views of management. Specifically, we received only approximately $180.8 million as a result of the Business Combination, which was less than 50% of the expected potential proceeds from the transaction, due in part to higher than expected redemptions by NextGen Acquisition Corp. II public stockholders and higher than expected expenses in connection with the Business Combination. Accordingly, following the closing of the Business Combination, we had less cash available to execute our development plans and growth strategy. This has limited the pace at which we have been able to make the investments we had planned to expand production and launch capabilities, develop new products and services, and establish the infrastructure to support this growth on the timeframe contemplated by the projections disclosed in connection with the Business Combination. As a result, we expect our actual results for the periods covered by the projections will differ materially from the projected financial information that we prepared in August 2021.

We reiterate our prior caution not to rely on the previously published and now outdated financial projections. We have not undertaken any obligation to publish any financial projections.

General Risk Factors

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Our employees and independent contractors may engage in misconduct or other improper activities, which could have an adverse effect on our business, prospects, financial condition and operating results.

We are exposed to the risk that our employees and independent contractors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or other activities that violate laws and regulations, including production standards, U.S. federal and state fraud, abuse, data privacy and security laws, other similar non-U.S. laws or laws that require the true, complete and accurate reporting of financial information or data. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, prospects, financial condition and operating results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, integrity oversight and reporting obligations to resolve allegations of non-compliance, imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could have a material adverse effect on our business, financial condition and results of operations.

Investments in us may be subject to U.S. and non-U.S. foreign investment screening regulations which may impose conditions or limitations on certain investors (including, but not limited to, limits on purchasing our capital stock, limits on information sharing with such investors, requiring a voting trust, governance modifications, forced divestiture, or other measures).

Certain investments that involve the acquisition of, or investment in, a U.S. business by a non-U.S. investor may be subject to review and approval by the Committee on Foreign Investment in the United States (“CFIUS”). Whether CFIUS has jurisdiction to review an acquisition or investment transaction depends on — among other factors — the nature and structure of the transaction, including the level of beneficial ownership interest and the nature of any information or governance rights involved. For example, investments that result in “control” of a U.S. business by a foreign person always are subject to CFIUS jurisdiction. Significant CFIUS reform legislation, which was fully implemented through regulations that became effective on February 13, 2020, among other things expanded the scope of CFIUS’s jurisdiction to investments that do not result in control of a U.S. business by a foreign person but afford certain foreign investors certain information or governance rights in a U.S. business that has a nexus to “critical technologies,” “critical infrastructure” and/or “sensitive personal data.” The new CFIUS legislation also imposed mandatory filings for certain investment transactions into U.S. businesses with a nexus to critical technologies.

Moreover, other countries continue to strengthen their own foreign direct investment (“FDI”) screening regimes, and investments and transactions outside of the U.S. may be subject to review by non-U.S. FDI regulators if such investments are perceived to implicate national security policy priorities. Any review and approval of an investment or transaction by CFIUS or another FDI regulator may have outsized impacts on transaction certainty, timing, feasibility, and cost, among other things. CFIUS and other FDI regulatory policies and practices are rapidly evolving, and in the event that CFIUS or another FDI regulator reviews one or more proposed or existing investment by investors in us, there can be no assurances that such investors will be able to maintain, or proceed with, such investments on terms acceptable to such investors. CFIUS or another FDI regulator may require us to divest some or all of our business operations, impose requirements on the management, control and conduct of our business, or impose limitations or restrictions on, or prohibit, investments by certain investors (including, but not limited to, limits on purchasing our common stock, limits on information sharing with such investors, requiring a voting trust, governance modifications, or forced divestiture, among other things).

In particular, as Closing occurred prior to the commencement of the U.K’s new investment screening regime under the NSIA, no approval was required under the NSIA. However, the U.K. Secretary of State has the power to call in transactions for review (including retrospectively in relation to transactions occurring after November 11, 2020) where he or she reasonably suspects that a transaction has given rise or may give rise to a risk to national security. The U.K. Secretary of State has broad powers to make interim and final orders for the purpose of preventing, remedying or mitigating such a national security risk. Any such orders may adversely affect us and can include a requirement that some or all of the business be divested, as well as impose requirements on the management, control and conduct of the business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Equity Securities

During the three months ended September 30, 2022, the registrant did not make any sales of unregistered equity securities that were not previously reported in a Current Report on Form 8-K.
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Item 3. Defaults Upon Senior Securities

None.
Item 4. Mine Safety Disclosures 

Not Applicable.
Item 5. Other Information 

On November 4, 2022, we sold and issued to VIL the Convertible Note in the principal amount of $25.0 million, which is convertible into shares of our common stock or other Qualified Securities, subject to certain conditions and limitations set forth in the Convertible Note. We sold and issued the Convertible Note pursuant to the Subscription Agreement between us, VIL and our domestic subsidiaries named therein that are jointly and severally guaranteeing our obligations under the Convertible Note. We will use the net proceeds from the Convertible Note for working capital.

The Convertible Note contains customary events of default, bears interest at an annual rate of 6.0% (or 10.0% during the continuance of an event of default under the Convertible Note), payable in cash semi-annually, and has a maturity date of November 4, 2024, unless earlier repurchased, converted or redeemed in accordance with its terms prior to such date. Subject to any limitations under the rules of Nasdaq Stock Market, the Convertible Note will automatically convert into Qualified Securities (as defined below) at a conversion price equal to the purchase price paid by investors in the relevant Qualified Financing (as defined below) if, prior to the earliest to occur of November 4, 2024, any Fundamental Change Effective Date and the effective date of any Merger Event (each as defined in the Convertible Note), we consummate a bona fide third-party financing of our common stock or securities convertible into or exchangeable for our common stock for gross cash proceeds of at least $50.0 million (excluding any securities purchased by VIL or its affiliates) in one or more related and substantially similar and simultaneous transactions at the same price (a “Qualified Financing” and the securities sold in such Qualified Financing, the “Qualified Securities”). VIL will have the option to convert all or a portion of the Convertible Note in accordance with such terms in a financing by us that would have been a Qualified Financing but for the gross cash proceeds in such financing being less than $50.0 million, with such conversion effected as described above as if such financing were a Qualified Financing. Additionally, on or after October 15, 2024, VIL has the right to convert all or any portion of the Convertible Note into shares of common stock at an initial conversion rate of 345.5425 shares of common stock per $1,000 principal amount of the Convertible Note (subject to adjustments as provided in the Convertible Note, the “Fixed Conversion Rate”). In the event of a Fundamental Change, a Merger Event (each as defined in the Convertible Note) or a redemption of the Convertible Note by us, or if any automatic conversion in connection with a Qualified Financing would be subject to limitations set forth in the relevant rules of Nasdaq Stock Market, VIL has the right to convert the Convertible Note at the Fixed Conversion Rate. Prior to the Maturity Date, we may redeem all or part of the Convertible Note for cash at a redemption price equal to 100% of the principal amount of the Convertible Note to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Convertible Note contains a covenant that restricts our and the Guarantors’ ability to incur liens on our and the Guarantors’ assets and properties without VIL’s consent. If we undergo a Fundamental Change (as defined in the Convertible Note), then, subject to certain conditions, VIL may require us to repurchase for cash all or any portion of the Convertible Note at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Note to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The Convertible Note was issued to VIL in reliance upon Section 4(a)(2) of the Securities Act, in a transaction not involving any public offering. We relied on this exemption from registration based in part on representations made by VIL in the Subscription Agreement. Any shares of common stock that may be issued upon conversion of the Convertible Note will be issued in reliance upon Section 3(a)(9) of the Securities Act as involving an exchange by us exclusively with our security holders. Initially, a maximum of 8,638,563 shares of the common stock may be issued upon conversion of the Convertible Note at the Fixed Conversion Rate, subject to adjustment provisions included in the Convertible Note. The Convertible Note is not freely transferable without our written consent in whole or in part until the one-year anniversary of the issuance date unless a default under the Convertible Note has occurred and is continuing. On or after such anniversary, the Convertible Note will be freely transferable in whole or in part by VIL, subject to any restrictions under the Securities Act.

The Subscription Agreement contains customary representations, warranties, and covenants by us and VIL. The representations, warranties and covenants contained in the Subscription Agreement were made only for purposes of such
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agreement and as of specific dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed upon by us and VIL. We have also agreed in the Subscription Agreement to reimburse VIL for its documented, out-of-pocket expenses incurred in connection with the issuance and sale of the Convertible Note. The foregoing descriptions of the Subscription Agreement and the Convertible Note are each qualified in their entirety by reference to the full text of the Subscription Agreement and Convertible Note, respectively, which are attached to this Quarterly Report on Form 10-Q as Exhibits 4.1 and 10.2 and incorporated herein by reference.

VIL is an affiliate of the Company and maintains expansive approval and other rights with respect to our governance and operational matters, including the right to designate three members of our board of directors and the right to approve several corporate transactions, each as set forth in that certain Stockholders’ Agreement, dated December 29, 2021, by and between us, VIL and the other parties thereto. The full text of the Stockholders’ Agreement is incorporated herein by reference to Exhibit 10.4(a) to our 2021 Annual Report on Form 10-K.

VIL is also party to the Amended and Restated Registration Rights Agreement, dated December 29, 2021, with us and the other parties thereto, which provides VIL and the other stockholders party to the agreement with various customary demand and piggyback registration rights. Pursuant to the terms of the Registration Rights Agreement, any shares of common stock acquired by VIL upon conversion of the Convertible Note will be considered “registrable securities” for purposes of the Registration Rights Agreement. The full text of the Registration Rights Agreement is incorporated herein by reference to Exhibit 10.2(a) to our 2021 Annual Report on Form 10-K. Neither the Stockholders’ Agreement nor the Registration Rights Agreement has been amended in connection with the issuance and sale of the Convertible Note.
Item 6.    Exhibits

Exhibit No.
Description
2.1†
3.1
Certificate of Incorporation of Virgin Orbit Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (File No. 333-262326) filed on January 25, 2022).
3.2
4.1*
10.1*#
10.2*
31.1*
31.2*
32.1**
32.2**
101.INS*
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
____________
*Filed herewith.
**Furnished herewith.
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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.
#    Indicates a management contract or compensatory plan.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

VIRGIN ORBIT HOLDINGS, INC.
Date:November 8, 2022By:/s/ Daniel Hart
Name:Daniel Hart
Title:Chief Executive Officer
(Principal Executive Officer)
Date:November 8, 2022By:/s/ Brita O’Rear
Name:Brita O’Rear
Title:Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)




79
THIS SECURITY (INCLUDING ANY SECURITIES ISSUABLE UPON CONVERSION) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR APPLICABLE STATE SECURITIES LAWS. THIS SECURITY (INCLUDING ANY SECURITIES ISSUABLE UPON CONVERSION) HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO ITS DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR THIS SECURITY (INCLUDING ANY SECURITIES ISSUABLE UPON CONVERSION) UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR AN EXEMPTION THEREFROM. VIRGIN ORBIT HOLDINGS, INC. SENIOR UNSECURED CONVERTIBLE NOTE CN-1 US$25,000,000.00 November 4, 2022 FOR VALUE RECEIVED, Virgin Orbit Holdings, Inc., a corporation duly organized and validly existing under the laws of the state of Delaware (the “Borrower”), hereby promises to pay to VIRGIN INVESTMENTS LIMITED, or registered assigns, at the address set forth in Section 12.01 of this Senior Unsecured Convertible Note (this “Note”), the principal sum of TWENTY-FIVE MILLION DOLLARS ($25,000,000.00), together with interest accrued thereon from time to time as provided herein, on the Maturity Date (as defined below). ARTICLE 1 DEFINITIONS; INTERPRETATIONS Section 1.01. Definitions. The terms defined in this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Note shall have the respective meanings specified in this Section 1.01. The words “herein,” “hereof,” “hereunder,” and words of similar import refer to this Note as a whole and not to any particular Article, Section or other subdivision. The terms defined in this Article include the plural as well as the singular. Unless otherwise noted, references to “U.S. Dollars” or “$” shall mean the currency of the United States. “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. EXECUTION VERSION Exhibit 4.1

 
2 “Bankruptcy Law” shall have the meaning specified in Section 6.01. “Board of Directors” means the Board of Directors of the Borrower or any duly authorized committee of such Board of Directors. “Borrower” means Virgin Orbit Holdings, Inc., a corporation duly organized and existing under the laws of the State of Delaware, until a successor Person shall replace it pursuant to the applicable provisions of this Note, and thereafter “Borrower” shall mean such successor Person. “Business Combination Event” shall have the meaning specified in Section 7.01. “Business Day” means any day other than a Saturday, a Sunday or a day on which the Federal Reserve Bank of New York is authorized or required by law or executive order to close or be closed. “Capital Stock” of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) the equity of such Person, but excluding any debt securities convertible into such equity. “Cash” or “cash” means such coin or currency of the United States as at any time of payment is legal tender for the payment of public and private debts. “Clause A Distribution” shall have the meaning specified in Section 4.07(c). “Clause B Distribution” shall have the meaning specified in Section 4.07(c). “Clause C Distribution” shall have the meaning specified in Section 4.07(c). “close of business” means 5:00 p.m. (New York City time). “Code” means the Internal Revenue Code of 1986, as amended from time to time. “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 shares of common stock of the Borrower, par value $0.0001 per share, at the date of this Note, subject to Section 4.10. “Conversion Cap” shall have the meaning specified in Section 4.03(g). “Conversion Date” means, in respect of any conversion of this Note, the related Fixed Conversion Date or Financing Conversion Date, as the case may be.

 
3 “Conversion Obligation” means, in respect of any conversion of this Note, the related Fixed Conversion Obligation or Financing Conversion Obligation, as the case may be. “Default” means any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. “Event of Default” shall have the meaning specified in Section 6.01. “Ex-Dividend Date” means the first date on which shares of Common Stock trade on The Nasdaq Global Market, or on the applicable stock exchange on which Common Stock is then traded, regular way, without the right to receive the issuance, dividend or distribution in question from the Borrower. “Exchange Act” means the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, in each case as amended. “Expiration Date” shall have the meaning specified in Section 4.07(e). “Expiration Time” shall have the meaning specified in Section 4.07(e). “Financing Closing Date” means, in respect of any Qualified Financing, the closing date of such Qualified Financing. “Financing Conversion Date” shall have the meaning specified in Section 4.03(b). “Financing Conversion Obligation” shall have the meaning specified in Section 4.03(b). “Financing Conversion Rate” means, in respect of any Qualified Financing and with respect to each $1,000 principal amount of this Note, a number of the Qualified Securities in respect of such Qualified Financing (denominated in shares, units or notes, as applicable (with any such Qualified Securities that have a liquidation preference or principal amount being deemed to be denominated in a liquidation preference or principal amount per share, unit or note, as the case may be, as the Holder determines in good faith and in a commercially reasonable manner)) equal to $1,000 divided by the purchase price per share, unit or note, as applicable, of such Qualified Securities paid by the investors in the Qualified Financing, rounded to the nearest 1/10,000th of a share, unit or note, as applicable. “Fixed Conversion Obligation” shall have the meaning specified in Section 4.01(a). “Fixed Conversion Rate” shall have the meaning specified in Section 4.01(a). “Foreign Subsidiary” means (a) any Subsidiary of the Borrower (i) that has no material assets other than Capital Stock in or indebtedness of one or more Foreign

 
4 Subsidiaries or (ii) that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code or (b) any other Subsidiary of the Borrower, for so long as such Subsidiary would not be able to execute a Guarantee without creating an investment in “United States property” (within the meaning of Section 956 of the Code). “Form of Assignment and Transfer” shall mean the “Form of Assignment and Transfer” attached as Attachment 3 to this Note. “Form of Fundamental Change Repurchase Notice” shall mean the “Form of Fundamental Change Repurchase Notice” attached as Attachment 2 to this Note. “Form of Notice of Conversion” shall mean the “Form of Notice of Conversion” attached as Attachment 1 to this Note. “Fundamental Change” shall be deemed to have occurred at the time after this Note is originally issued if any of the following occurs: (a) a “person” or “group” (other than the Holder or an Affiliate thereof) within the meaning of Section 13(d) of the Exchange Act, other than the Borrower, its Wholly Owned Subsidiaries and the employee benefit plans of the Borrower and its Wholly Owned Subsidiaries, has become the direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of (x) the Common Stock representing more than 50% of the voting power of the Common Stock or (y) Common Equity of the Borrower representing more than 50% of the voting power of all Common Equity of the Borrower; (b) the consummation of (A) any recapitalization, reclassification or change of the Common Stock (other than changes resulting from a subdivision or combination) 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 Borrower 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 Borrower and its Subsidiaries, taken as a whole, to any Person other than one of the Borrower’s Wholly Owned Subsidiaries; provided, however, that a transaction described in subclauses (A) or (B) in which the holders of all classes of the Borrower’s 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 as such ownership immediately prior to such transaction shall not be a Fundamental Change pursuant to this clause (b); or (c) the stockholders of the Borrower approve any plan or proposal for the liquidation or dissolution of the Borrower.

 
5 If any transaction in which the Common Stock is replaced by the securities of another entity occurs, following the effective date of such transaction references to the Borrower in this definition shall instead be references to such other entity. “Fundamental Change Borrower Notice” shall have the meaning specified in Section 9.01(b). “Fundamental Change Effective Date” means the date on which any Fundamental Change becomes effective. “Fundamental Change Repurchase Date” shall have the meaning specified in Section 9.01(a). “Fundamental Change Repurchase Notice” shall have the meaning specified in Section 9.01(d). “Fundamental Change Repurchase Price” of this Note, means 100% of the principal amount of this Note to be repurchased pursuant to Article 9 plus accrued and unpaid interest on such principal amount of this Note to be repurchased, if any, to, but excluding, the Fundamental Change Repurchase Date. “Guarantees” means the joint and several guarantees by the Guarantors of the Borrower’s obligations under this Note pursuant to Article 11. “Guarantors” means each of (a) the Borrower’s Subsidiaries listed on the signature pages to this Note, (b) any other Subsidiary of the Borrower that becomes a Guarantor in accordance with Section 3.04 or Section 11.04 and (c) the respective successors and assigns of such Subsidiaries, as required under Article 11, in each case until such time as any such Subsidiary shall be released and relieved of its obligations pursuant to Section 11.06. “Guarantor Business Combination Event” shall have the meaning specified in Section 11.04. “Holder” means Virgin Investments Limited, a company duly organized and existing under the laws of the British Virgin Islands. “Interest Payment Date” means each May 4 and November 4 of each year, beginning on May 4, 2023; provided, however, that if any Interest Payment Date falls on a date that is not a Business Day, such payment of interest shall be postponed until the next succeeding Business Day, and no interest or other amount shall be paid as a result of such postponement. “Interest Rate” means 6.00% per annum; provided that the Interest Rate shall increase to 10% per annum upon the occurrence and during the continuance of any Event of Default.

 
6 “Issue Date” of this Note means the date on which this Note was originally issued or deemed issued as set forth on the face of this Note. “Last Reported Sale Price” of the Common Stock on any date means the closing sale price per share of the Common Stock (or if no closing sale price is reported, the average of the bid and ask prices per share or, if more than one in either case, the average of the average bid and the average ask prices per share) on such date reported on The Nasdaq Global Market or other principal U.S. securities exchange on which the Common Stock is then traded. If the Common Stock is not listed for trading on a United States national or regional securities exchange on such date, the “Last Reported Sale Price” of the shall be the last quoted bid price for the Common Stock 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 is not so quoted, the “Last Reported Sale Price” shall be the average of the mid-point of the last bid and ask prices for the Common Stock on such date from each of at least three nationally recognized independent investment banking firms selected by the Borrower for this purpose. The “Last Reported Sale Price” of the Common Stock will be determined without reference to extended or after hours trading or any other trading outside regular trading session hours. “Lien” means any lien, mortgage, pledge, security interest, charge, or encumbrance of any kind (including any conditional sale or other title retention agreement or any lease in the nature thereof) and any agreement to give or refrain from giving any lien, mortgage, pledge, security interest, charge, or other encumbrance of any kind. “Majority Holders” means the registered holders of a majority of the outstanding aggregate principal amount of the Senior Unsecured Convertible Notes issued pursuant to the Subscription Agreement (but excluding, for this purpose, any such Senior Unsecured Convertible Notes that are held by the Borrower or by any Subsidiary thereof). “Maturity Date” shall have the meaning specified in Section 2.01. “Merger Event” shall have the meaning specified in Section 4.10(a). “Minimum Financing Threshold” means $50,000,000. “Non-Qualified Financing” means any financing by the Borrower that would have been a Qualified Financing pursuant to clause (a) of the definition thereof but for the gross cash proceeds of such financing being less than the Minimum Financing Threshold. “Note” shall have the meaning specified in the preamble. “Notice of Conversion” shall have the meaning specified in Section 4.03(a)(ii). “open of business” means 9:00 a.m. (New York City time). “Optional Redemption” shall have the meaning specified in Section 10.01.

 
7 “Outstanding,” when used with reference to this Note, shall mean, as of any particular time, any portion of the principal amount of this Note, except: (i) The portion of this Note that has been paid pursuant to Section 12.13 or Notes in lieu of which, or in substitution for which, other Notes shall have been issued by the Borrower pursuant to the terms of Section 12.13; (ii) The portion of this Note converted pursuant to Article 4 and required to be canceled pursuant to Section 2.04; and (iii) The portion of this Note redeemed by the Borrower pursuant to Article 10. “Permitted Liens” means (i) Liens for taxes, assessments or charges of any governmental authority for claims that are not material, or are not yet due or are being contested in good faith by appropriate proceedings that have the effect of preventing forfeiture or sale of the assets to which such Liens attach, and, in each case, with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP, (ii) statutory Liens or bankers Liens, (iii) any attachment or judgment Lien not constituting an Event of Default and (iv) such other Liens as may be permitted from time to time, with the written consent of the Holder, which shall not be unreasonably withheld, delayed or conditioned. “Person” or “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any syndicate or group that would be deemed to be a “person” under Section 13(d)(3) of the Exchange Act or any other entity. “Qualified Financing” means each of (a) a bona fide third-party financing (other than, for the avoidance of doubt, where one or more of Virgin Group Holdings Limited, the Holder or any other Affiliate of Virgin Group Holdings Limited is/are the sole investor(s)) by the Borrower in the form of Common Stock or any securities convertible into, or exchangeable or exercisable for, Common Stock (other than pursuant to equity incentive plans of the Borrower where the sale of such securities is registered on Form S- 8 under the Securities Act) for gross cash proceeds to the Borrower of at least the Minimum Financing Threshold, in one or more transactions or series of related and substantially similar and simultaneous transactions at the same purchase price from third parties unaffiliated with Virgin Group Holdings Limited and its Affiliates, and (b) any Non-Qualified Financing that the Holder elects, by written notice to the Borrower after the Borrower’s delivery of the notice specified in Section 4.02(b) and prior to the applicable Financing Closing Date, to be deemed to be a “Qualified Financing” in respect of all or any portion of this Note (if the portion with respect to which such election is made is $1,000 principal amount or a multiple thereof). For the avoidance of doubt. the participation by Virgin Group Holdings Limited or its Affiliates in a financing shall not disqualify such financing from being a Qualified Financing (but amounts invested in such financing by Virgin Group Holdings Limited or its Affiliates shall not count toward satisfying the Minimum Financing Threshold).

 
8 “Qualified Securities” means, with respect to any Qualified Financing, the Common Stock or securities convertible into, or exchangeable or exercisable for, Common Stock sold by the Borrower in such Qualified Financing. “Qualified Successor Entity” means, with respect to a Business Combination Event, a corporation; provided, however, that a limited liability company, limited partnership or other similar entity will also constitute a Qualified Successor Entity with respect to such Business Combination Event if both of the following conditions are satisfied: (i) either (x) such limited liability company, limited partnership or other similar entity, as applicable, is treated as a corporation that is organized in the United States or is a direct or indirect, wholly owned subsidiary of, and disregarded as an entity separate from, a corporation that is organized in the United States, in each case for U.S. federal income tax purposes; or (y) the Borrower has received an opinion of a nationally recognized tax counsel to the effect that such Business Combination Event will not be treated as an exchange under Section 1001 of the Code for the Holder; and (ii) such Business Combination Event constitutes a Merger Event whose Reference Property consists solely of any combination of cash in U.S. dollars and shares of common stock or other corporate Common Equity interests of an entity that is (x) treated as a corporation for U.S. federal income tax purposes; (y) duly organized and existing under the laws of the United States of America, any State thereof or the District of Columbia; and (z) a direct or indirect parent of the limited liability company, limited partnership or similar entity that is disregarded from such corporation for U.S. federal income tax purposes. “Receiver” shall have the meaning specified in Section 6.01. “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). “Redemption Date” shall have the meaning specified in Section 10.02(a). “Redemption Notice” shall have the meaning specified in Section 10.02(a). “Redemption Price” of this Note, means 100% of the principal amount of this Note to be redeemed pursuant to Article 10 plus accrued and unpaid interest on such principal amount of this Note to be redeemed, if any, to, but excluding, the Redemption Date. “Reference Property” shall have the meaning specified in Section 4.10(a). “Rights” means any common stock or preferred stock purchase right or warrant, as the case may be, that all or substantially all shares of Common Stock may be entitled to receive under a Rights Plan.

 
9 “Rights Plan” means any common stock or preferred stock rights plan or any similar plan in effect as of the date of this Note or adopted by the Borrower after the date hereof or any replacement or successor rights plan. “Rule 144” means Rule 144 as promulgated under the Securities Act. “Securities Act” means the Securities Act of 1933 and the rules and regulations promulgated thereunder, in each case as amended. “Significant Subsidiary” means any Subsidiary of the Borrower that satisfies the criteria of a “significant subsidiary” set forth in Rule 1-02(w) of Regulation S-X under the Exchange Act. “Spin-Off” shall have the meaning specified in Section 4.07(c). “Subscription Agreement” means that certain Subscription Agreement, dated as of November 4, 2022, by and among the Borrower, the Holder and the guarantors thereunder, as the same may be amended from time to time. “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 Entity” shall have the meaning specified in Section 7.01(a). “Termination of Trading” means the Common Stock (or other common stock into which this Note is convertible) ceases to be listed or quoted on any of The New York Stock Exchange, The NYSE American, The Nasdaq Global Select Market or The Nasdaq Global Market (or any of their respective successors). “Trading Day” means a day during which (i) trading in the Common Stock generally occurs and (ii) a Last Reported Sale Price (other than a Last Reported Sale Price of the type referred to in the third sentence of the definition of Last Reported Sale Price) for the Common Stock is available for such day; provided that if the Common Stock is not admitted for trading or quotation on or by any exchange, bureau or other organization referred to in the definition of Last Reported Sale Price (excluding the third sentence of that definition), “Trading Day” means a Business Day. “Trigger Event” shall have the meaning specified in Section 4.07(c). “United States” means the United States of America. “unit of Reference Property” shall have the meaning specified in Section 4.10(a).

 
10 “Valuation Period” shall have the meaning specified in Section 4.07(c). “Wholly Owned Subsidiary” means, with respect to any Person, any 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%”. ARTICLE 2 ISSUE, DESCRIPTION AND EXECUTION Section 2.01. Maturity Date. Subject to Section 6.02, all outstanding principal and accrued and unpaid interest on this Note shall be due and payable, in full, on November 4, 2024 (the “Maturity Date”), unless earlier repurchased, redeemed or converted pursuant to the terms hereof. Section 2.02. Interest. This Note shall bear interest daily at the simple, non- compounding rate equal to the Interest Rate on such day on the unpaid principal amount of this Note from the Issue Date, 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 the Maturity Date. Interest is payable semiannually in arrears on each Interest Payment Date. Interest on this Note shall be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest shall be paid by wire transfer of immediately available funds to an account designated by the Holder. In the event that any amounts payable under this Note are not paid when due, interest shall accrue on all such amounts, in accordance with Section 3.01(a), including any unpaid principal or interest from the date such overdue amounts were originally due to the date payment of such amounts has been made or duly provided for. All such interest shall be payable on demand. Section 2.03. Payment of Note. All payments due under this Note shall be paid in lawful money of the United States. All payments shall be made by wire transfer of immediately available funds to an account designated in writing by the Holder. If an interest, principal or other payment date is other than a Business Day (as defined herein), such payment shall be made on the next succeeding Business Day. All payments shall be applied first, to all fees, charges and expenses permitted under this Note, second, to all accrued and unpaid interest hereon and third, to principal. Section 2.04. Cancellation of Portion of Note Paid. All portions of this Note surrendered for the purpose of payment, repurchase, redemption, conversion or registration of transfer, shall, if surrendered to the Borrower, be promptly canceled by it. ARTICLE 3 PARTICULAR COVENANTS OF THE BORROWER Section 3.01. Payment of Principal and Interest. (a) The Borrower shall promptly make all payments in respect of this Note on the dates and in the manner provided in this Note. The Borrower shall, to the fullest

 
11 extent permitted by law, pay interest in immediately available funds on any overdue principal amount and interest at the annual rate borne by this Note compounded semiannually, which interest shall accrue from the date such overdue amount was originally due to the date payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand. Presentation of this Note is due at maturity. (b) Payment of the principal of and interest, if any, on this Note shall be made in such immediately available coin or currency of the United States as at the time of payment is legal tender for payment of public and private debts by wire transfer payable in such money. Section 3.02. Corporate Existence. Subject to Article 7 hereof, the Borrower shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and rights (charter and statutory); provided, however, that the Borrower shall not be required to preserve any such right or franchise if the Borrower determines that the preservation thereof is no longer desirable in the conduct of the business of the Borrower and that the loss thereof is not disadvantageous in any material respect to the Holder. Section 3.03. No Liens. The Borrower and each Guarantor shall not, and each shall not permit any of their respective Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien, other than Permitted Liens, upon any of their respective property or assets, whether now owned or hereafter acquired. Section 3.04. Additional Guarantors. After the Issue Date, the Borrower shall cause each of the Borrower’s Wholly Owned Subsidiaries (other than any Foreign Subsidiary or Subsidiary of a Foreign Subsidiary) to, within 30 days of becoming a Wholly Owned Subsidiary of the Borrower, execute and deliver to the Holder a joinder to this Note pursuant to which such Subsidiary shall become a Guarantor hereunder. Section 3.05. Rule 144 Information Requirement and Annual Reports. (a) The Borrower, at all times while it shall be a reporting company under the Exchange Act, covenants to file timely (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Borrower after the Issue Date pursuant to Sections 13(a) or 15(d) of the Exchange Act and to promptly furnish the Holder with true and complete copies of all such filings; provided that any documents publicly filed or furnished with the Commission pursuant to the Electronic Data Gathering, Analysis and Retrieval System shall be deemed to have been furnished or delivered to the Holder pursuant to this Section 3.05(a). The Borrower further covenants that it shall take such further action as the Holder may reasonably request, all to the extent required from time to time to enable the Holder to resell or otherwise dispose of this Note or shares of Common Stock issuable upon conversion hereof without registration under the Securities Act within the limitation of the exemptions provided by Rule 144, including providing any customary legal opinions. Upon the request of the

 
12 Holder, the Borrower shall deliver to the Holder a written certification of a duly authorized officer as to whether it has complied with such requirements. (b) Without limiting the generality of Section 3.05(a), at any time the Borrower is not subject to Section 13 or 15(d) of the Exchange Act, the Borrower shall, so long as this Note 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, make publicly available the information concerning the Borrower as described in Rule 144(c)(2) under the Securities Act to facilitate the resale of this Note or shares of Common Stock issuable upon conversion thereof pursuant to Rule 144. (c) The Borrower shall deliver to the Holder, within 15 days after the same are required to be filed with the Commission, copies of any documents or reports that the Borrower 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). Any such document or report that the Borrower files with the Commission via the Commission’s EDGAR system shall be deemed to be delivered to the Holder for purposes of this Section 3.05(c) at the time such documents are filed via the EDGAR system. Section 3.06. Transfers. In case this Note or any portion hereof shall be transferred by the Holder, with delivery of a duly completed Form of Assignment and Transfer by the Holder to the Borrower, the Borrower shall promptly upon written request (and in any event, within two Business Days) execute and deliver to (a) the Holder a new Note in authorized denominations in an aggregate principal amount equal to the portion of this Note not transferred and (b) each such transferee a new Note in authorized denominations in an aggregate principal amount equal to the portion of this Note so transferred to such transferee, without payment of any service charge by the Holder or any such transferee but, if required by the Borrower, 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 Note being different from the name of the Holder of the old Note. ARTICLE 4 CONVERSION OF NOTE Section 4.01. Conversion Privilege at Fixed Conversion Rate. (a) Subject to and upon compliance with the provisions of this Article 4, the Holder shall have the right, at the Holder’s option, to convert all or any portion (if the portion to be converted is $1,000 principal amount or a multiple thereof) of this Note (i) subject to satisfaction of the conditions described in Section 4.01(b), at any time prior to the close of business on the Business Day immediately preceding October 15, 2024 under the circumstances and during the periods set forth in Section 4.01(b), and (ii) regardless of the conditions described in Section 4.01(b), on or after October 15, 2024 and prior to the close of business on the Business Day immediately preceding the Maturity Date, in

 
13 each case, at an initial conversion rate of 345.5425 shares of Common Stock (subject to adjustment as provided in this Article 4, the “Fixed Conversion Rate”) per $1,000 principal amount of this Note (subject to, and in accordance with, the settlement provisions of Section 4.03, the “Fixed Conversion Obligation”). (b) (i) If (A) a transaction or event that constitutes a Fundamental Change occurs prior to the Maturity Date or (B) the Borrower is a party to a Merger Event that occurs prior to the Maturity Date, all or any portion of this Note may be surrendered for conversion pursuant to Section 4.01(a) at any time from or after the date that is 35 Business Days prior to the anticipated effective date of the transaction (or, if later, the earlier of (x) the Business Day after the Borrower gives notice of such transaction and (y) the actual effective date of such transaction) until 35 Trading Days after the actual effective date of such transaction or, if such transaction also constitutes a Fundamental Change, until the related Fundamental Change Repurchase Date. The Borrower shall notify the Holder (x) as promptly as practicable following the date the Borrower publicly announces such transaction but in no event less than 35 Business Days prior to the anticipated effective date of such transaction or (y) if the Borrower does not have knowledge of such transaction at least 35 Business Days prior to the anticipated effective date of such transaction, within one Business Day of the date upon which the Borrower receives notice, or otherwise becomes aware, of such transaction, but in no event later than the actual effective date of such transaction. (ii) If the Borrower calls any or all of this Note for redemption pursuant to Article 10 prior to the Maturity Date, then the Holder may surrender all or any portion of this Note for conversion pursuant to Section 4.01(a) at any time prior to the close of business on the Business Day prior to the Redemption Date. After that time, the right to convert on account of the Borrower’s delivery of the relevant Redemption Notice shall expire, unless the Borrower defaults in the payment of the Redemption Price, in which case the Holder may convert all or any portion of this Note until the Redemption Price has been paid or duly provided for. (iii) If, prior to the earliest to occur of the Maturity Date, any Fundamental Change Effective Date and the effective date of any Merger Event, the Borrower proposes to consummate a transaction or event that constitutes a Qualified Financing (including, for the avoidance of doubt, any deemed Qualified Financing at the election of the Holder) and if the limitations set forth in Section 4.03(g) relating to the Conversion Cap would apply upon conversion of this Note pursuant to Section 4.02(a) as a result of Section 4.03(g) (as determined by the Holder in good faith), then the Holder may surrender all or any portion of this Note for conversion pursuant to Section 4.01(a) at any time from or after the date of the Borrower’s delivery of any related notice pursuant to Section 4.02(b) on the basis of which the Holder’s determination that the Conversion Cap may apply is made, until the close of business on the Business Day prior to the related

 
14 Financing Closing Date. For the avoidance of doubt, if the Holder delivers a Notice of Conversion pursuant to this Section 4.01(b)(iii), the provisions of Section 4.02(a) shall not apply. Notwithstanding anything to the contrary in this Section 4.01, the Holder agrees not to convert any portion of the Note pursuant to Section 4.01(a) in the 20 Trading Days after the Borrower provides to the Holder written notice of its good faith intention to pursue a transaction that the Borrower believes would constitute a Qualified Financing and for which the Holder determines in good faith that the Conversion Cap would not apply upon conversion of this Note pursuant to Section 4.02(a). Section 4.02. Conversions upon a Qualified Financing or a Non-Qualified Financing. (a) If, prior to the earliest to occur of the Maturity Date, any Fundamental Change Effective Date and the effective date of any Merger Event, the Borrower consummates a transaction or event that constitutes a Qualified Financing, then, on the Financing Closing Date in respect of such Qualified Financing this Note shall automatically convert in whole (or, in respect of a Qualified Financing pursuant to clause (b) of the definition thereof, in the portion validly set forth in the Holder’s election with respect to the relevant Non-Qualified Financing) without any further action by the Holder into Qualified Securities in respect of such Qualified Financing at the Financing Conversion Rate of such Qualified Securities per $1,000 principal amount of this Note. (b) The Borrower shall deliver to the Holder written notice of any potential Qualified Financing or Non-Qualified Financing no less than five (5) Business Days prior to the related Financing Closing Date. Such notice shall include a copy of the Qualified Financing transaction documents, the proposed terms and conditions of the Qualified Financing, including the nature and type of the Qualified Securities and the proposed purchase price (or range of purchase prices) with respect thereto, and the proposed Financing Closing Date. As promptly as practicable after the final determination of the terms of any Qualified Financing or Non-Qualified Financing, the Borrower shall deliver to the Holder written notice of the same, notifying the Holder of the Qualified Financing (or the Non-Qualified Financing, as applicable) and any conversion to be effected, specifying the Financing Conversion Rate, the date on which such conversion is expected to occur and calling upon the Holder to surrender to the Borrower, in the manner and at the place designated herein, this Note. Section 4.03. Conversion Procedure; Settlement upon Conversion. (a) Conversions Pursuant to Section 4.01. (i) Subject to this Section 4.03 and Section 4.10, upon conversion of this Note pursuant to Section 4.01, the Borrower shall deliver to the Holder, in respect of each $1,000 principal amount of this Note being converted, a number of shares of Common Stock equal to the Fixed Conversion Rate, together with

 
15 cash, if applicable, in lieu of delivering any fractional share of Common Stock in accordance with Section 4.04, on the second Business Day immediately following the relevant Fixed Conversion Date. This Note shall be deemed to have been converted immediately prior to the close of business on the date that the Holder has complied with the requirements set forth in Section 4.03(a)(ii) (a “Fixed Conversion Date”). If any shares of Common Stock are due to the Holder pursuant to this Section 4.03(a), the Borrower shall issue or cause to be issued, and deliver to the Holder certificates with restrictive legend (or book-entry with restricted security notation on the books of the Borrower’s transfer agent, as applicable) for the full number of shares of Common Stock to which the Holder shall be entitled in satisfaction of the Borrower’s Fixed Conversion Obligation. The Person in whose name the certificate with restrictive legend (or book-entry with restricted security notation on the books of the Borrower’s transfer agent, if applicable) for any shares of Common Stock delivered upon conversion pursuant to this Section 4.03(a) is registered shall be treated as a shareholder of record as of the close of business on the relevant Fixed Conversion Date. (ii) Subject to Section 4.05, before the Holder shall be entitled to convert this Note pursuant to Section 4.01, the Holder shall (1) complete, manually sign and deliver an irrevocable notice to the Borrower as set forth in the Form of Notice of Conversion (or a facsimile thereof) (a “Notice of Conversion”) to the Borrower and state in writing therein the principal amount of this Note to be converted and the name or names (with addresses) in which the Holder wishes the certificate or certificates with restrictive legend (or book-entry with restricted security notation on the books of the Borrower’s transfer agent) for any shares of Common Stock to be delivered upon settlement of the Fixed Conversion Obligation to be registered, (2) surrender this Note, duly endorsed to the Borrower or in blank (and accompanied by appropriate endorsement and transfer documents), to the Borrower, and (3) if required, furnish appropriate endorsements and transfer documents. No Notice of Conversion with respect to this Note may be surrendered by the Holder if the Holder has also delivered a Fundamental Change Repurchase Notice to the Borrower in respect of this Note and has not validly withdrawn such Fundamental Change Repurchase Notice. (b) Conversions Pursuant to Section 4.02. Upon conversion of this Note pursuant to Section 4.02(a), the Borrower shall deliver to the Holder, in respect of each $1,000 principal amount of this Note being converted, a number of shares, units or notes, as applicable of Qualified Securities equal to the Financing Conversion Rate, together with cash, if applicable, in lieu of delivering any fractional share, unit or note in accordance with Section 4.04. The Holder hereby agrees to execute and deliver to the Borrower all transaction documents entered into by other purchasers participating in the relevant Qualified Financing, including any purchase agreement, any investor rights agreement and other ancillary agreements, with representations and warranties and transfer restrictions substantially similar to those provided by the investors in such Qualified Financing. The Holder also agrees to deliver the original of this Note (or a notice to the effect that the original Note has been lost, stolen or destroyed and an agreement acceptable to the Borrower whereby the Holder agrees to indemnify the

 
16 Borrower from any loss incurred by it in connection with this Note) on or promptly following the relevant Financing Closing Date. The Borrower shall, as soon as practicable thereafter (but in any event with five Business Days of the closing of the Qualified Financing), issue and deliver to the Holder a certificate or certificates (or a notice of issuance of uncertificated shares, units or notes, if applicable) for the applicable number of shares, units or notes, principal amount or liquidation preference, as applicable, of the Qualified Securities, in substantially the same form and manner as such Qualified Securities are delivered to investors in the applicable Qualified Financing together with cash, if applicable, in lieu of delivering any fractional share, unit or note in accordance with Section 4.04 (the “Financing Conversion Obligation”). Any conversion of this Note pursuant to Section 4.02(a) shall be deemed to have been made immediately prior to the closing of the Qualified Financing (such date of closing, the “Financing Conversion Date”) and on and after such Financing Conversion Date the Persons entitled to receive the Qualified Securities issuable upon such conversion shall be treated for all purposes as the record holder of such Qualified Securities. (c) In case this Note shall be subject to any partial conversion, the Borrower shall execute and deliver to the Holder a new Note in authorized denominations in an aggregate principal amount equal to the unconverted portion of this Note, without payment of any service charge by the Holder but, if required by the Borrower, 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 Note issued upon such conversion being different from the name of the Holder of the old Note surrendered for such conversion. (d) Except as provided in Section 4.07, no adjustment shall be made for dividends on any shares of Common Stock issued upon the conversion of this Note as provided in this Article 4. (e) Provisions of this Note that apply to conversion of this entire Note also apply to conversion of a portion of this Note. (f) Any Conversion Obligation with respect to this Note shall be computed on the basis of the aggregate principal amount of this Note (or specified portions thereof to the extent permitted thereby) so converted. (g) Notwithstanding anything to the contrary in this Note, the Borrower shall not issue any shares of Common Stock or other Qualified Securities upon conversion of this Note pursuant to Section 4.01 or Section 4.02 if the issuance of such Common Stock or other Qualified Securities, together with any securities issued in connection with any other related transactions that may be considered part of the same series of transactions for purposes of the rules of Nasdaq Stock Market LLC, would exceed the aggregate number of shares of Common Stock or shares, units or notes, as applicable, of other Qualified Securities that the Borrower may issue in a transaction in compliance with the Borrower’s obligations under the rules or regulations of Nasdaq Stock Market LLC (such aggregate number of shares, units or notes, as applicable, the “Conversion Cap”), except

 
17 that such limitation shall not apply if the Borrower’s stockholders have approved issuances in excess of the Conversion Cap in accordance with the rules of Nasdaq Stock Market LLC. (h) Upon any conversion, simultaneously with the Borrower’s settlement of the applicable Conversion Obligation, the Borrower shall pay to the Holder a cash payment representing accrued and unpaid interest, if any, to, but excluding, the relevant Conversion Date. Section 4.04. Fractional Shares. The Borrower shall not issue any fractional share of Common Stock or any fractional share, unit or note of Qualified Securities upon conversion of this Note and shall instead pay cash in lieu of delivering any fractional share of Common Stock or any fractional share, unit or note of Qualified Securities issuable upon conversion based on the Last Reported Sale Price on the relevant Fixed Conversion Date (in the case of Common Stock deliverable in respect of any Fixed Conversion Obligation) or the purchase price of each share, unit or note of Qualified Securities paid by the investors in the relevant Qualified Financing (in the case of Qualified Securities deliverable in respect of any Financing Conversion Obligation). Section 4.05. Taxes on Conversion. Except as provided in the next sentence, the Borrower shall pay any and all documentary, stamp or similar issue or transfer tax due and duties on the issuance of Common Stock or Qualified Securities upon conversion of this Note pursuant hereto. The Holder shall be liable for and shall be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue and delivery of Common Stock or Qualified Securities in a name other than that of the Holder, and no such issue or delivery shall be made unless the Person requesting such issue has paid to the Borrower the amount of any such tax or duty, or has established to the satisfaction of the Borrower that such tax or duty has been paid. Section 4.06. Certain Covenants. (a) The Borrower covenants that all shares of Common Stock or other Qualified Securities issued upon conversion of this Note shall be (as applicable) newly issued, duly authorized, validly issued, fully paid and non- assessable, enforceable against the Borrower in accordance with their terms, and shall be free from preemptive or similar rights and free from all taxes, liens and charges with respect to the issue thereof. (b) The Borrower covenants that, if any shares of Common Stock or other Qualified Securities to be provided for the purpose of conversion of this Note require registration with or approval of any governmental authority under any federal or state law before such shares of Common Stock or Qualified Securities may be validly issued upon conversion, the Borrower shall, 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 Borrower further covenants that if at any time the Common Stock or other Qualified Securities shall be listed on any national securities exchange or automated quotation system the Borrower will use reasonable best efforts to list and keep listed, so

 
18 long as the Common Stock or such other Qualified Securities shall be so listed on such exchange or automated quotation system, any Common Stock or Qualified Securities issuable upon conversion of this Note. (d) The Borrower 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 this Note pursuant to Section 4.01 from time to time as this Note is presented for conversion. Section 4.07. Adjustment of Conversion Rate. The Fixed Conversion Rate shall be adjusted from time to time by the Borrower if any of the following events occurs, except that the Borrower shall not make any adjustments to the Fixed Conversion Rate if the Holder participates (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 this Note, in any of the transactions described in this Section 4.07, without having to convert this Note, as if it held a number of shares of Common Stock equal to the Fixed Conversion Rate, multiplied by the principal amount (expressed in thousands) of this Note held by the Holder. (a) If the Borrower issues shares of Common Stock as a dividend or distribution on shares of Common Stock, or effects a share split or share combination of its Common Stock, the Fixed Conversion Rate shall be adjusted based on the following formula: 𝐶𝐶𝐶𝐶1 = 𝐶𝐶𝐶𝐶0 × 𝑂𝑂𝑂𝑂1 𝑂𝑂𝑂𝑂0 where, CR0 = the Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such dividend or distribution or immediately prior to the open of business on the effective date of such share split or share combination, as the case may be; CR1 = the Fixed Conversion Rate in effect immediately after the close of business on the Record Date for such dividend or distribution or immediately after the open of business on the effective date of such share split or share combination, as the case may be; OS0 = the number of shares of Common Stock outstanding immediately prior to the close of business on the Record Date for such dividend or distribution or immediately prior to the open of business on the effective date of such share split or share combination, as the case may be (before giving effect to any such dividend, distribution, split or combination); and OS1 = the number of shares of Common Stock outstanding immediately after giving effect to such dividend, distribution, share split or share combination, as the case may be.

 
19 Any adjustments made pursuant to this Section 4.07(a) shall become effective immediately after (x) the close of business on the Record Date for such dividend or distribution or (y) the open of business on the effective date of such split or combination, as applicable. If any dividend or distribution described in this Section 4.07(a) is declared but not so paid or made, effective as of the date the Board of Directors determines not to pay such dividend or distribution, the new Fixed Conversion Rate shall again be adjusted to the Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared. (b) If the Borrower distributes to all or substantially all holders of Common Stock any rights, options or warrants entitling them to purchase, for a period of not more than 45 days after the announcement date for the distribution, shares of Common Stock at a price per share less than the average of the Last Reported Sale Prices of the Common Stock for the ten consecutive Trading Day period ending on the Trading Day immediately preceding the announcement date for such distribution, the Fixed Conversion Rate shall be adjusted based on the following formula: 𝐶𝐶𝐶𝐶1 = 𝐶𝐶𝐶𝐶0 × 𝑂𝑂𝑂𝑂0 + 𝑋𝑋 𝑂𝑂𝑂𝑂0 + 𝑌𝑌 where, CR0 = the Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such distribution; CR1 = the Fixed Conversion Rate in effect immediately after the close of business on the Record Date for such distribution; OS0 = the number of shares of Common Stock outstanding immediately prior to the close of business on the Record Date for such distribution; 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 ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the announcement date for such distribution. For purposes of this Section 4.07(b), in determining whether any rights, options or warrants entitle the Holder to subscribe for or purchase shares of Common Stock at less than the average of the Last Reported Sale Prices of the Common Stock for the applicable ten consecutive Trading Day period, there shall be taken into account any consideration received by the Borrower for such rights, options or warrants and any amount payable on exercise thereof, with the value of such consideration if other than cash, to be determined by the Board of Directors.

 
20 Any adjustment made pursuant to this Section 4.07(b) shall be made successively whenever any such rights, options or warrants are distributed and shall become effective immediately after the close of business on the Record Date for such distribution. To the extent that shares of Common Stock are not delivered after the expiration of such rights, options or warrants, the Fixed Conversion Rate shall be decreased to the Fixed 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 distributed, the Fixed Conversion Rate shall be decreased to the Fixed Conversion Rate that would then be in effect if the Record Date for such distribution had not occurred. (c) If the Borrower distributes shares of its Capital Stock, evidences of its indebtedness or other assets or property of the Borrower 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 as to which an adjustment is effected in Section 4.07(a) or Section 4.07(b), (ii) dividends or distributions paid exclusively in cash, as to which the provisions of Section 4.07(d) shall apply, (iii) dividends or distributions that constitute Reference Property following an event described in Section 4.10 and (iv) Spin-Offs to which the provisions set forth below in this Section 4.07(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 Fixed Conversion Rate shall be adjusted based on the following formula: 𝐶𝐶𝐶𝐶1 = 𝐶𝐶𝐶𝐶0 × 𝑂𝑂𝑆𝑆0 𝑂𝑂𝑆𝑆0 − 𝐹𝐹𝐹𝐹𝐹𝐹 where, CR0 = the Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such distribution; CR1 = the Fixed Conversion Rate in effect immediately after the close of business on the Record Date for such distribution; SP0 = the average of the Last Reported Sale Prices of the Common Stock over the ten 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 in good faith by the Board of Directors) of Distributed Property with respect to each outstanding share of Common Stock as of the close of business on the Record Date for such distribution. Any adjustment made under the portion of this Section 4.07(c) above shall become effective immediately after the close of business on the Record Date for such

 
21 distribution. If such distribution is not so paid or made, the Fixed Conversion Rate shall be decreased to the Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared. Notwithstanding the foregoing, if “FMV” as set forth above is equal to or greater than “SP0” as set forth above, in lieu of the foregoing adjustment, the Holder shall receive, in respect of each $1,000 principal amount of this Note, at the same time and upon the same terms as holders of Common Stock receive the Distributed Property, the amount and kind of Distributed Property the Holder would have received if the Holder owned a number of shares of Common Stock equal to the Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for the distribution. If the Board of Directors determines the “FMV” as set forth above of any distribution for purposes of this Section 4.07(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 ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the Ex-Dividend Date for such distribution. With respect to an adjustment pursuant to this Section 4.07(c) where there has been a payment of a dividend or other distribution on the Common Stock of shares of the Capital Stock of any class or series, or similar equity interest, of or relating to a Subsidiary or other business unit that are, or, when issued, will be, listed or admitted for trading on a U.S. national securities exchange (a “Spin-Off”), the Fixed Conversion Rate shall instead be adjusted based on the following formula: 𝐶𝐶𝐶𝐶1 = 𝐶𝐶𝐶𝐶0 × 𝐹𝐹𝐹𝐹𝐹𝐹0 + 𝐹𝐹𝑆𝑆0 𝐹𝐹𝑆𝑆0 where, CR0 = the Fixed Conversion Rate in effect immediately prior to the end of the Valuation Period; CR1 = the Fixed 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 Common Stock applicable to one share of 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 ten consecutive Trading Day period immediately after, and including, the Ex-Dividend Date for such Spin-Off (such period, the “Valuation Period”); and MP0 = the average of the Last Reported Sale Prices of Common Stock over the Valuation Period.

 
22 Such adjustment shall occur at the close of business on the last Trading Day of the Valuation Period; provided that, for purposes of determining the Fixed Conversion Rate in respect of any conversion during the Valuation Period, references within the previous paragraph to “ten” shall be deemed replaced with such lesser number of Trading Days as have elapsed from, and including, the Ex-Dividend Date of such Spin-Off to, and including, the Conversion Date. If any such dividend or distribution described in the preceding paragraph of this Section 4.07(c) is declared but not paid or made, the new Fixed Conversion Rate shall be readjusted to be the Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared. For purposes of this Section 4.07(c) (and subject in all respect to Section 4.13), rights, options or warrants distributed by the Borrower to all holders of its Common Stock entitling such holders to subscribe for or purchase shares of the Borrower’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 4.07(c) (and no adjustment to the Fixed Conversion Rate under this Section 4.07(c) shall 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 Fixed Conversion Rate shall be made under this Section 4.07(c). If any such right, option or warrant, including any such existing rights, options or warrants distributed prior to the date of this Note, 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 Record 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 Fixed Conversion Rate under this Section 4.07(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 Fixed Conversion Rate shall be readjusted as if such rights, options or warrants had not been issued and (y) the Fixed 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 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 Fixed Conversion Rate shall be readjusted as if such rights, options and warrants had not been issued.

 
23 For purposes of Section 4.07(a), Section 4.07(b) and this Section 4.07(c), if any dividend or distribution to which this Section 4.07(c) is applicable also includes one or both of: (A) a dividend or distribution of shares of Common Stock to which Section 4.07(a) is applicable (the “Clause A Distribution”); or (B) a dividend or distribution of rights, options or warrants to which Section 4.07(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 4.07(c) is applicable (the “Clause C Distribution”) and any Fixed Conversion Rate adjustment required by this Section 4.07(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 Fixed Conversion Rate adjustment required by Section 4.07(a) and Section 4.07(b) with respect thereto shall then be made, except that, if determined by the Borrower (I) the “Record Date” of the Clause A Distribution and the Clause B Distribution shall be deemed to be the Record 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 close of business on the Record Date for such dividend or distribution or immediately prior to the open of business on the effective date of such share split or share combination, as the case may be” within the meaning of Section 4.07(a) or “outstanding immediately prior to the close of business on the Record Date for such distribution” within the meaning of Section 4.07(b). (d) If any cash dividend or cash distribution is made to all or substantially all holders of Common Stock, the Fixed Conversion Rate shall be adjusted based on the following formula: 𝐶𝐶𝐶𝐶1 = 𝐶𝐶𝐶𝐶0 × 𝑂𝑂𝑆𝑆0 𝑂𝑂𝑆𝑆0 − 𝐶𝐶 where, CR0 = the Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such dividend or distribution; CR1 = the Fixed Conversion Rate in effect immediately after the close of business on the Record Date for such dividend or distribution; SP0 = the Last Reported Sale Price of the Common Stock on the Trading Day immediately preceding the Ex-Dividend Date for such dividend or distribution; and C = the amount in cash per share of Common Stock the Borrower distributes to holders of Common Stock.

 
24 An adjustment to the Fixed Conversion Rate made pursuant to this Section 4.07(d) shall become effective immediately after the close of business on the Record Date for the applicable dividend or distribution. If any dividend or distribution described in this Section 4.07(d) is declared but not so paid or made, the new Fixed Conversion Rate shall be readjusted, effective as of the date the Board of Directors determines not to make or pay such dividend or distribution, to the Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared. Notwithstanding the foregoing, if “C” as set forth above is equal to or greater than “SP0” as set forth above, in lieu of the foregoing adjustment, the Holder shall receive, for each $1,000 principal amount of this Note, at the same time and upon the same terms as holders of shares of Common Stock, the amount of cash that the Holder would have received if the Holder owned a number of shares of Common Stock equal to the Fixed Conversion Rate in effect on the Record Date for such cash dividend or distribution. (e) If the Borrower or any of its Subsidiaries makes a payment in respect of a tender or exchange offer for Common Stock, to the extent that the cash and value of any other consideration included in the payment per share of Common Stock exceeds 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 last date on which tenders or exchanges may be made pursuant to such tender or exchange offer (the “Expiration Date”), the Fixed Conversion Rate shall be adjusted based on the following formula: 𝐶𝐶𝐶𝐶1 = 𝐶𝐶𝐶𝐶0 × 𝐴𝐴𝐶𝐶 + (𝑂𝑂𝑆𝑆1 × 𝑂𝑂𝑂𝑂1) 𝑂𝑂𝑂𝑂0 × 𝑂𝑂𝑆𝑆1 where, CR0 = the Fixed 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 Expiration Date; CR1 = the Fixed 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) paid or payable for shares of Common Stock purchased in such tender offer or exchange offer; OS0 = the number of shares of Common Stock outstanding immediately prior to time (the “Expiration Time”) such tender or exchange offer expires (prior to giving effect to the purchase of all shares of Common Stock accepted for purchase or exchange in such tender offer or exchange offer); OS1 = the number of shares of Common Stock outstanding immediately after the Expiration Time (after giving effect to the purchase of all shares of

 
25 Common Stock accepted for purchase or exchange in such tender offer or exchange offer); and SP1 = the average of the Last Reported Sale Prices of the Common Stock over the ten (10) consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the Expiration Date. The adjustment to the Fixed Conversion Rate under this Section 4.07(e) shall become effective immediately following the close of business on the 10th Trading Day immediately following, and including, the Trading Day next succeeding the Expiration Date; provided that in respect of any conversion of this Note, if the relevant Conversion Date occurs during the 10 Trading Days immediately following, and including, the Trading Day next succeeding the Expiration Date, references to “10” or “10th” in the preceding paragraph shall be deemed replaced with such lesser number of Trading Days as have elapsed from, and including, the Trading Day next succeeding the Expiration Date to, and including, the Conversion Date in determining the Fixed Conversion Rate. (f) For purposes of this Section 4.07, the number of shares of Common Stock at any time outstanding shall not include shares of Common Stock held in the treasury of the Borrower so long as the Borrower does not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Borrower, but shall include shares of Common Stock issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. (g) All calculations under this Article 4 shall be made to the nearest cent or to the nearest 1/10,000th of a share, unit or note. (h) If the application of the foregoing formulas in Section 4.07 would result in a decrease in the Fixed Conversion Rate, no adjustment to the Fixed Conversion Rate shall be made (except on account of share combinations). (i) Notwithstanding anything to the contrary in this Section 4.07, the Fixed 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 securities of the Borrower 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 shares of Common Stock pursuant to any present or future employee, director or consultant benefit plan or program or employee stock purchase plan of, or assumed by, the Borrower or any of its Subsidiaries; (iii) upon the issuance of any shares of Common Stock pursuant to any option, warrant, right, or exercisable, exchangeable or convertible security not described in clause (ii) above and outstanding as of the Issue Date;

 
26 (iv) upon the issuance of Rights under a Rights Plan unless, prior to conversion, the Rights issued under such Rights Plan have separated from the Common Stock; (v) for a change in the par value of the Common Stock; (vi) for accrued and unpaid interest; or (vii) solely on account of the purchase price, exchange price or conversion price in any Qualified Financing or Non-Qualified Financing being less than $1,000 divided by the Fixed Conversion Rate. Section 4.08. Notice of Adjustment. Whenever the Fixed Conversion Rate is required to be adjusted pursuant to this Note, the Borrower shall promptly deliver to the Holder a notice of the adjustment, briefly stating the facts requiring the adjustment, the adjusted Fixed Conversion Rate and the manner of computing it. Failure to deliver such notice or any defect therein shall not affect the validity of any such adjustment. Section 4.09. Notice of Certain Transactions. In the event that there is a dissolution or liquidation of the Borrower, the Borrower shall deliver to the Holder and provide to the Holder a written notice stating the proposed effective date. The Borrower shall deliver such notice at least 20 days before such proposed effective date. Failure to deliver such notice or any defect therein shall not affect the validity of any transaction referred to in this Section 4.09. Section 4.10. Effect of Reclassification, Consolidation, Merger or Sale On Conversion Privilege. (a) If any of the following events occur: (i) any recapitalization, reclassification or change of the outstanding shares of Common Stock (other than changes resulting from a subdivision or combination); (ii) any consolidation, merger, combination or similar transaction involving the Borrower; (iii) any sale, conveyance, lease or other transfer to any third party of all or substantially all of the consolidated property and assets of the Borrower and its Subsidiaries; 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 “Merger Event”), then, at and after the effective time of such Merger Event, the right of the Holder to convert each $1,000 principal amount of this Note pursuant to Section 4.01(a) shall be changed into a right of the

 
27 Holder to convert such principal amount of this Note 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 Fixed Conversion Rate immediately prior to such Merger 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 Merger Event and, prior to or at the effective time of such Merger Event, this Note shall be deemed to provide for such change in the convertibility of this Note, including anti-dilution and other adjustments that shall be as nearly equivalent as is possible to the adjustments provided for in this Article 4, and the Borrower or the successor or purchasing Person, as the case may be, shall execute a supplement to this Note at such time to evidence the foregoing; provided, however, that at and after the effective time of the Merger Event the number of shares of Common Stock otherwise deliverable upon conversion of this Note pursuant to Section 4.03(a) 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 received in such Merger Event. If the Merger 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 shareholder election), then (i) the Reference Property into which this Note 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 Merger Event, then for all conversions pursuant to Section 4.01(a) for which the relevant Fixed Conversion Date occurs after the effective date of such Merger Event (A) the consideration due upon conversion of each $1,000 principal amount of this Note shall be solely cash in an amount equal to the Fixed Conversion Rate in effect on the Fixed Conversion Date, multiplied by the price paid per share of Common Stock in such Merger Event and (B) the Borrower shall satisfy the Fixed Conversion Obligation by paying cash to the converting Holder on the second Business Day immediately following the relevant Fixed Conversion Date. The Borrower shall notify the Holder of such weighted average as soon as practicable after such determination is made but in no event later than the third (3rd) Business Day following the effective date of the Merger Event. If, in the case of any Merger Event, the Reference Property includes shares of stock, securities or other property or assets (including cash or any combination thereof) of a Person other than the successor or purchasing corporation, as the case may be, in such Merger Event, then an assumption of this Note shall also be executed by such other Person and shall contain such additional provisions to protect the interests of the Holder 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 9. (b) When this Note is modified or amended pursuant to subsection (a) of this Section 4.10, the Borrower shall promptly provide to the Holder a notice briefly stating

 
28 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 Merger Event, any adjustment to be made with respect thereto and that all conditions precedent have been complied with. Failure to deliver such notice shall not affect the legality or validity of such modification or amendment to this Note. (c) The Borrower shall not become a party to any Merger Event unless its terms are consistent with this Section 4.10. None of the foregoing provisions shall affect the right of the Holder to convert this Note into shares of Common Stock pursuant to Section 4.01(a) prior to the effective date of such Merger Event. (d) The above provisions of this Section 4.10 shall similarly apply to successive Merger Events. Section 4.11. Voluntary Increase; Nasdaq Compliance. The Borrower from time to time may increase the Fixed Conversion Rate, to the extent permitted by law and subject to any applicable shareholder approval requirements pursuant to the listing standards of The Nasdaq Global Market or such other United States securities exchange on which the Common Stock is traded, by any amount for any period of at least 20 days, if the Board of Directors determines that such increase shall be in the Borrower’s best interests. The Borrower may (but is not required to) make such increase in the Fixed Conversion Rate as the Board of Directors deems advisable to avoid or diminish any income tax to holders of Common Stock resulting from a dividend or distribution of stock, or rights to acquire stock, or similar event. The Borrower shall provide at least 15 days’ written notice to the Holder of any increase under this Section 4.11, and such notice shall state the increased Fixed Conversion Rate and the period during which it will be in effect. Section 4.12. Adjustments of Prices. Whenever any provision of this Note requires the Borrower to calculate the Last Reported Sale Prices over a span of multiple days, the Borrower will make appropriate adjustments to the Last Reported Sale Prices to account for any adjustment to the Fixed Conversion Rate that becomes effective, or any event requiring an adjustment to the Fixed Conversion Rate where the Ex-Dividend Date, Record Date, effective date or expiration date of the event occurs at any time during the period when the Last Reported Sale Prices are to be calculated. The Borrower will provide a schedule of its calculations the Holder. Section 4.13. Rights Plan. To the extent that the Borrower has a Rights Plan in effect upon conversion of this Note into Common Stock, the Holder shall receive upon conversion of this Note, the Rights under the Rights Plan, unless prior to conversion, the Rights have separated from the Common Stock, in which case, and only in such case, the Fixed Conversion Rate shall be adjusted at the time of separation as if the Borrower distributed to all or substantially all holders of Common Stock Distributed Property as described in Section 4.07(c) above, subject to readjustment in the event of the expiration, termination or redemption of such Rights.

 
29 ARTICLE 5 INTENTIONALLY OMITTED ARTICLE 6 DEFAULT AND REMEDIES Section 6.01. Events of Default. The occurrence of any one or more of the following events shall constitute an event of default (hereinafter “Event of Default”) under this Note: (a) the Borrower fails to pay when due the principal of this Note at the Maturity Date, upon Optional Redemption, upon exercise of a repurchase right hereunder or otherwise; (b) the Borrower fails to pay an installment of interest on this Note for 30 days or more after the date when due; (c) the Borrower fails to deliver consideration due in respect of its Conversion Obligation upon conversion of this Note within the time periods specified in Section 4.03, and such failure continues for a period of three Business Days; (d) the Borrower fails to provide a Fundamental Change Borrower Notice when due in accordance with Section 9.01 or a notice pursuant to Section 4.02(b) when due, and in either case such failure continues for a period of four Business Days; (e) the Borrower fails to comply with its obligations under Section 7.01; (f) the Borrower fails to perform or observe any other term, covenant or agreement contained in this Note for a period of 60 days after written notice of such failure, requiring the Borrower to remedy the same, shall have been given to the Borrower by the Holder; (g) default by the Borrower or any Subsidiary of the Borrower 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 borrowed money in excess of $1,000,000 in the aggregate of the Borrower and/or any such Subsidiary, whether such indebtedness now exists or shall hereafter be created (i) resulting in such indebtedness becoming or being declared due and payable, (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 or (iii) otherwise, which such default is not cured or remedied within the time prescribed by its governing documents or if no time is prescribed within twenty (20) Business Days; (h) a final judgment or judgments for the payment of $1,000,000 (or its foreign currency equivalent) or more (excluding any amounts covered by insurance) in the aggregate rendered against the Borrower or any Subsidiary of the Borrower, which judgment is not discharged, bonded, paid, waived or stayed within 60 days after (i) the

 
30 date on which the right to appeal thereof has expired if no such appeal has commenced, or (ii) the date on which all rights to appeal have been extinguished; (i) an involuntary case or other proceeding shall be commenced against the Borrower, any Guarantor or any Significant Subsidiary (or any group of the Borrower’s Subsidiaries that, taken together, would constitute a Significant Subsidiary) seeking liquidation, reorganization or other relief with respect to the Borrower, such Guarantor or any Significant Subsidiary (or any group of the Borrower’s Subsidiaries that, taken together, would constitute a 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 Borrower, such Guarantor or any Significant Subsidiary (or any group of the Borrower’s Subsidiaries that, taken together, would constitute a 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 30 consecutive days; (j) the Borrower, any Guarantor or any Significant Subsidiary (or any group of the Borrower’s Subsidiaries that, taken together, would constitute a Significant Subsidiary) pursuant to or within the meaning of any Bankruptcy Law: (i) commences as a debtor a voluntary case or proceeding; (ii) consents to the entry of an order for relief against it in an involuntary case or proceeding or the commencement of any case against it; (iii) consents to the appointment of a Receiver of it or for all or substantially all of its property; (iv) makes a general assignment for the benefit of its creditors; (v) files a petition in bankruptcy or answer or consent seeking reorganization or relief; or (vi) consents to the filing of such a petition or the appointment of or taking possession by a Receiver; (k) a Termination of Trading shall have occurred; or (l) except as permitted in this Note, any Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect, or any Guarantor, or any Person acting on its behalf, shall deny or disaffirm its obligations under its Guarantee. The term “Bankruptcy Law” means Title 11 of the United States Code (or any successor thereto) or any similar federal or state law for the relief of debtors. The term “Receiver” means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law.

 
31 Section 6.02. Acceleration of Maturity; Rescission and Annulment. If an Event of Default with respect to the portion of this Note that is Outstanding (other than an Event of Default specified in Section 6.01(i) or Section 6.01(j) hereof in respect of the Borrower or any Guarantor) occurs and is continuing, the Holder may declare the portion of this Note that is Outstanding due and payable at its principal amount plus any accrued and unpaid interest, and thereupon the Holder may, at its discretion, proceed to protect and enforce its rights by the appropriate judicial proceedings. Such declaration may be rescinded and annulled by the written consent of the Holder. If an Event of Default specified in Section 6.01(i) or Section 6.01(j) hereof in respect of the Borrower or any Guarantor occurs and is continuing, then all unpaid principal of, and accrued and unpaid interest on, the portion of this Note that is Outstanding shall become immediately due and payable, without any declaration or other act on the part of the Holder. The Holder may rescind and annul an acceleration and its consequences if: (a) all existing Events of Default, other than the nonpayment of principal (including the Fundamental Change Repurchase Price or the Redemption Price, if applicable) of or interest on this Note which has become due solely because of the acceleration, have been remedied, cured or waived; and (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; provided, however, that in the event such declaration of acceleration has been made based on the existence of an Event of Default under Section 6.01(g) hereof and such Event of Default has been remedied, cured or waived in accordance with Section 6.01(g) hereof, then, without any further action by the Holder, such declaration of acceleration shall be rescinded automatically and the consequences of such declaration shall be annulled. No such rescission or annulment shall affect any subsequent Default or impair any right consequent thereon. Section 6.03. Other Remedies. If an Event of Default with respect to the portion of this Note that is Outstanding occurs and is continuing, the Holder may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, or interest on, this Note or to enforce the performance of any provision of this Note. Section 6.04. Waiver of Past Defaults. The Holder may waive an existing Default or Event of Default. Upon any such waiver, 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 Note; provided, however, that no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon Section 6.05. Unconditional Right of Holder to Receive Payment and to Convert. Notwithstanding any other provision in this Note, the Holder of this Note shall have the right, which is absolute and unconditional, to receive payment of the principal amount (including the Fundamental Change Repurchase Price and the Redemption Price, if

 
32 applicable) and interest in respect of this Note, on or after the respective due dates expressed in this Note, and to convert this Note in accordance with Article 4, and to bring suit for the enforcement of any such payment on or after such respective due dates or for the right to convert in accordance with Article 4, and shall not be impaired or affected without the consent of the Holder. Section 6.06. Restoration of Rights and Remedies. If the Holder has instituted any proceeding to enforce any right or remedy under this Note and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Holder, then and in every such case, subject to any determination in such proceeding, the Borrower and the Holder shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Holder shall continue as though no such proceeding had been instituted. Section 6.07. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of a mutilated, destroyed, lost or stolen Note in Section 12.13, no right or remedy conferred in this Note upon or reserved to the Holder of this Note is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 6.08. Delay or Omission Not Waiver. No delay or omission of the Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or any acquiescence therein. Every right and remedy given by this Article 6 or by law to the Holder may be exercised from time to time, and as often as may be deemed expedient, by the Holder. Section 6.09. Waiver of Stay or Extension Laws. The Borrower covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim to take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Note; and the Borrower (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Holder, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 7 CONSOLIDATIONS; MERGER; CONVEYANCE; TRANSFER OR LEASE Section 7.01. Consolidations; Merger; Conveyance; Transfer or Lease. (a) The Borrower may not, without the consent of the Holder, consolidate with, merge into or convey, transfer or lease all or substantially all of the property and assets of

 
33 the Borrower and its Subsidiaries, taken as a whole, to another Person (other than a transfer of all or substantially all of the assets of the Borrower and its Subsidiaries, taken as a whole, to one or more direct or indirect wholly-owned Subsidiaries) (a “Business Combination Event”) unless: (i) the resulting, surviving or transferee Person either (1) is the Borrower or (2) if not the Borrower, is a Qualified Successor Entity (such Qualified Successor Entity, the “Successor Entity”) organized and existing under the laws of the United States of America or any State thereof or the District of Columbia that expressly assumes, by an assignment and assumption agreement, executed and delivered to the Holder, in form reasonably satisfactory to the Holder, the obligations of the Borrower under this Note; and (ii) at the time of, and after giving effect to, such Business Combination Event, no Default or Event of Default shall have occurred and be continuing. Section 7.02. Successor Substituted. At the effective time of any Business Combination Event that complies with Section 7.01, the Successor Entity (if not the Borrower) shall succeed to, and be substituted for, and may exercise every right and power of, Borrower under this Note with the same effect as if such successor Person had been named as the Borrower herein, and thereafter, except in the case of a lease, and except for obligations the predecessor Person may have under an assignment and assumption agreement, the predecessor Person shall be relieved of all obligations and covenants under the this Note. ARTICLE 8 TAX TREATMENT Section 8.01. Tax Treatment. Each of the Borrower and the Holder agree to treat this Note as equity for U.S. federal and other applicable income tax purposes and to perform all tax reporting, withholding and other tax compliance in manner consistent with such treatment unless otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code. ARTICLE 9 REPURCHASE OF NOTE UPON A FUNDAMENTAL CHANGE Section 9.01. Repurchase of Note at Option of the Holder Upon a Fundamental Change. (a) If a Fundamental Change occurs prior to the Maturity Date, the Holder shall have the right, at the option of the Holder, to require the Borrower to repurchase all or any portion of this Note at the Fundamental Change Repurchase Price, on the date specified by the Borrower that is not less than twenty (20) days and not more than thirty- five (35) days after the date of the Fundamental Change Borrower Notice pursuant to Section 9.01(b) (the “Fundamental Change Repurchase Date”). The Holder may

 
34 require the Borrower to repurchase fewer than all of the entire principal amount of this Note only if the principal amount of this Note to be repurchased is an integral multiple of $1,000. (b) Notwithstanding the foregoing, this Note may not be repurchased by the Borrower on any date at the option of the Holders upon a Fundamental Change if the principal amount of this Note 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 Borrower in the payment of the Fundamental Change Repurchase Price with respect to this Note). (c) On or before the 15th day after the Fundamental Change Effective Date, the Borrower shall deliver a written notice of the occurrence of the Fundamental Change, and of the repurchase right arising therefrom, to the Holder at the notice address in Section 12.01 (the “Fundamental Change Borrower Notice”). The Fundamental Change Borrower Notice shall set forth the Holder’s right to require the Borrower to purchase this Note and specify: (i) the events causing such Fundamental Change; (ii) the Fundamental Change Effective Date; (iii) the last date by which the Fundamental Change Repurchase Notice must be delivered to elect the repurchase option pursuant to this Section 9.01; (iv) the Fundamental Change Repurchase Price; (v) the Fundamental Change Repurchase Date; (vi) that if a Fundamental Change Repurchase Notice has been delivered by a Holder, this Note may be converted only if the Holder withdraws the Fundamental Change Repurchase Notice in accordance with the terms of this Note; and (vii) the procedures that the Holder must follow to require the Borrower to repurchase this Note under this Section 9.01. No failure of the Borrower to give the foregoing notices or defect therein shall limit the Holder’s right to exercise its right to cause the Borrower to repurchase this Note pursuant to this Section 9.01. (d) Repurchases of the principal of this Note under this Article 9 shall be made upon delivery to the Borrower by the Holder of a duly completed notice (the “Fundamental Change Repurchase Notice”) in the form set forth in the Form of Fundamental Change Repurchase Notice in Attachment 2 to this Note before the close of business on the Business Day immediately preceding the Fundamental Change Repurchase Date.

 
35 Each Fundamental Change Repurchase Notice shall state: (i) the portion of the principal amount of this Note to be repurchased, which must be $1,000 or an integral multiple thereof (provided that any portion of this Note not to be repurchased is in the minimum principal amount of $1,000); and (ii) that this Note is to be repurchased by the Borrower pursuant to the applicable provisions of this Note. Notwithstanding anything herein to the contrary, the Holder 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 Borrower in accordance with Section 9.02. Section 9.02. 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 Borrower in accordance with this Section 9.02 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 this Note with respect to which such notice of withdrawal is being submitted; and (ii) the principal amount, if any, of this 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 (provided that any portion of this Note not to be repurchased is in the minimum principal amount of $1,000). Section 9.03. Note Repurchased In Part. Upon surrender of the portion of this Note that is to be repurchased only in part in accordance with Section 9.01, and promptly after the Fundamental Change Repurchase Date, the Borrower shall execute and deliver to the Holder, without service charge, a new Note, of such authorized denomination or denominations as may be requested by the Holder (which must be an integral multiple of $1,000 and which must be at least $1,000), in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of this Note so surrendered that is not repurchased. Section 9.04. Payment of Fundamental Change Repurchase Price. The Borrower shall pay the Fundamental Change Repurchase Price for this Note (or the applicable portion thereof) surrendered for repurchase (and not validly withdrawn prior to the close of business on the Business Day immediately preceding the Fundamental Change Repurchase Date) on the later of (i) the Fundamental Change Repurchase Date and (ii) the time of the delivery of this Note to the Borrower by the Holder.

 
36 Section 9.05. Covenant to Comply with Applicable Laws Upon Repurchase of Note. In connection with any repurchase offer pursuant to this Article 9, the Borrower shall, if required: (a) comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act; (b) file a Schedule TO or any successor or similar schedule; and (c) otherwise comply with all federal and state securities laws in connection with any offer by the Borrower to repurchase this Note; in each case, so as to permit the rights and obligations under this Article 9 to be exercised in the time and in the manner specified in this Article 9. ARTICLE 10 REDEMPTION Section 10.01. Optional Redemption. The Borrower may redeem (an “Optional Redemption”) for cash all or any portion of this Note at the Redemption Price. Section 10.02. Notice of Optional Redemption. (a) In case the Borrower exercises its Optional Redemption right to redeem all or any part of this Note pursuant to Section 10.01, it shall fix a date for redemption (each, a “Redemption Date”) and it shall deliver or cause to be delivered a notice of such Optional Redemption (a “Redemption Notice”) not less than 20 nor more than 60 calendar days prior to the Redemption Date to the Holder. The Redemption Date must be a Business Day. (b) Each Redemption Notice shall specify: (i) the Redemption Date; (ii) the Redemption Price; (iii) that on the Redemption Date, the Redemption Price will become due and payable upon this Note to be redeemed, and that interest thereon, if any, shall cease to accrue on and after the Redemption Date; (iv) that the Holder may surrender this Note for conversion at the Fixed Conversion Rate at any time prior to the close of business on the Business Day immediately preceding the Redemption Date; (v) the procedures the Holder must follow to convert this Note; (vi) the Fixed Conversion Rate;

 
37 (vii) in case this Note is to be redeemed in part only, the portion of the principal amount thereof to be redeemed and on and after the Redemption Date, upon surrender of this Note, a new Note in principal amount equal to the unredeemed portion thereof shall be issued. A Redemption Notice shall be irrevocable. Section 10.03. Payment of Redemption Price. If any Notice of Redemption has been given in respect of this Note in accordance with Section 10.02, this Note (or the applicable portion thereof) shall become due and payable on the Redemption Date at the applicable Redemption Price. On presentation and surrender of this Note to the Borrower, this Note (or the applicable portion thereof) shall be paid and redeemed by the Borrower at the applicable Redemption Price. Section 10.04. Note Redeemed in Part. Upon surrender of the portion of this Note that is to be redeemed only in part in accordance with Section 10.01, and promptly after the Redemption Date, the Borrower shall execute and deliver to the Holder, without service charge, a new Note, of such authorized denomination or denominations as may be requested by the Holder (which must be an integral multiple of $1,000 and which must be at least $1,000), in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of this Note so surrendered that is not redeemed. Section 10.05. Restrictions on Redemption. The Borrower may not redeem any portion of this Note on any date if the principal amount of this Note has been accelerated in accordance with the terms of this Note, and such acceleration has not been rescinded, on or prior to the Redemption Date (except in the case of an acceleration resulting from a Default by the Borrower in the payment of the Redemption Price with respect to this Note). ARTICLE 11 GUARANTEE Section 11.01. Subsidiary Guarantees. (a) Subject to this Article 11, each Guarantor hereby, jointly and severally, unconditionally guarantees to the Holder, irrespective of the validity and enforceability of this Note or the obligations of the Borrower hereunder, that: (i) the principal of (including the Fundamental Change Repurchase Price or the Redemption Price, if applicable) and interest on, this Note, and the payment and, if applicable, delivery of any consideration due upon conversion of this Note, shall be promptly paid and, if applicable, delivered in full when due under this Note, whether at maturity, by acceleration, upon repurchase, upon redemption, upon conversion or otherwise, and interest on the overdue principal of (including the Fundamental Change Repurchase Price or the Redemption Price, if applicable) and interest on this Note, if any, if lawful, and all other payment and, if applicable, delivery obligations of the Borrower to the Holder hereunder

 
38 shall be promptly paid and, if applicable, delivered in full or performed, all in accordance with the terms hereof; and (ii) in case of any extension of time of payment or, if applicable, delivery or renewal of this Note or any of such other obligations, that same shall be promptly paid and, if applicable, delivered in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration, upon redemption, upon conversion or otherwise. Failing payment or, if applicable, delivery when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay and, if applicable, deliver the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. (b) The Guarantors hereby agree that their obligations hereunder are unconditional, irrespective of the validity, regularity or enforceability of this Note, the absence of any action to enforce the same, any waiver or consent by the Holder with respect to any provisions hereof, the recovery of any judgment against the Borrower, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Borrower, any right to require a proceeding first against the Borrower, protest, notice and all demands whatsoever and covenant that this Guarantee shall not be discharged except by complete performance of the obligations contained in this Note or upon the release of such Guarantee pursuant to Section 11.06. (c) If the Holder is required by any court or otherwise to return to the Borrower, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Borrower or the Guarantors, any amount paid or, if applicable, delivered by the Borrower or the Guarantors to the Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (d) Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holder in respect of any obligations guaranteed hereby until payment and, if applicable, delivery in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holder, on the other hand, (1) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (2) in the event of any declaration of acceleration of such obligations as provided in Article 6, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of Guarantees. The Guarantors shall have the right to seek contribution from any non- paying or, if applicable, non-delivering Guarantor so long as the exercise of such right does not impair the rights of the Holder under the Guarantees.

 
39 Section 11.02. Limitation on Guarantor Liability. Each Guarantor, and by its acceptance of this Note, the Holder, hereby confirms that it is the intention of all such parties that the Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Title 11, U.S. Code or any similar federal or state law for the relief of debtors, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to such Guarantee. To effectuate the foregoing intention, the Holder and each Guarantor hereby irrevocably agree that the obligations of such Guarantor shall be limited to the maximum amount that shall, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments and, if applicable, deliveries made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent transfer or conveyance. Section 11.03. Execution and Delivery of Guarantee. Each Guarantor hereby agrees that its Guarantee set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on this Note a notation of such Guarantee. Section 11.04. Consolidations; Merger; Conveyance; Transfer or Lease by Guarantors. Each Guarantor may not, without the consent of the Holder, consolidate with, merge into or convey, transfer or lease all or substantially all of the property and assets of such Guarantor and its Subsidiaries, taken as a whole, to another Person (other than a transfer of all or substantially all of the assets of such Guarantor and its Subsidiaries, taken as a whole, to the Borrower or one or more direct or indirect Wholly Owned Subsidiaries of the Borrower) (a “Guarantor Business Combination Event”) unless: (i) the resulting, surviving or transferee Person (the “Successor Guarantor”) either (1) is such Guarantor or (2) if not such Guarantor, is organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and is treated as the same type of entity for U.S. federal income tax purposes as such Guarantor and expressly assumes, by an assignment and assumption agreement, executed and delivered to the Holder, in form reasonably satisfactory to the Holder, the obligations of such Guarantor under its Guarantee; and (ii) at the time of, and after giving effect to, such Guarantor Business Combination Event, no Default or Event of Default shall have occurred and be continuing. Section 11.05. Successor Guarantor Substituted. At the effective time of any Guarantor Business Combination Event that complies with Section 11.04 the Successor Guarantor (if not the Guarantor) shall succeed to, and be substituted for, and may exercise every right and power of, such Guarantor under this Note with the same effect as if such successor Person had been named as a Guarantor herein, and thereafter, except in the case of a lease, and except for obligations the predecessor Person may have under an

 
40 assignment and assumption agreement, the predecessor Person shall be relieved of all obligations and covenants under the this Note. Section 11.06. Releases. The Guarantee of any Guarantor will be automatically released: (a) in connection with any sale, conveyance or transfer of all or substantially all of the consolidated properties and assets of such Guarantor and its Subsidiaries, taken as a whole (including by way of consolidation or merger) (other than to the Borrower or one or more direct or indirect Wholly Owned Subsidiaries of the Borrower) in compliance with Section 11.04; (b) in connection with any sale, disposition or transfer of all of the Capital Stock of such Guarantor to a Person (other than to the Borrower or one or more direct or indirect Wholly Owned Subsidiaries of the Borrower); or (c) upon satisfaction and discharge of this Note. ARTICLE 12 MISCELLANEOUS Section 12.01. Notices. All notices and other communications given or made pursuant to this Note shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or refusal, when given by (a) personal delivery to the party to be notified, (b) electronic mail or facsimile during normal business hours of the recipient, with verification of receipt, and if not sent during normal business hours, then on the recipient’s next Business Day, (c) registered or certified mail, return receipt requested, postage prepaid, or (d) nationally recognized overnight courier, freight prepaid, specifying next Business Day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the addresses set forth below: If to the Holder: Virgin Investments Limited Craigmuir Chambers Road Town, Tortola VG 1110 British Virgin Islands Email: vghl@harneys.com Tel: 1-284-494-2233 w/ copy to: Virgin Management USA, Inc. 65 Bleecker St., 6th Floor New York, NY 10012 Attn: General Counsel

 
41 Email: james.cahillane@virgin.com Tel: 212-497-9098 If to the Borrower or to any Guarantor: Virgin Orbit Holdings, Inc. 4022 E. Conant Street Long Beach, CA 90808 Telephone: (562) 708-0026 Attention: Chief Financial Officer E-Mail: brita.o’rear@virginorbit.com with a copy (which shall not constitute notice) to: Derrick Boston, Chief Legal Officer Virgin Orbit Holdings, Inc. 4022 E. Conant Street Long Beach, CA 90808 Telephone: (562) 706-7108 E-Mail: derrick.boston@virginorbit.com Latham & Watkins LLP 650 Town Center Drive, 20th Floor Costa Mesa, CA 92626-1925 Telephone: (714) 755-8008 Attention: Drew Capurro Email: Drew.Capurro@lw.com Any party may change the address for notices by providing written notice to the party in accordance with this Section 12.01. Any notice sent by electronic mail shall only be valid if an original of such notice was subsequently received by the notified party, in which case such notice shall be deemed received at such time specified above. Any such notice may be given on behalf of a party hereto by such party’s counsel, or by any other person authorized in writing by such party. Section 12.02. Counterparts. This Note may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. Section 12.03. GOVERNING LAW; Jurisdiction. THIS NOTE (INCLUDING, FOR THE AVOIDANCE OF DOUBT, THE GUARANTEES INCLUDED HEREIN) AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR

 
42 RELATED TO THIS NOTE (INCLUDING, FOR THE AVOIDANCE OF DOUBT, THE GUARANTEES INCLUDED HEREIN), SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PROVISIONS THEREOF TO THE EXTENT THAT SUCH PROVISIONS WOULD RESULT IN THE SELECTION OF THE LAW OF A DIFFERENT JURISDICTION AS THE GOVERNING LAW OF THIS NOTE. The Borrower and each Guarantor irrevocably consents and agrees, for the benefit of the Holder from time to time of this Note, 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 Note (including, for the avoidance of doubt, the Guarantees included herein) 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 this Note 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 Borrower and each Guarantor 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 Note (including, for the avoidance of doubt, the Guarantees included herein) 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 12.04. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, EACH GUARANTOR AND THE HOLDER 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 NOTE (INCLUDING, FOR THE AVOIDANCE OF DOUBT, THE GUARANTEES INCLUDED HEREIN). Section 12.05. Legal Holidays. In any case where any Interest Payment Date, Fundamental Change Repurchase Date, Conversion Date or 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 for the period from and after such date. Section 12.06. No Security Interest Created. Nothing in this Note, 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

 
43 Section 12.07. Benefits of Note. Nothing in this Note, expressed or implied, shall give to any Person, other than the parties hereto, any benefit or any legal or equitable right, remedy or claim under this Note. Section 12.08. Headings. The headings of the sections of this Note are inserted for convenience only and shall not be deemed to constitute a part hereof. Section 12.09. Successors and Assigns. Subject to the limitations contained herein, this Note shall be binding upon the Borrower, and its respective successors and assigns (including by merger, consolidation, amalgamation or otherwise), and shall inure to the benefit of the Holder, and its designees, successors and assigns. This Note may not be assigned by the Borrower without the prior written consent of the Holder. Section 12.10. Registered Form. This Note is registered with respect to principal and interest and any transfer of this Note may be effected only by the surrender of this Note to the Borrower and either the reissuance of this Note by the Borrower and/or the issuance of a new Note by the Borrower to the transferee. Section 12.11. Amendment; Waiver. The terms and conditions of this Note shall not be amended, changed, terminated or waived except by a writing, duly executed by the Borrower and the Majority Holders. Upon the effectuation of such amendment, change, termination or waiver with the consent of the Majority Holders in conformance with this Section 12.11, such amendment, change, termination or waiver shall be effective as to, and binding against the Holder of this Note and the holders of all of the Senior Unsecured Convertible Notes issued pursuant to the Subscription Agreement. The Borrower shall promptly give written notice of any such amendment, change, termination or waiver to the Holder if the Holder has not previously consented to such amendment, change, termination or waiver in writing; provided that the failure to give such notice shall not affect the validity of such amendment, change, termination or waiver. Notwithstanding the foregoing (a) if any amendment, change, termination or waiver materially and adversely treats one or more holders of the Senior Unsecured Convertible Notes issued pursuant to the Subscription Agreement in a manner that is disproportionate to such treatment of all other holders, such amendment, change, termination or waiver shall also require the written consent of holders disproportionately treated and (b) no such amendment, change, termination or waiver shall (i) make any change to this Section 12.11, (ii) reduce the amount of Senior Unsecured Convertible Notes whose holders must consent to an amendment, change, termination or waiver, (iii) reduce the rate of or extend the stated time for payment of interest on this Note, (iv) reduce the principal of or extend the Maturity Date of this Note, (v) make any change that adversely affects the conversion rights of this Note, (vi) reduce the Redemption Price or the Fundamental Change Repurchase Price (or amend or modify in any manner adverse to the Holder the Borrower’s obligation to make such payments), or (vii) other than in accordance with the terms of this Note, eliminate any Guarantee, in each case, without the written consent of the Holder. Section 12.12. Severability. In the event any one or more of the provisions contained in this Note shall for any reason be held to be invalid, illegal or unenforceable

 
44 in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. Section 12.13. Lost, Mutilated or Stolen Note. Upon receipt of evidence reasonably satisfactory to the Borrower of the loss, theft, destruction or mutilation of this Note and, in the case of any such mutilation, upon the surrender of this Note to the Borrower at its principal office, the Borrower will execute and deliver, in lieu thereof, a new Note of like tenor containing the same terms as this Note, dated so that there will be no loss of interest on such lost, stolen, destroyed or mutilated Note. Any Note in lieu of which any such new Note has been so executed and delivered by the Borrower shall not be deemed to be an Outstanding Note for any purpose. If the Holder applies for a substituted Note, the Holder shall furnish to the Borrower such security or indemnity as may be required by the Borrower to save the Borrower harmless from any loss, liability, cost or expense caused by or connected with such substitution, and, in case of destruction, loss or theft, the Holder shall also furnish to the Borrower evidence to its satisfaction 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 12.13 by virtue of the fact that any old Note is destroyed, lost or stolen shall constitute an additional contractual obligation of the Borrower, whether or not the destroyed, lost or stolen Note shall be found at any time. Section 12.14. Calculations. Except as explicitly stated herein, the Borrower shall be responsible for making all calculations required pursuant to this Note, including, without limitation, calculations with respect to determinations of the Last Reported Sale Price, accrued interest payable on this Note, the Fixed Conversion Rate and the Financing Conversion Rate. The Borrower shall make all such calculations in good faith and, absent manifest error, the Borrower’s calculations shall be binding on the Holder. The Borrower shall provide a written schedule of such calculations to the Holder upon the Holder’s written request. Section 12.15. No Personal Liability of Shareholders, Employees, Officer or Directors . No director, officer, employee, incorporator or shareholder of the Borrower, as such, will have any liability for any obligation of the Borrower under this Note or for any claim based on, in respect of, or by reason of, such obligation or its creation. By accepting this Note, the Holder waives and releases all such liability as part of the consideration for issuance of this Note. [Remainder of Page Intentionally Left Blank]

 
[Signature Page to Senior Unsecured Convertible Note] IN WITNESS WHEREOF, the undersigned has executed this Senior Unsecured Convertible Note as of the date first set forth above. BORROWER VIRGIN ORBIT HOLDINGS, INC. By: Name: Title: CEO Dan Hart

 
[Signature Page to Senior Unsecured Convertible Note] GUARANTORS VIECO USA, INC. By: Name: Title: VIRGIN ORBIT, LLC By: Name: Title: VIRGIN ORBIT NATIONAL SYSTEMS, LLC By: Name: Title: JACM HOLDINGS, INC. By: Name: Title: President, Virgin Orbit National Systems Mark Baird Dan Hart Dan Hart CEO CEO Dan Hart CEO

 

 
A-1 ATTACHMENT 1 [FORM OF NOTICE OF CONVERSION] Senior Unsecured Convertible Note To: Virgin Orbit Holdings, Inc. Pursuant to Section 4.01 of this Note, the undersigned registered owner of this Note hereby exercises the option to convert this Note, or the portion hereof (provided that (i) such portion is an integral multiple of $1,000 principal amount and (ii) the portion of this Note not to be converted is not less than $1,000 in principal amount), below designated, and Virgin Orbit Holdings, Inc. (the “Borrower”), shall deliver shares of Common Stock, together with a cash payment, if applicable, in lieu of delivering any fractional share of Common Stock, in accordance with the terms of this Note and accrued and unpaid interest on the converted principal amount of this Note to, but excluding, the Conversion Date, and directs that any consideration issuable and deliverable upon such conversion, and the portion of this Note representing any unconverted principal amount hereof, be issued and delivered to the Holder 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 transfer taxes payable with respect thereto. Date: Signature(s) Signature Guarantee 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 to be delivered, other than to and in the name of the registered Holder.

 
A-2 Fill in for registration of shares if to be issued, and Note if to be delivered, other than to and in the Holder: (Name) (Street Address) (City, State and Zip Code Please print name and address Principal amount to be converted (if less than all): $ ,000 NOTICE: The above signature(s) of the Holder hereof must correspond with the name as written upon the face of this Note in every particular without alteration or enlargement or any change whatever. Social Security or Other Taxpayer Identification Number

 
A-3 ATTACHMENT 2 [FORM OF FUNDAMENTAL CHANGE REPURCHASE NOTICE] Senior Unsecured Convertible Note To: Virgin Orbit Holdings, Inc. The undersigned registered owner of this Note hereby acknowledges receipt of a notice from Virgin Orbit Holdings, Inc. (the “Borrower”) as to the occurrence of a Fundamental Change with respect to the Borrower and specifying the Fundamental Change Repurchase Date. The undersigned registered owner of this Note hereby instructs the Borrower to pay to the registered Holder hereof in accordance with the applicable provisions of this Note (1) the entire principal amount of this Note, or the portion thereof (provided that (i) such portion is an integral multiple of $1,000 principal amount and (ii) the portion of this Note not to be repurchased is not less than $1,000 in principal amount) below designated, and (2) accrued and unpaid interest, if any, thereon to, but excluding, such Fundamental Change Repurchase Date. Date: Signature(s) Social Security or Other Taxpayer Identification Number Principal amount to be converted (if less than all): $ ,000 NOTICE: The above signature(s) of the Holder hereof must correspond with the name as written upon the face of this Note in every particular without alteration or enlargement or any change whatever.

 
A-4 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 Borrower, with full power of substitution in the premises. In connection with any transfer of the within Note, the undersigned shall comply with the requirements of this Note applicable to such transfer and confirms that this Note is being transferred: ☐ To Virgin Orbit Holdings, Inc. or a subsidiary thereof; or ☐ Pursuant to the registration statement that has become or been declared effective under the Securities Act of 1933, as amended; or ☐ Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended; or ☐ Pursuant to another available exemption from registration under the Securities Act of 1933, as amended. Date: Signature(s) Signature Guarantee 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 to be delivered, other than to and in the name of the registered Holder.

 
A-5 NOTICE: The signature on the assignment must correspond with the name as written upon the face of this Note in every particular without alteration or enlargement or any change whatever.

 


Exhibit 10.1
Virgin Orbit Holdings, Inc.

AMENDED AND RESTATED
NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM

Eligible Directors (as defined below) on the board of directors (the “Board”) of Virgin Orbit Holdings, Inc. (the “Company”) shall be eligible to receive cash and equity compensation as set forth in this Amended and Restated Non-Employee Director Compensation Program (this “Program”). The cash and equity compensation described in this Program shall be paid or be made, as applicable, automatically as set forth herein and without further action of the Board, to each member of the Board who is not an employee of the Company or any of its parents, affiliates or subsidiaries other than a person who is determined by the Board to not be eligible to receive compensation under this Program (each eligible person, an “Eligible Director”), unless such Eligible Director declines the receipt of such cash or equity compensation by written notice to the Company.

This Program is effective as of the Effective Date (as defined below) and shall remain in effect until it is revised or rescinded by further action of the Board. This Program may be amended, modified or terminated by the Board at any time in its sole discretion. No Eligible Director shall have any rights hereunder, except with respect to equity awards granted pursuant to Section 2 of this Program. For purposes of this Program, the “Effective Date” shall mean December, 29, 2021, the date on which the closing of the transactions contemplated by that certain Agreement and Plan of Merger by and among the Company and NextGen Acquisition Corp. II and certain parties thereto, dated as of August 22, 2021 (the “SPAC Merger”) were consummated.

1.Cash Compensation.

a.Annual Retainers. Each Eligible Director shall be eligible to receive an annual cash retainer of $60,000 for service on the Board.

b.Additional Annual Retainers. An Eligible Director shall be eligible to receive the following additional annual retainers, as applicable:

(i) Audit Committee. An Eligible Director serving as Chairperson of the Audit Committee shall be eligible to receive an additional annual retainer of $20,000 for such service. An Eligible Director serving as a member of the Audit Committee (other than the Chairperson) shall be eligible to receive an additional annual retainer of $10,000 for such service.

(ii) Compensation Committee. An Eligible Director serving as Chairperson of the Compensation Committee shall be eligible to receive an additional annual retainer of $10,000 for such service. An Eligible Director serving as a member of the Compensation Committee (other than the Chairperson) shall be eligible to receive an additional annual retainer of $5,000 for such service.

(iii) Nominating and Corporate Governance Committee. An Eligible Director serving as Chairperson of the Nominating and Corporate Governance Committee shall be eligible to receive an additional annual retainer of $10,000 for such service. An Eligible Director serving as a member of the Nominating and Corporate Governance Committee (other than the Chairperson) shall be eligible to receive an additional annual retainer of $5,000 for such service.




Exhibit 10.1
(iv) Safety Committee. An Eligible Director serving as Chairperson of the Safety Committee shall be eligible to receive an additional annual retainer of $10,000 for such service. An Eligible Director serving as a member of the Safety Committee (other than the Chairperson) shall be eligible to receive an additional annual retainer of $5,000 for such service.

c.Payment of Retainers. The annual cash retainers described in Sections 1(a) and 1(b) shall be earned on a quarterly basis based on a calendar quarter and shall be paid by the Company in arrears not later than 30 days following the end of each calendar quarter. In the event an Eligible Director does not serve as a director, or in the applicable positions described in Section 1(b), for an entire calendar quarter, the retainer paid to such Eligible Director shall be prorated for the portion of such calendar quarter actually served as a director, or in such position, as applicable.

2.Equity Compensation.
a.General. Eligible Directors shall be granted the equity awards described below. The awards described below shall be granted under and shall be subject to the terms and provisions of the Company’s 2021 Incentive Award Plan or any other applicable Company equity incentive plan then-maintained by the Company (such plan, as may be amended from time to time, the “Equity Plan”) and may be granted subject to the execution and delivery of award agreements, including attached exhibits, in substantially the forms approved by the Board prior to or in connection with such grants. All applicable terms of the Equity Plan apply to this Program as if fully set forth herein, and all grants of equity awards hereby are subject in all respects to the terms of the Equity Plan. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Equity Plan.

b.SPAC Merger Awards. Each Eligible Director serving on the Board as of immediately following the closing of the SPAC Merger automatically shall be granted a Restricted Stock Unit award with a value of $75,000 (the “SPAC Merger Award”). The number of Restricted Stock Units subject to a SPAC Merger Award will be determined by dividing the value by the closing price for the Company’s common stock on the Effective Date. Each SPAC Merger Award shall be granted upon the effectiveness of the Form S-8 with respect to the Company’s common stock issuable under the Plan (the date of such effectiveness, the “S-8 Effectiveness Date”), subject to continued service through the S-8 Effectiveness Date, and shall vest as to one-third of the shares subject to the SPAC Merger Award on each anniversary of the closing of the SPAC Merger, subject to continued service through the applicable vesting date.

c.Initial Awards. Each Eligible Director who is initially elected or appointed to serve on the Board after the Effective Date automatically shall be granted a Restricted Stock Unit award with a value of $75,000 (each, an “Initial Award”). The number of Restricted Stock Units subject to an Initial Award will be determined by dividing the value by the closing price for the Company’s common stock on the applicable grant date. Each Initial Award shall be granted on the later of (i) the S-8 Effectiveness Date, subject to continued service through such date, and (ii) date on which such Eligible Director is appointed or elected to serve on the Board, and shall vest as to one-third of the shares subject to the Initial Award on each anniversary of the grant date, subject to continued service through the applicable vesting date.



Exhibit 10.1
d.Annual Awards. An Eligible Director who is serving on the Board as of the date of the annual meeting of the Company’s stockholders (the “Annual Meeting”) each calendar year beginning with calendar year 2022 shall be granted a Restricted Stock Unit award with a value of $100,000 (an “Annual Award”, together with the SPAC Merger Awards and the Initial Awards, the “Director Awards”). The number of Restricted Stock Units subject to an Annual Award will be determined by dividing the value by the closing price for the Company’s common stock on the applicable grant date. Each Annual Award shall vest in full on the earlier to occur of (x) the one-year anniversary of the applicable grant date and (y) the date of the next Annual Meeting following the grant date, subject to continued service through the applicable vesting date.

e.Accelerated Vesting Events. Notwithstanding the foregoing, an Eligible Director’s Director Award(s) shall vest in full immediately prior to the occurrence of a Change in Control, to the extent outstanding and unvested at such time.

3.Compensation Limits. Notwithstanding anything to the contrary in this Program, all compensation payable under this Program will be subject to any limits on the maximum amount of non-employee Director compensation set forth in the Equity Plan, as in effect from time to time.
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#96278502v9 EXECUTION VERSION VIRGIN ORBIT HOLDINGS, INC. SENIOR UNSECURED CONVERTIBLE NOTE DUE 2024 SUBSCRIPTION AGREEMENT November 4, 2022 Exhibit 10.2

 
#96278502v9 TABLE OF CONTENTS PAGE ARTICLE 1 AUTHORIZATION AND SALE OF THE NOTE SECURITIES Section 1.01. Authorization of the Note Securities ............................................................ 1 Section 1.02. Sale of Note Securities ................................................................................. 1 ARTICLE 2 CLOSING DATE; DELIVERY Section 2.01. Closing Date. ............................................................................................... 2 Section 2.02. Delivery and Payment .................................................................................. 2 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE GUARANTORS Section 3.01. Organization and Standing .......................................................................... 2 Section 3.02. Corporate Power ......................................................................................... 2 Section 3.03. Governmental Consents, Etc ........................................................................ 3 Section 3.04. Noncontravention. ........................................................................................ 3 Section 3.05. Authorization................................................................................................ 3 Section 3.06. The Note Securities ...................................................................................... 4 Section 3.07. Underlying Securities................................................................................... 4 Section 3.08. SEC Reports. ................................................................................................ 4 Section 3.09. Capitalization ............................................................................................... 5 Section 3.10. Litigation ...................................................................................................... 5 Section 3.11. Registration Rights....................................................................................... 6 Section 3.12. Placement ..................................................................................................... 6 Section 3.13. Internal Controls .......................................................................................... 6 Section 3.14. Certain Transactions ................................................................................... 6 Section 3.15. Absence of Certain Changes ........................................................................ 6 Section 3.16. Acknowledgment Regarding Purchaser's Purchase of Securities ............... 7 Section 3.17. Related Party Transaction ........................................................................... 7 Section 3.18. Tax Considerations ...................................................................................... 7 Section 3.19. Transactions Not Enjoined .......................................................................... 7 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Section 4.01. Organization and Standing. ......................................................................... 7 Section 4.02. Authorization................................................................................................ 8 Section 4.03. Noncontravention ......................................................................................... 8 Section 4.04. Accredited Investor ...................................................................................... 8 Section 4.05. No Government Review ................................................................................ 9

 
ii #96278502v9 Section 4.06. Investment Experience ................................................................................. 9 Section 4.07. Investment Intent; Blue Sky .......................................................................... 9 Section 4.08. Rule 144 ....................................................................................................... 9 Section 4.09. Restrictions on Transfer; Restrictive Legends ............................................. 9 Section 4.10. Access to Information ................................................................................ 10 Section 4.11. No General Solicitation. ............................................................................ 10 Section 4.12. Purchaser’s Counsel .................................................................................. 10 Section 4.13. Tax Liability ............................................................................................... 10 ARTICLE 5 COVENANTS Section 5.01. Transfer Restrictions; Legends. ................................................................. 10 Section 5.02. Confidentiality; MNPI. .............................................................................. 11 Section 5.03. Securities Law Disclosure. ........................................................................ 12 Section 5.04. Section 16 Matters. .................................................................................... 12 Section 5.05. Acknowledgment of Registration Rights .................................................... 12 ARTICLE 6 INDEMNIFICATION Section 6.01. Survival of Representations and Warranties. ............................................ 12 Section 6.02. Indemnification .......................................................................................... 12 ARTICLE 7 MISCELLANEOUS Section 7.01. Entire Agreement; Amendment; Assignment ............................................. 13 Section 7.02. Notices........................................................................................................ 13 Section 7.03. Governing Law........................................................................................... 14 Section 7.04. Jurisdiction ................................................................................................ 14 Section 7.05. WAIVER OF JURY TRIAL ......................................................................... 15 Section 7.06. Delays or Omissions .................................................................................. 15 Section 7.07. Finder’s Fees ............................................................................................. 15 Section 7.08. Expenses ..................................................................................................... 15 Section 7.09. Counterparts .............................................................................................. 16 Section 7.10. Severability ................................................................................................ 16 Section 7.11. Titles and Subtitles ..................................................................................... 16 EXHIBIT A Form of Note

 
#96278502v9 VIRGIN ORBIT HOLDINGS, INC. SENIOR UNSECURED CONVERTIBLE NOTE DUE 2024 SUBSCRIPTION AGREEMENT This agreement (the “Agreement”) is made effective as of November 4, 2022 by and among Virgin Orbit Holdings, Inc., a Delaware corporation (the “Company”), the Guarantors (as defined herein) and Virgin Investments Limited (“VIL” or the “Purchaser”). R E C I T A L S: WHEREAS, the Purchaser desires to purchase, and the Company and each Guarantor desires to issue and sell the Note Securities (as defined herein) described in this Agreement on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises hereof and the agreements set forth herein below, the parties hereto hereby agree as follows: ARTICLE 1 AUTHORIZATION AND SALE OF THE NOTE SECURITIES Section 1.01. Authorization of the Note Securities. The Company has authorized the sale and issuance of a Senior Unsecured Note due 2024 (the “Note”), and each Guarantor (as defined in such Note) has, authorized its unconditional and irrevocable guarantee of the Company’s obligations under the Note (each a “Guarantee,” and the Guarantees, together with the Note, the “Note Securities”). The Form of Note, including the Guarantees, is attached hereto as Exhibit A. The Note will be convertible into (a) the Company’s common stock, par value $0.0001 per share (the “Common Stock”) or (b) in certain circumstances and upon the satisfaction of certain conditions specified in the Note, Common Stock or securities convertible into, or exchangeable or exercisable for, Common Stock (together, “Qualified Securities”). Common Stock that may be issued upon conversion of the Note is referred to herein as “Underlying Common Stock” and Qualified Securities (including Common Stock) that may be issued upon any conversion are referred to herein as (“Underlying Securities”). The Company has authorized the sale and issuance of the Underlying Securities as set forth herein. The Note Securities and the Underlying Securities are referred to herein as the “Securities.” Section 1.02. Sale of Note Securities. Subject to the terms and conditions hereof, the Company and the Guarantors will issue and sell to the Purchaser the Note Securities, and the Purchaser will buy from the Company and the Guarantors, the Note Securities. The Note will be issued in an aggregate principal amount of $25,000,000, and the purchase price for the Note will be $25,000,000 (the “Purchase Price”).

 
2 #96278502v9 ARTICLE 2 CLOSING DATE; DELIVERY Section 2.01. Closing Date. (a) The purchase and sale of the Note Securities to the Purchaser shall be consummated at a closing (the “Closing”) to be held at the offices of Davis Polk & Wardwell LLP, 450 Lexington Avenue, New York, New York 10017 at 10:00 a.m., Eastern Time, on the date hereof (the “Closing Date”), upon the physical or electronic exchange among the parties and their counsel of all documents and deliverables required under this Agreement. Section 2.02. Delivery and Payment. At the Closing, the Company will issue the Note Securities, against payment of the Purchase Price therefor by wire transfer of immediately available funds per the Company’s instructions, and the Company shall cause the Note Securities (or book entry positions representing the Note Securities) to be registered in the name of the Purchaser. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE GUARANTORS Except as set forth in the SEC Reports (as defined below), the Company and the Guarantors, jointly and severally, hereby represent and warrant to the Purchaser that: Section 3.01. Organization and Standing. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of Delaware, with corporate power and authority to own its properties and conduct its business as now conducted. Each subsidiary of the Company has been duly organized and is validly existing as a corporate entity in good standing under the laws of its jurisdiction of organization. Each of the Company and its subsidiaries is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in such good standing would not have a Material Adverse Effect. A “Material Adverse Effect” shall mean any material adverse effect on (i) the assets, liabilities, business, properties, operations, financial condition, prospects or results of operations of the Company and its subsidiaries, taken as a whole, (ii) the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith or (iii) the authority or the ability of the Company or any Guarantor to perform its obligations under this Agreement or the Note Securities. Section 3.02. Corporate Power. The Company has all requisite legal and corporate power and authority to execute and deliver this Agreement and the Note (together, the “Company Transaction Agreements”), to sell and issue the Note, to issue the Underlying Common Stock or other Underlying Securities, of the Company upon conversion of the Note, and to carry out and perform its obligations under the terms of the Company Transaction Documents. Each Guarantor has the corporate or other entity

 
3 #96278502v9 power and authority to execute, deliver and perform its obligations under this Agreement, the Note, and its Guarantee (the Guarantees, together with the Company Transaction Documents, the “Transaction Documents”). Section 3.03. Governmental Consents, Etc. No consent, approval or authorization of, or designation, declaration or filing with, any governmental authority on the part of the Company or any Guarantor is required in connection with the valid execution, delivery and performance of the Transaction Documents to which it is a party, or the offer, sale or issuance of the Note Securities or the Underlying Securities, or the consummation of any other transaction contemplated hereby or thereby, except the qualification (or taking of such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of the Note Securities and the Underlying Securities under applicable Blue Sky laws, which filings and qualifications, if required, will be accomplished in a timely manner. For the avoidance of doubt, any required filing under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) on Form 8-K disclosing the transactions contemplated hereby and filing any form of the Transaction Documents as required shall not be deemed to be a violation of this Section 3.03. The Company is in compliance in all material respects with the applicable listing and corporate governance rules and regulations of Nasdaq and the Nasdaq Global Market (the “Exchange”) and has not received any written notice from Nasdaq of an event or condition that would reasonably be expected to cause the Common Stock to be delisted by Nasdaq. The issuance and sale of the Note Securities and the Underlying Common Stock hereunder do not, and the issuance of any Underlying Securities other than Common Stock will not, contravene the rules and regulations of Nasdaq or the Exchange. Section 3.04. Noncontravention. Assuming compliance with the matters referred to in Section 3.03, the issue and sale of the Note Securities and the performance by the Company or any Guarantor of its obligations under the Transaction Documents, including the Company’s obligation to issue Underlying Securities upon conversion of the Note, and the consummation of the transactions therein contemplated will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (ii) result in any violation of the provisions of the certificate of incorporation or bylaws of the Company or the organizational documents of any Guarantor or (iii) result in any violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the properties or assets of the Company or any of its subsidiaries or any of their properties, except, with respect to clauses (i) and (iii), for such conflicts, breaches, violations or defaults as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Section 3.05. Authorization. All corporate action on the part of the Company and each Guarantor, its officers, directors and stockholders (or, in the case of any Guarantor, its members, stockholders or other equity holders, as applicable) necessary for the authorization, execution, delivery and performance by the Company or such Guarantor of

 
4 #96278502v9 the Transaction Documents to which it is a party, the authorization, sale, issuance and delivery by the Company of the Note and the Underlying Securities and the issuance and sale of each Guarantor of its Guarantee and the performance by the Company and each Guarantor of all of the its respective obligations under this Agreement and the other Transaction Documents to which it is a party, has been taken. Section 3.06. The Note Securities. The Note constitutes valid and binding obligations of the Company and the Guarantee of each Guarantor constitutes valid and binding obligations of such Guarantor, in each case enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, preference or other similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability (the “Enforceability Exceptions”). Section 3.07. Underlying Securities. The maximum number of shares of Underlying Common Stock initially issuable upon conversion of the Note (based on “Fixed Conversion Rate” as defined in the Note) have been duly authorized and reserved and the Company shall duly authorize and reserve the maximum number of Underlying Securities as may be issuable from time to time under the Note. When and, to the extent issued upon conversion of the Note in accordance with its terms, any Underlying Securities will be validly issued, fully paid and non-assessable, and the issuance of any Underlying Securities will not be subject to any preemptive or similar rights. Section 3.08. SEC Reports. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act, including without limitation pursuant to Section 13(a) or 15(d) thereof, since the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”) through the date hereof on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports (as defined below) prior to the expiration of any such extension. As of its respective filing date, (or, if amended or superseded by a filing prior to the date hereof, on the date of such filing), the 2021 Form 10-K, and all other reports of the Company filed with the Securities and Exchange Commission (the “SEC”) pursuant to the Exchange Act from the filing date of the 2021 Form 10-K through the date of this Agreement (including the exhibits and schedules thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the “Securities Act”) and the Exchange Act. As of its filing date (or, if amended or superseded by a filing prior to the date hereof, on the date of such filing), each SEC Report filed pursuant to the Exchange Act did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Reports complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise

 
5 #96278502v9 indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Section 3.09. Capitalization. The Company has an authorized capitalization as of June 30, 2022 (the “Capitalization Date”) as set forth in its Form 10-Q for the quarter ended June 30, 2022. All of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and (except for directors’ qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, except to the extent that it would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the stockholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. As of the date hereof, (i) there are no outstanding options, warrants, scrips, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its subsidiaries, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries except (w) as set forth in the SEC Reports and the exhibits attached and incorporated by reference thereto, (x) as were granted or issued after the Capitalization Date pursuant to the Company’s equity compensation plans described in the SEC Reports, and (y) as a result of the purchase and sale of the Note Securities; and (ii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Note Securities or the Underlying Securities. The Company's certificate of incorporation as in effect on the date hereof and the Company's bylaws as in effect on the date hereof have been filed as part of the SEC Reports and are available on the SEC’s EDGAR system as of the business day prior to the date hereof. Other than the Note, the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto are as described in the SEC Reports and exhibits attached or incorporated by reference thereto. Section 3.10. Litigation. As of the date hereof, there is no action, suit, investigation or proceeding pending against, or, to the knowledge of the Company, threatened against or affecting, the Company or any of its subsidiaries before (or, in the case of threatened actions, suits, investigations or proceedings, would be before) or by any court, public board, government agency or self-regulatory organization or body, that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 
6 #96278502v9 Section 3.11. Registration Rights. Except as set forth in the SEC Filings, the Company is not under any obligation to register under the Securities Act, any of its presently outstanding securities. Section 3.12. Placement. Subject to the accuracy of the Purchaser’s representations in this Agreement, the offer, sale and issuance of the Note Securities and the Underlying Securities (the “Placement”) constitute transactions exempt from the registration requirements of Section 5 of the Securities Act and the qualification requirements of the securities laws of the State of California. Neither the Company nor any agent on its behalf has taken or will take any action so as to bring the sale of the Note Securities or any Underlying Securities by the Company within the registration provisions of the Securities Act or any state securities laws other than as contemplated in that certain Registration Rights Agreement dated as of December 29, 2021 to which the Company and the Purchaser are parties (the “Registration Rights Agreement”). Section 3.13. Internal Controls. The Company and each of its officers are in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act. The management of the Company has, in material compliance with Rule 13a-15 under the Exchange Act, (i) designed disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the management of the Company by others within those entities, and (ii) disclosed, based on its most recent evaluation prior to the date hereof, to the Company’s auditors and the audit committee of the Company’s Board of Directors (A) any significant deficiencies in the design or operation of internal control over financial reporting (“Internal Controls”) which would adversely affect the Company’s ability to record, process, summarize and report financial data and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s Internal Controls. Since December 31, 2021, management has not identified for the Company’s auditors any material weaknesses in Internal Controls other than those identified in connection with the audit of the Company’s consolidated financial statements as of and for the year ended December 31, 2020, which are disclosed in the SEC Reports. Section 3.14. Certain Transactions. Since January 1, 2022, except for compensation or other employment arrangements in the ordinary course of business and the Placement, there has been no transaction, or series of similar transactions, agreements, arrangements, relationships, payments or understandings, nor are there any currently proposed transactions, or series of similar transactions, agreements, arrangements, relationships, payments or understandings to which the Company or any of its subsidiaries was or is to be a party, that would be required to be disclosed under Item 404 of Regulation S-K promulgated under the Securities Act that is not disclosed in the SEC Reports. Section 3.15. Absence of Certain Changes. Since June 30, 2022, there has not been a Material Adverse Effect or any prospective material adverse change that could reasonably be expected to result in a Material Adverse Effect.

 
7 #96278502v9 Section 3.16. Acknowledgment Regarding Purchaser's Purchase of Securities. The Company and the Guarantors acknowledge and agree that the Purchaser is acting solely in the capacity of an arm's length Purchaser with respect to this Agreement and the transactions contemplated hereby. The Company and the Guarantors further acknowledge that the Purchaser is not acting as a financial advisor or fiduciary of the Company or any Guarantor (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and that any statement made by the Purchaser or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Purchaser’s purchase of the Securities and has not been relied upon by the Company or any Guarantor or its respective officers or directors (or functional equivalents) in any way. The Company and each Guarantor further represents to the Purchasers that the Company’s or such Guarantor’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company or such Guarantor and its respective representatives Section 3.17. Related Party Transaction. The Board of Directors of the Company (or an authorized committee thereof) (the “Board”) has reviewed the transactions contemplated hereby with respect to any “related party transaction,” including for purposes of the Delaware General Corporation Law and the applicable rules of Nasdaq, and has approved any such transaction consistent with the applicable standards. Section 3.18. Tax Considerations. The Company does not have any current or accumulated earnings and profits for U.S. federal income tax purposes and does not expect to have any current or accumulated earnings and profits in any taxable year during which the Note (or any portion thereof) will be outstanding if not redeemed, repurchased or converted prior to its stated maturity. Section 3.19. Transactions Not Enjoined. No governmental authority has enacted, issued, promulgated, enforced or entered any order, writ, judgment, injunction, decree, stipulation, determination or award which is in effect and has the effect of making the transactions contemplated by this Agreement illegal, otherwise restraining or prohibiting consummation of such transactions or causing any of the transactions contemplated hereunder to be rescinded following completion thereof. No action or proceeding by or before any court or other governmental body has been instituted or threatened by any governmental authority or person whatsoever which shall seek to restrain, prohibit or invalidate the transactions contemplated by this Agreement. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS The Purchaser hereby represents and warrants to the Company as follows: Section 4.01. Organization and Standing. The Purchaser is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, with the corporate or other entity power and authority to own and operate its business as

 
8 #96278502v9 presently conducted, except where the failure to be or have any of the foregoing would not have a material and adverse effect on the legality, validity or enforceability of the Transaction Documents to which it is a party, and the Purchaser is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the character of its properties owned or held under lease or the nature of their activities makes such qualification necessary, except for such failures to be so qualified or in good standing, individually or in the aggregate, as would not have a material adverse effect on it. Section 4.02. Authorization. (a) The Purchaser has the requisite corporate or other entity power and authority to execute and deliver Transaction Documents to which it is a party and perform its obligations under the Transaction Documents. The execution and delivery of each such Transaction Document by the Purchaser, the performance by the Purchaser of its obligations thereunder, and all other necessary corporate or other entity action on the part of the Purchaser have been duly authorized by its board of directors or similar governing body, and no other corporate or other entity proceedings on the part of such Purchaser is necessary for such Purchaser to execute and deliver the relevant Transaction Documents and perform its obligations thereunder. (b) Each of the relevant Transaction Documents has been duly and validly authorized, and when executed and delivered by the Purchaser, shall constitute valid and binding obligations of the Purchaser, enforceable in accordance with their terms, subject to the Enforceability Exceptions. Section 4.03. Noncontravention. Neither the execution and delivery of the Transaction Documents to which the Purchaser is a party by the Purchaser nor the performance by such Purchaser of its obligations thereunder will (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Purchaser or any of its subsidiaries is a party or by which Purchaser or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (ii) result in any violation of the provisions of the certificate of incorporation, bylaws or similar organizational and governing documents of Purchaser or (iii) result in any violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the properties or assets of the Purchaser or any of its subsidiaries or any of their properties, except, with respect to clauses (i) and (iii), for such violations, breaches, conflicts, defaults or other occurrences which, individually or in the aggregate, would not have a material adverse effect on its obligation to perform its obligations under the Transaction Documents to which the Purchaser is a party. Section 4.04. Accredited Investor. The Purchaser is an “accredited investor” within the meaning of Regulation D, Rule 501(a), under the Securities Act. The Purchaser was not formed for the specific purpose of acquiring the Securities.

 
9 #96278502v9 Section 4.05. No Government Review. The Purchaser understands that neither the SEC nor any securities commission or other governmental authority of any state, country or other jurisdiction has approved the issuance of the Securities or passed upon or endorsed the merits of this Agreement, the Securities, or any of the other documents relating to the Placement, or confirmed the accuracy of, determined the adequacy of, or reviewed this Agreement, the Securities or such other documents. Section 4.06. Investment Experience. The Purchaser has such knowledge, sophistication and experience in financial, tax and business matters in general, and investments in securities in particular, that it is capable of evaluating the merits and risks of this investment in the Securities, and the Purchaser has made such investigations in connection herewith as it deemed necessary or desirable so as to make an informed investment decision without relying upon the Company for legal or tax advice related to this investment. In making its decision to acquire the Securities, the Purchaser has not relied upon any information other than information provided to it by the Company or its representatives and contained herein, including the representations and warranties and covenants of the Company contained herein. Section 4.07. Investment Intent; Blue Sky. The Purchaser is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof, other than the transfer of shares to an affiliated investment fund under common control with Purchaser. It understands that the sale of the Securities has not been, and will not be, registered under the Securities Act by reason of an exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the Purchaser’s investment intent and the accuracy of the Purchaser’s representations as expressed herein. The Purchaser’s address set forth in Section 7.02 represents the Purchaser’s true and correct state of domicile, upon which the Company may rely for the purpose of complying with applicable “Blue Sky” or similar laws. Section 4.08. Rule 144. The Purchaser acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. It is aware of the provisions of Rule 144 (“Rule 144”) promulgated under the Securities Act which permit limited resale of securities purchased in a private placement subject to the satisfaction of certain conditions. Section 4.09. Restrictions on Transfer; Restrictive Legends. The Purchaser understands that the transfer of the Note Securities is restricted by this Agreement and applicable state and federal securities laws and the transfer of the Underlying Securities is restricted by applicable state and federal securities laws, and that each certificate, instrument, or book entry representing the Note Securities and, if applicable, the Underlying Securities will be imprinted with legends restricting transfer except in compliance therewith . The Company need not register a transfer of legended Note Securities or Underlying Securities, and may also instruct its transfer agent or other applicable agent not to register the transfer of the Note Securities or Underlying

 
10 #96278502v9 Securities and to enforce applicable stop transfer instructions, unless the conditions specified in each of these legends is satisfied. Section 4.10. Access to Information. The Purchaser acknowledges that it has had access to and has reviewed all documents and records relating to the Company, including, but not limited to, the SEC Reports, that it has deemed necessary in order to make an informed investment decision with respect to an investment in the Securities; that it has had the opportunity to ask representatives of the Company certain questions and request certain additional information regarding the terms and conditions of such investment and the finances, operations, business and prospects of the Company and has had any and all such questions and requests answered to its satisfaction; and that it understands the risks and other considerations relating to such investment. The Purchaser understands any statement contained in the SEC Reports shall be deemed to be modified or superseded for the purposes of this Agreement to the extent that a statement contained herein or in any other document subsequently filed with the SEC modifies or supersedes such statement. Section 4.11. No General Solicitation. The Purchaser is unaware of, and in deciding to participate in the Placement is in no way relying upon, and did not become aware of the Placement through or as a result of, any form of general solicitation or general advertising including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media, or broadcast over television or radio or the internet, in connection with the Placement. Section 4.12. Purchaser’s Counsel. The Purchaser acknowledges that it has had the opportunity to review the Transaction Documents, all exhibits and schedules thereto, and the transactions contemplated thereby with its own legal counsel. Section 4.13. Tax Liability. The Purchaser has reviewed with its own tax advisors the tax consequences of the transactions contemplated by this Agreement. It relies solely on such advisors and not on any statements or representations of the Company or any of the Company’s agents regarding such tax consequences. It understands that it, and not the Company, shall be responsible for its own tax liability that may arise as a result of the transactions contemplated by this Agreement. ARTICLE 5 COVENANTS Section 5.01. Transfer Restrictions; Legends. (a) The Securities may only be disposed of in compliance with applicable federal and state securities laws. In addition, the Purchaser may not transfer the Note, in whole or in part, until the one-year anniversary of the Closing unless (i) the Company consents to such transfer or (ii) a Default (as defined in the Note) has occurred and is continuing, in which case the Purchaser may transfer all or a portion of the Note in accordance with its terms and applicable law. As a condition of transfer of the Notes, any such transferee shall agree in writing to be bound by the terms of the Securities. In connection with any transfer of the Note of at least $10,000,000 aggregate principal

 
11 #96278502v9 amount (a “Qualifying Transfer”) to any transferee, including any affiliates of such transferee that may be deemed to beneficially own all or a portion of such Qualifying Transfer (together, a “Qualifying Transferee”), the Company will enter into a registration rights agreement (or effect a joinder to the Registration Rights Agreement) with any such Qualifying Transferee on terms no less favorable than those contained in the Company’s registration rights agreement dated as of June 28, 2022 entered into in connection with the Company’s outstanding convertible debentures. (b) The certificates, agreements, instruments, or book entries evidencing the Securities shall have endorsed thereon the legends set forth in the Note as required by the terms of the Note. Section 5.02. Confidentiality; MNPI. (a) The Purchaser acknowledges and agrees that: (i) certain of the information contained herein is of a confidential nature and may be regarded as material non-public information (“MNPI”) under Regulation FD of the Securities Act; (ii) except as provided in Section 5.03, until the time the information contained herein has been adequately disseminated to the public, the existence of this Agreement and the information contained herein shall not, without the prior written consent of the Company, be disclosed by the Purchaser to any person or entity, other than its employees, officers, directors, consultants financial and legal advisors and other representations (collectively, “Representatives”) for the sole purpose of evaluating the entering into and the consummation of the transactions contemplated under the Transaction Documents, and Purchaser will not, directly or indirectly, disclose or permit its Representatives to disclose, any of such information without the prior written consent of the Company; and (iii) the Purchaser shall make its Representatives aware of the terms of this Section 5.02 and be responsible for any breach of this Agreement by such Representatives. (b) Any party may disclose, or permit the disclosure of, information which would otherwise be confidential if and to the extent (i) required by law or any securities exchange, regulatory or governmental body; (ii) disclosed to its respective affiliates and its and their respective directors, officers, employees, shareholders, finance providers and their respective professional advisers or officers on a need-to-know basis (but it shall remain responsible for the compliance with this Section 5.02 by any such person); or (iii) it comes into the public domain other than as a result of a breach by any party hereto. (c) The Purchaser acknowledges that certain information concerning the matters that are the subject matter of this Agreement may constitute MNPI under U.S. federal securities laws, and that U.S. federal securities laws prohibit any person who has received MNPI relating to the Company from purchasing or selling securities of the Company, or from communicating such information to any person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell securities of the Company. Accordingly, until such time as any such non-public information has been adequately disseminated to the public, each Purchaser shall not purchase or sell any securities of the Company, or communicate such information to any other person save as provided in Section 5.03.

 
12 #96278502v9 (d) The Purchaser shall not, and shall cause its affiliates not to, engage, directly or indirectly, in any transactions in the securities of the Company (including, without limitation, any Short Sales (as such term is defined in Rule 200 promulgated under Regulation SHO under the Exchange Act)) during the period from the date hereof until such time as (i) the transactions contemplated by this Agreement are first publicly announced or (ii) this Agreement is terminated. Section 5.03. Securities Law Disclosure. On or prior to the fourth (4th) business day following the Closing Date, the Company will file a Current Report on Form 8-K (or Quarterly Report on Form 10-Q) with the SEC describing the terms of the Transaction Documents and filing such Transaction Documents or forms thereof as may be required under the Exchange Act; provided that the Company shall furnish the Purchaser with a copy of such 8-K (or 10-Q) at least 36 hours in advance of filing to review and shall not file any such 8-K (or 10-Q) to which the Purchaser reasonably objects. The Company may also issue a press release describing the material terms of the transactions contemplated thereby; provided that the Company shall furnish the Purchaser with a copy of such press release at least 24 hours in advance of filing to review and shall not file any press release to which the Purchaser objects. Section 5.04. Section 16 Matters. The Company’s Board of Directors shall pre- approve the direct or indirect acquisition or disposition, as applicable, of Note Securities or Underlying Securities by the Purchaser, its affiliates, or any director affiliated with the Purchaser (any such director, a “Purchaser Director”), for the express purpose of exempting the Purchaser’s, its affiliates’ or any Purchaser Director’s interests (to the extent the Purchaser or its affiliates may be deemed to be “directors by deputization”) in such transaction from Section 16(b) of the Exchange Act pursuant to Rule 16b-3 thereunder. Section 5.05. Acknowledgment of Registration Rights. For the avoidance of doubt, the Company and the Purchaser acknowledge and agree that the Underlying Common Stock shall constitute “Registrable Securities” for purposes of the Registration Rights Agreement. ARTICLE 6 INDEMNIFICATION Section 6.01. Survival of Representations and Warranties. The representations and warranties of the Company, the Guarantors and the Purchaser contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing. All covenants and agreements contained herein which by their terms contemplate actions following the Closing shall survive the Closing and remain in full force and effect in accordance with their terms. All other covenants and agreements contained herein shall not survive the Closing and shall thereupon terminate. Section 6.02. Indemnification. The Company and the Guarantors, jointly and severally, agree to indemnify and hold harmless the Purchaser, its partners, affiliates, officers, directors, employees, and duly authorized agents, and each person or entity, if

 
13 #96278502v9 any, who controls the Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (a “Control Person”), from and against any loss, claim, damage, liability, together with reasonable and documented out-of-pocket costs and expenses (including, without limitation, reasonable attorneys’ fees and disbursements and costs and expenses of expert witnesses and investigation), and any action in respect thereof to which such Purchaser and its Control Persons (collectively, the “Indemnified Parties”) becomes subject to, resulting from, arising out of or relating to any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents, except to the extent that any such loss, claim, damage, liability, cost or expense is attributable to the willful misconduct or fraud of such Indemnified Party. ARTICLE 7 MISCELLANEOUS Section 7.01. Entire Agreement; Amendment; Assignment. This Agreement and the other Transaction Documents constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Any prior agreements, understandings or representations with respect to the subject matter hereof are superseded by this Agreement and shall have no further force or effect. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the parties hereto. The provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. Section 7.02. Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be sent by e-mail, by registered or certified mail, postage prepaid, or otherwise delivered by facsimile transmission, by hand or by messenger, addressed: (a) if to the Purchaser, to: Virgin Investments Limited Craigmuir Chambers Road Town, Tortola VG 1110 British Virgin Islands Email: vghl@harneys.com Tel: 1-284-494-2233 with a copy to:

 
14 #96278502v9 Virgin Management USA, Inc. 65 Bleecker St., 6th Floor New York, NY 10012 Attn: General Counsel Email: james.cahillane@virgin.com Tel: 212-497-9098 and Davis Polk & Wardwell LLP 450 Lexington Avenue New York, New York 10017 Attn: Lee Hochbaum Mark DiFiore Email: lee.hochbaum@davispolk.com mark.difiore@davispolk.com (b) if to the Company, to: Virgin Orbit Holdings, Inc. 4022 E. Conant St. Long Beach, California 90808 Attention: Chief Financial Officer; Chief Legal Officer Email: brita.o’rear@virginorbit.com; derrick.boston@virginorbit.com with a copy to: Latham & Watkins LLP 650 Town Center Drive, 20th Floor Costa Mesa, CA 92626 Attention: Drew Capurro Email: drew.capurro@lw.com All such notices, requests and other communications hereunder shall be deemed duly given on the date of receipt by the recipient thereof if received before 5:00 p.m. local time on a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed to have been received on the next succeeding business day in the place of receipt. Section 7.03. Governing Law. This Agreement shall be governed in all respects by the internal laws of the State of New York without regard to conflict of law rules of such state. Section 7.04. Jurisdiction. The parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be

 
15 #96278502v9 brought in the United States District Court for the Southern District of New York or any New York State court sitting in New York City, so long as one of such courts shall have subject matter jurisdiction over such suit, action or proceeding, and that any cause of action arising out of this Agreement shall be deemed to have arisen from a transaction of business in the State of New York, and each of the parties hereby irrevocably 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 brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 7.02 shall be deemed effective service of process on such party. Section 7.05. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 7.06. Delays or Omissions. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach or default of another party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. Section 7.07. Finder’s Fees. Each party represents that it neither is, nor will be, obligated for any finders’ fee or commission in connection with this transaction. The Purchaser agrees to indemnify and to hold harmless the Company and the Guarantors from any liability for any commission or compensation in the nature of a finders’ fee (and the costs and expenses of defending against such liability or asserted liability) for which such Purchaser or any of its officers, partners, employees, or representatives is responsible. The Company and the Guarantors agree, jointly and severally, to indemnify and hold harmless the Purchaser from any liability for any commission or compensation in the nature of a finders’ fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. Section 7.08. Expenses. Each of the Company and the Guarantors, on the one hand, and the Purchaser, on the other hand, shall bear its or their own expenses incurred

 
16 #96278502v9 with respect to this Agreement and the transactions contemplated hereby, except that following the successful completion of the Closing, the Company will reimburse the Purchaser for its documented out-of-pocket expenses incurred in connection with the transactions contemplated by this Agreement (except as otherwise provided in the Registration Rights Agreement). Section 7.09. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which together shall constitute one instrument. Counterparts may be delivered via facsimile, electronic mail (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. Section 7.10. Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, which shall be replaced with an enforceable provision closest in intent and economic effect as the severed provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. Section 7.11. Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement [Remainder of this page intentionally left blank]

 
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. [Signature Page to Subscription Agreement] VIRGIN ORBIT HOLDINGS, INC. By: Name: Title: VIECO USA, INC. By: Name: Title: VIRGIN ORBIT, LLC By: Name: Title: VIRGIN ORBIT NATIONAL SYSTEMS, LLC By: Name: Title: JACM HOLDINGS, INC. By: Name: Title: Mark Baird President, Virgin Orbit National Systems Dan Hart CEO CEO CEO Dan Hart CEO Dan Hart Dan Hart

 

 
EXHIBIT A Form of Note

 
#96252355v15 THIS SECURITY (INCLUDING ANY SECURITIES ISSUABLE UPON CONVERSION) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR APPLICABLE STATE SECURITIES LAWS. THIS SECURITY (INCLUDING ANY SECURITIES ISSUABLE UPON CONVERSION) HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO ITS DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR THIS SECURITY (INCLUDING ANY SECURITIES ISSUABLE UPON CONVERSION) UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR AN EXEMPTION THEREFROM. VIRGIN ORBIT HOLDINGS, INC. SENIOR UNSECURED CONVERTIBLE NOTE CN-1 US$25,000,000.00 November 4, 2022 FOR VALUE RECEIVED, Virgin Orbit Holdings, Inc., a corporation duly organized and validly existing under the laws of the state of Delaware (the “Borrower”), hereby promises to pay to VIRGIN INVESTMENTS LIMITED, or registered assigns, at the address set forth in Section 12.01 of this Senior Unsecured Convertible Note (this “Note”), the principal sum of TWENTY-FIVE MILLION DOLLARS ($25,000,000.00), together with interest accrued thereon from time to time as provided herein, on the Maturity Date (as defined below). ARTICLE 1 DEFINITIONS; INTERPRETATIONS Section 1.01. Definitions. The terms defined in this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Note shall have the respective meanings specified in this Section 1.01. The words “herein,” “hereof,” “hereunder,” and words of similar import refer to this Note as a whole and not to any particular Article, Section or other subdivision. The terms defined in this Article include the plural as well as the singular. Unless otherwise noted, references to “U.S. Dollars” or “$” shall mean the currency of the United States. “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.

 
2 #96252355v15 “Bankruptcy Law” shall have the meaning specified in Section 6.01. “Board of Directors” means the Board of Directors of the Borrower or any duly authorized committee of such Board of Directors. “Borrower” means Virgin Orbit Holdings, Inc., a corporation duly organized and existing under the laws of the State of Delaware, until a successor Person shall replace it pursuant to the applicable provisions of this Note, and thereafter “Borrower” shall mean such successor Person. “Business Combination Event” shall have the meaning specified in Section 7.01. “Business Day” means any day other than a Saturday, a Sunday or a day on which the Federal Reserve Bank of New York is authorized or required by law or executive order to close or be closed. “Capital Stock” of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) the equity of such Person, but excluding any debt securities convertible into such equity. “Cash” or “cash” means such coin or currency of the United States as at any time of payment is legal tender for the payment of public and private debts. “Clause A Distribution” shall have the meaning specified in Section 4.07(c). “Clause B Distribution” shall have the meaning specified in Section 4.07(c). “Clause C Distribution” shall have the meaning specified in Section 4.07(c). “close of business” means 5:00 p.m. (New York City time). “Code” means the Internal Revenue Code of 1986, as amended from time to time. “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 shares of common stock of the Borrower, par value $0.0001 per share, at the date of this Note, subject to Section 4.10. “Conversion Cap” shall have the meaning specified in Section 4.03(g). “Conversion Date” means, in respect of any conversion of this Note, the related Fixed Conversion Date or Financing Conversion Date, as the case may be.

 
3 #96252355v15 “Conversion Obligation” means, in respect of any conversion of this Note, the related Fixed Conversion Obligation or Financing Conversion Obligation, as the case may be. “Default” means any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. “Event of Default” shall have the meaning specified in Section 6.01. “Ex-Dividend Date” means the first date on which shares of Common Stock trade on The Nasdaq Global Market, or on the applicable stock exchange on which Common Stock is then traded, regular way, without the right to receive the issuance, dividend or distribution in question from the Borrower. “Exchange Act” means the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, in each case as amended. “Expiration Date” shall have the meaning specified in Section 4.07(e). “Expiration Time” shall have the meaning specified in Section 4.07(e). “Financing Closing Date” means, in respect of any Qualified Financing, the closing date of such Qualified Financing. “Financing Conversion Date” shall have the meaning specified in Section 4.03(b). “Financing Conversion Obligation” shall have the meaning specified in Section 4.03(b). “Financing Conversion Rate” means, in respect of any Qualified Financing and with respect to each $1,000 principal amount of this Note, a number of the Qualified Securities in respect of such Qualified Financing (denominated in shares, units or notes, as applicable (with any such Qualified Securities that have a liquidation preference or principal amount being deemed to be denominated in a liquidation preference or principal amount per share, unit or note, as the case may be, as the Holder determines in good faith and in a commercially reasonable manner)) equal to $1,000 divided by the purchase price per share, unit or note, as applicable, of such Qualified Securities paid by the investors in the Qualified Financing, rounded to the nearest 1/10,000th of a share, unit or note, as applicable. “Fixed Conversion Obligation” shall have the meaning specified in Section 4.01(a). “Fixed Conversion Rate” shall have the meaning specified in Section 4.01(a). “Foreign Subsidiary” means (a) any Subsidiary of the Borrower (i) that has no material assets other than Capital Stock in or indebtedness of one or more Foreign

 
4 #96252355v15 Subsidiaries or (ii) that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code or (b) any other Subsidiary of the Borrower, for so long as such Subsidiary would not be able to execute a Guarantee without creating an investment in “United States property” (within the meaning of Section 956 of the Code). “Form of Assignment and Transfer” shall mean the “Form of Assignment and Transfer” attached as Attachment 3 to this Note. “Form of Fundamental Change Repurchase Notice” shall mean the “Form of Fundamental Change Repurchase Notice” attached as Attachment 2 to this Note. “Form of Notice of Conversion” shall mean the “Form of Notice of Conversion” attached as Attachment 1 to this Note. “Fundamental Change” shall be deemed to have occurred at the time after this Note is originally issued if any of the following occurs: (a) a “person” or “group” (other than the Holder or an Affiliate thereof) within the meaning of Section 13(d) of the Exchange Act, other than the Borrower, its Wholly Owned Subsidiaries and the employee benefit plans of the Borrower and its Wholly Owned Subsidiaries, has become the direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of (x) the Common Stock representing more than 50% of the voting power of the Common Stock or (y) Common Equity of the Borrower representing more than 50% of the voting power of all Common Equity of the Borrower; (b) the consummation of (A) any recapitalization, reclassification or change of the Common Stock (other than changes resulting from a subdivision or combination) 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 Borrower 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 Borrower and its Subsidiaries, taken as a whole, to any Person other than one of the Borrower’s Wholly Owned Subsidiaries; provided, however, that a transaction described in subclauses (A) or (B) in which the holders of all classes of the Borrower’s 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 as such ownership immediately prior to such transaction shall not be a Fundamental Change pursuant to this clause (b); or (c) the stockholders of the Borrower approve any plan or proposal for the liquidation or dissolution of the Borrower.

 
5 #96252355v15 If any transaction in which the Common Stock is replaced by the securities of another entity occurs, following the effective date of such transaction references to the Borrower in this definition shall instead be references to such other entity. “Fundamental Change Borrower Notice” shall have the meaning specified in Section 9.01(b). “Fundamental Change Effective Date” means the date on which any Fundamental Change becomes effective. “Fundamental Change Repurchase Date” shall have the meaning specified in Section 9.01(a). “Fundamental Change Repurchase Notice” shall have the meaning specified in Section 9.01(d). “Fundamental Change Repurchase Price” of this Note, means 100% of the principal amount of this Note to be repurchased pursuant to Article 9 plus accrued and unpaid interest on such principal amount of this Note to be repurchased, if any, to, but excluding, the Fundamental Change Repurchase Date. “Guarantees” means the joint and several guarantees by the Guarantors of the Borrower’s obligations under this Note pursuant to Article 11. “Guarantors” means each of (a) the Borrower’s Subsidiaries listed on the signature pages to this Note, (b) any other Subsidiary of the Borrower that becomes a Guarantor in accordance with Section 3.04 or Section 11.04 and (c) the respective successors and assigns of such Subsidiaries, as required under Article 11, in each case until such time as any such Subsidiary shall be released and relieved of its obligations pursuant to Section 11.06. “Guarantor Business Combination Event” shall have the meaning specified in Section 11.04. “Holder” means Virgin Investments Limited, a company duly organized and existing under the laws of the British Virgin Islands. “Interest Payment Date” means each May 4 and November 4 of each year, beginning on May 4, 2023; provided, however, that if any Interest Payment Date falls on a date that is not a Business Day, such payment of interest shall be postponed until the next succeeding Business Day, and no interest or other amount shall be paid as a result of such postponement. “Interest Rate” means 6.00% per annum; provided that the Interest Rate shall increase to 10% per annum upon the occurrence and during the continuance of any Event of Default.

 
6 #96252355v15 “Issue Date” of this Note means the date on which this Note was originally issued or deemed issued as set forth on the face of this Note. “Last Reported Sale Price” of the Common Stock on any date means the closing sale price per share of the Common Stock (or if no closing sale price is reported, the average of the bid and ask prices per share or, if more than one in either case, the average of the average bid and the average ask prices per share) on such date reported on The Nasdaq Global Market or other principal U.S. securities exchange on which the Common Stock is then traded. If the Common Stock is not listed for trading on a United States national or regional securities exchange on such date, the “Last Reported Sale Price” of the shall be the last quoted bid price for the Common Stock 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 is not so quoted, the “Last Reported Sale Price” shall be the average of the mid-point of the last bid and ask prices for the Common Stock on such date from each of at least three nationally recognized independent investment banking firms selected by the Borrower for this purpose. The “Last Reported Sale Price” of the Common Stock will be determined without reference to extended or after hours trading or any other trading outside regular trading session hours. “Lien” means any lien, mortgage, pledge, security interest, charge, or encumbrance of any kind (including any conditional sale or other title retention agreement or any lease in the nature thereof) and any agreement to give or refrain from giving any lien, mortgage, pledge, security interest, charge, or other encumbrance of any kind. “Majority Holders” means the registered holders of a majority of the outstanding aggregate principal amount of the Senior Unsecured Convertible Notes issued pursuant to the Subscription Agreement (but excluding, for this purpose, any such Senior Unsecured Convertible Notes that are held by the Borrower or by any Subsidiary thereof). “Maturity Date” shall have the meaning specified in Section 2.01. “Merger Event” shall have the meaning specified in Section 4.10(a). “Minimum Financing Threshold” means $50,000,000. “Non-Qualified Financing” means any financing by the Borrower that would have been a Qualified Financing pursuant to clause (a) of the definition thereof but for the gross cash proceeds of such financing being less than the Minimum Financing Threshold. “Note” shall have the meaning specified in the preamble. “Notice of Conversion” shall have the meaning specified in Section 4.03(a)(ii). “open of business” means 9:00 a.m. (New York City time). “Optional Redemption” shall have the meaning specified in Section 10.01.

 
7 #96252355v15 “Outstanding,” when used with reference to this Note, shall mean, as of any particular time, any portion of the principal amount of this Note, except: (i) The portion of this Note that has been paid pursuant to Section 12.13 or Notes in lieu of which, or in substitution for which, other Notes shall have been issued by the Borrower pursuant to the terms of Section 12.10; (ii) The portion of this Note converted pursuant to Article 4 and required to be canceled pursuant to Section 2.04; and (iii) The portion of this Note redeemed by the Borrower pursuant to Article 10. “Permitted Liens” means (i) Liens for taxes, assessments or charges of any governmental authority for claims that are not material, or are not yet due or are being contested in good faith by appropriate proceedings that have the effect of preventing forfeiture or sale of the assets to which such Liens attach, and, in each case, with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP, (ii) statutory Liens or bankers Liens, (iii) any attachment or judgment Lien not constituting an Event of Default and (iv) such other Liens as may be permitted from time to time, with the written consent of the Holder, which shall not be unreasonably withheld, delayed or conditioned. “Person” or “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any syndicate or group that would be deemed to be a “person” under Section 13(d)(3) of the Exchange Act or any other entity. “Qualified Financing” means each of (a) a bona fide third-party financing (other than, for the avoidance of doubt, where one or more of Virgin Group Holdings Limited, the Holder or any other Affiliate of Virgin Group Holdings Limited is/are the sole investor(s)) by the Borrower in the form of Common Stock or any securities convertible into, or exchangeable or exercisable for, Common Stock (other than pursuant to equity incentive plans of the Borrower where the sale of such securities is registered on Form S- 8 under the Securities Act) for gross cash proceeds to the Borrower of at least the Minimum Financing Threshold, in one or more transactions or series of related and substantially similar and simultaneous transactions at the same purchase price from third parties unaffiliated with Virgin Group Holdings Limited and its Affiliates, and (b) any Non-Qualified Financing that the Holder elects, by written notice to the Borrower after the Borrower’s delivery of the notice specified in Section 4.02(b) and prior to the applicable Financing Closing Date, to be deemed to be a “Qualified Financing” in respect of all or any portion of this Note (if the portion with respect to which such election is made is $1,000 principal amount or a multiple thereof). For the avoidance of doubt. the participation by Virgin Group Holdings Limited or its Affiliates in a financing shall not disqualify such financing from being a Qualified Financing (but amounts invested in such financing by Virgin Group Holdings Limited or its Affiliates shall not count toward satisfying the Minimum Financing Threshold).

 
8 #96252355v15 “Qualified Securities” means, with respect to any Qualified Financing, the Common Stock or securities convertible into, or exchangeable or exercisable for, Common Stock sold by the Borrower in such Qualified Financing. “Qualified Successor Entity” means, with respect to a Business Combination Event, a corporation; provided, however, that a limited liability company, limited partnership or other similar entity will also constitute a Qualified Successor Entity with respect to such Business Combination Event if both of the following conditions are satisfied: (i) either (x) such limited liability company, limited partnership or other similar entity, as applicable, is treated as a corporation that is organized in the United States or is a direct or indirect, wholly owned subsidiary of, and disregarded as an entity separate from, a corporation that is organized in the United States, in each case for U.S. federal income tax purposes; or (y) the Borrower has received an opinion of a nationally recognized tax counsel to the effect that such Business Combination Event will not be treated as an exchange under Section 1001 of the Code for the Holder; and (ii) such Business Combination Event constitutes a Merger Event whose Reference Property consists solely of any combination of cash in U.S. dollars and shares of common stock or other corporate Common Equity interests of an entity that is (x) treated as a corporation for U.S. federal income tax purposes; (y) duly organized and existing under the laws of the United States of America, any State thereof or the District of Columbia; and (z) a direct or indirect parent of the limited liability company, limited partnership or similar entity that is disregarded from such corporation for U.S. federal income tax purposes. “Receiver” shall have the meaning specified in Section 6.01. “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). “Redemption Date” shall have the meaning specified in Section 10.02(a). “Redemption Notice” shall have the meaning specified in Section 10.02(a). “Redemption Price” of this Note, means 100% of the principal amount of this Note to be redeemed pursuant to Article 10 plus accrued and unpaid interest on such principal amount of this Note to be redeemed, if any, to, but excluding, the Redemption Date. “Reference Property” shall have the meaning specified in Section 4.10(a). “Rights” means any common stock or preferred stock purchase right or warrant, as the case may be, that all or substantially all shares of Common Stock may be entitled to receive under a Rights Plan.

 
9 #96252355v15 “Rights Plan” means any common stock or preferred stock rights plan or any similar plan in effect as of the date of this Note or adopted by the Borrower after the date hereof or any replacement or successor rights plan. “Rule 144” means Rule 144 as promulgated under the Securities Act. “Securities Act” means the Securities Act of 1933 and the rules and regulations promulgated thereunder, in each case as amended. “Significant Subsidiary” means any Subsidiary of the Borrower that satisfies the criteria of a “significant subsidiary” set forth in Rule 1-02(w) of Regulation S-X under the Exchange Act. “Spin-Off” shall have the meaning specified in Section 4.07(c). “Subscription Agreement” means that certain Subscription Agreement, dated as of November 4, 2022, by and among the Borrower, the Holder and the guarantors thereunder, as the same may be amended from time to time. “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 Entity” shall have the meaning specified in Section 7.01(a). “Termination of Trading” means the Common Stock (or other common stock into which this Note is convertible) ceases to be listed or quoted on any of The New York Stock Exchange, The NYSE American, The Nasdaq Global Select Market or The Nasdaq Global Market (or any of their respective successors). “Trading Day” means a day during which (i) trading in the Common Stock generally occurs and (ii) a Last Reported Sale Price (other than a Last Reported Sale Price of the type referred to in the third sentence of the definition of Last Reported Sale Price) for the Common Stock is available for such day; provided that if the Common Stock is not admitted for trading or quotation on or by any exchange, bureau or other organization referred to in the definition of Last Reported Sale Price (excluding the third sentence of that definition), “Trading Day” means a Business Day. “Trigger Event” shall have the meaning specified in Section 4.07(c). “United States” means the United States of America. “unit of Reference Property” shall have the meaning specified in Section 4.10(a).

 
10 #96252355v15 “Valuation Period” shall have the meaning specified in Section 4.07(c). “Wholly Owned Subsidiary” means, with respect to any Person, any 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%”. ARTICLE 2 ISSUE, DESCRIPTION AND EXECUTION Section 2.01. Maturity Date. Subject to Section 6.02, all outstanding principal and accrued and unpaid interest on this Note shall be due and payable, in full, on November 4, 2024 (the “Maturity Date”), unless earlier repurchased, redeemed or converted pursuant to the terms hereof. Section 2.02. Interest. This Note shall bear interest daily at the simple, non- compounding rate equal to the Interest Rate on such day on the unpaid principal amount of this Note from the Issue Date, 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 the Maturity Date. Interest is payable semiannually in arrears on each Interest Payment Date. Interest on this Note shall be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest shall be paid by wire transfer of immediately available funds to an account designated by the Holder. In the event that any amounts payable under this Note are not paid when due, interest shall accrue on all such amounts, in accordance with Section 3.01(a), including any unpaid principal or interest from the date such overdue amounts were originally due to the date payment of such amounts has been made or duly provided for. All such interest shall be payable on demand. Section 2.03. Payment of Note. All payments due under this Note shall be paid in lawful money of the United States. All payments shall be made by wire transfer of immediately available funds to an account designated in writing by the Holder. If an interest, principal or other payment date is other than a Business Day (as defined herein), such payment shall be made on the next succeeding Business Day. All payments shall be applied first, to all fees, charges and expenses permitted under this Note, second, to all accrued and unpaid interest hereon and third, to principal. Section 2.04. Cancellation of Portion of Note Paid. All portions of this Note surrendered for the purpose of payment, repurchase, redemption, conversion or registration of transfer, shall, if surrendered to the Borrower, be promptly canceled by it. ARTICLE 3 PARTICULAR COVENANTS OF THE BORROWER Section 3.01. Payment of Principal and Interest. (a) The Borrower shall promptly make all payments in respect of this Note on the dates and in the manner provided in this Note. The Borrower shall, to the fullest

 
11 #96252355v15 extent permitted by law, pay interest in immediately available funds on any overdue principal amount and interest at the annual rate borne by this Note compounded semiannually, which interest shall accrue from the date such overdue amount was originally due to the date payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand. Presentation of this Note is due at maturity. (b) Payment of the principal of and interest, if any, on this Note shall be made in such immediately available coin or currency of the United States as at the time of payment is legal tender for payment of public and private debts by wire transfer payable in such money. Section 3.02. Corporate Existence. Subject to Article 7 hereof, the Borrower shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and rights (charter and statutory); provided, however, that the Borrower shall not be required to preserve any such right or franchise if the Borrower determines that the preservation thereof is no longer desirable in the conduct of the business of the Borrower and that the loss thereof is not disadvantageous in any material respect to the Holder. Section 3.03. No Liens. The Borrower and each Guarantor shall not, and each shall not permit any of their respective Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien, other than Permitted Liens, upon any of their respective property or assets, whether now owned or hereafter acquired. Section 3.04. Additional Guarantors. After the Issue Date, the Borrower shall cause each of the Borrower’s Wholly Owned Subsidiaries (other than any Foreign Subsidiary or Subsidiary of a Foreign Subsidiary) to, within 30 days of becoming a Wholly Owned Subsidiary of the Borrower, execute and deliver to the Holder a joinder to this Note pursuant to which such Subsidiary shall become a Guarantor hereunder. Section 3.05. Rule 144 Information Requirement and Annual Reports. (a) The Borrower, at all times while it shall be a reporting company under the Exchange Act, covenants to file timely (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Borrower after the Issue Date pursuant to Sections 13(a) or 15(d) of the Exchange Act and to promptly furnish the Holder with true and complete copies of all such filings; provided that any documents publicly filed or furnished with the Commission pursuant to the Electronic Data Gathering, Analysis and Retrieval System shall be deemed to have been furnished or delivered to the Holder pursuant to this Section 3.05(a). The Borrower further covenants that it shall take such further action as the Holder may reasonably request, all to the extent required from time to time to enable the Holder to resell or otherwise dispose of this Note or shares of Common Stock issuable upon conversion hereof without registration under the Securities Act within the limitation of the exemptions provided by Rule 144, including providing any customary legal opinions. Upon the request of the

 
12 #96252355v15 Holder, the Borrower shall deliver to the Holder a written certification of a duly authorized officer as to whether it has complied with such requirements. (b) Without limiting the generality of Section 3.05(a), at any time the Borrower is not subject to Section 13 or 15(d) of the Exchange Act, the Borrower shall, so long as this Note 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, make publicly available the information concerning the Borrower as described in Rule 144(c)(2) under the Securities Act to facilitate the resale of this Note or shares of Common Stock issuable upon conversion thereof pursuant to Rule 144. (c) The Borrower shall deliver to the Holder, within 15 days after the same are required to be filed with the Commission, copies of any documents or reports that the Borrower 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). Any such document or report that the Borrower files with the Commission via the Commission’s EDGAR system shall be deemed to be delivered to the Holder for purposes of this Section 3.05(c) at the time such documents are filed via the EDGAR system. Section 3.06. Transfers. In case this Note or any portion hereof shall be transferred by the Holder, with delivery of a duly completed Form of Assignment and Transfer by the Holder to the Borrower, the Borrower shall promptly upon written request (and in any event, within two Business Days) execute and deliver to (a) the Holder a new Note in authorized denominations in an aggregate principal amount equal to the portion of this Note not transferred and (b) each such transferee a new Note in authorized denominations in an aggregate principal amount equal to the portion of this Note so transferred to such transferee, without payment of any service charge by the Holder or any such transferee but, if required by the Borrower, 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 Note being different from the name of the Holder of the old Note. ARTICLE 4 CONVERSION OF NOTE Section 4.01. Conversion Privilege at Fixed Conversion Rate. (a) Subject to and upon compliance with the provisions of this Article 4, the Holder shall have the right, at the Holder’s option, to convert all or any portion (if the portion to be converted is $1,000 principal amount or a multiple thereof) of this Note (i) subject to satisfaction of the conditions described in Section 4.01(b), at any time prior to the close of business on the Business Day immediately preceding October 15, 2024 under the circumstances and during the periods set forth in Section 4.01(b), and (ii) regardless of the conditions described in Section 4.01(b), on or after October 15, 2024 and prior to the close of business on the Business Day immediately preceding the Maturity Date, in

 
13 #96252355v15 each case, at an initial conversion rate of 345.5425 shares of Common Stock (subject to adjustment as provided in this Article 4, the “Fixed Conversion Rate”) per $1,000 principal amount of this Note (subject to, and in accordance with, the settlement provisions of Section 4.03, the “Fixed Conversion Obligation”). (b) (i) If (A) a transaction or event that constitutes a Fundamental Change occurs prior to the Maturity Date or (B) the Borrower is a party to a Merger Event that occurs prior to the Maturity Date, all or any portion of this Note may be surrendered for conversion pursuant to Section 4.01(a) at any time from or after the date that is 35 Business Days prior to the anticipated effective date of the transaction (or, if later, the earlier of (x) the Business Day after the Borrower gives notice of such transaction and (y) the actual effective date of such transaction) until 35 Trading Days after the actual effective date of such transaction or, if such transaction also constitutes a Fundamental Change, until the related Fundamental Change Repurchase Date. The Borrower shall notify the Holder (x) as promptly as practicable following the date the Borrower publicly announces such transaction but in no event less than 35 Business Days prior to the anticipated effective date of such transaction or (y) if the Borrower does not have knowledge of such transaction at least 35 Business Days prior to the anticipated effective date of such transaction, within one Business Day of the date upon which the Borrower receives notice, or otherwise becomes aware, of such transaction, but in no event later than the actual effective date of such transaction. (ii) If the Borrower calls any or all of this Note for redemption pursuant to Article 10 prior to the Maturity Date, then the Holder may surrender all or any portion of this Note for conversion pursuant to Section 4.01(a) at any time prior to the close of business on the Business Day prior to the Redemption Date. After that time, the right to convert on account of the Borrower’s delivery of the relevant Redemption Notice shall expire, unless the Borrower defaults in the payment of the Redemption Price, in which case the Holder may convert all or any portion of this Note until the Redemption Price has been paid or duly provided for. (iii) If, prior to the earliest to occur of the Maturity Date, any Fundamental Change Effective Date and the effective date of any Merger Event, the Borrower proposes to consummate a transaction or event that constitutes a Qualified Financing (including, for the avoidance of doubt, any deemed Qualified Financing at the election of the Holder) and if the limitations set forth in Section 4.03(g) relating to the Conversion Cap would apply upon conversion of this Note pursuant to Section 4.02(a) as a result of Section 4.03(g) (as determined by the Holder in good faith), then the Holder may surrender all or any portion of this Note for conversion pursuant to Section 4.01(a) at any time from or after the date of the Borrower’s delivery of any related notice pursuant to Section 4.02(b) on the basis of which the Holder’s determination that the Conversion Cap may apply is made, until the close of business on the Business Day prior to the related

 
14 #96252355v15 Financing Closing Date. For the avoidance of doubt, if the Holder delivers a Notice of Conversion pursuant to this Section 4.01(b)(iii), the provisions of Section 4.02(a) shall not apply. Notwithstanding anything to the contrary in this Section 4.01, the Holder agrees not to convert any portion of the Note pursuant to Section 4.01(a) in the 20 Trading Days after the Borrower provides to the Holder written notice of its good faith intention to pursue a transaction that the Borrower believes would constitute a Qualified Financing and for which the Holder determines in good faith that the Conversion Cap would not apply upon conversion of this Note pursuant to Section 4.02(a). Section 4.02. Conversions upon a Qualified Financing or a Non-Qualified Financing. (a) If, prior to the earliest to occur of the Maturity Date, any Fundamental Change Effective Date and the effective date of any Merger Event, the Borrower consummates a transaction or event that constitutes a Qualified Financing, then, on the Financing Closing Date in respect of such Qualified Financing this Note shall automatically convert in whole (or, in respect of a Qualified Financing pursuant to clause (b) of the definition thereof, in the portion validly set forth in the Holder’s election with respect to the relevant Non-Qualified Financing) without any further action by the Holder into Qualified Securities in respect of such Qualified Financing at the Financing Conversion Rate of such Qualified Securities per $1,000 principal amount of this Note. (b) The Borrower shall deliver to the Holder written notice of any potential Qualified Financing or Non-Qualified Financing no less than five (5) Business Days prior to the related Financing Closing Date. Such notice shall include a copy of the Qualified Financing transaction documents, the proposed terms and conditions of the Qualified Financing, including the nature and type of the Qualified Securities and the proposed purchase price (or range of purchase prices) with respect thereto, and the proposed Financing Closing Date. As promptly as practicable after the final determination of the terms of any Qualified Financing or Non-Qualified Financing, the Borrower shall deliver to the Holder written notice of the same, notifying the Holder of the Qualified Financing (or the Non-Qualified Financing, as applicable) and any conversion to be effected, specifying the Financing Conversion Rate, the date on which such conversion is expected to occur and calling upon the Holder to surrender to the Borrower, in the manner and at the place designated herein, this Note. Section 4.03. Conversion Procedure; Settlement upon Conversion. (a) Conversions Pursuant to Section 4.01. (i) Subject to this Section 4.03 and Section 4.10, upon conversion of this Note pursuant to Section 4.01, the Borrower shall deliver to the Holder, in respect of each $1,000 principal amount of this Note being converted, a number of shares of Common Stock equal to the Fixed Conversion Rate, together with

 
15 #96252355v15 cash, if applicable, in lieu of delivering any fractional share of Common Stock in accordance with Section 4.04, on the second Business Day immediately following the relevant Fixed Conversion Date. This Note shall be deemed to have been converted immediately prior to the close of business on the date that the Holder has complied with the requirements set forth in Section 4.03(a)(ii) (a “Fixed Conversion Date”). If any shares of Common Stock are due to the Holder pursuant to this Section 4.03(a), the Borrower shall issue or cause to be issued, and deliver to the Holder certificates with restrictive legend (or book-entry with restricted security notation on the books of the Borrower’s transfer agent, as applicable) for the full number of shares of Common Stock to which the Holder shall be entitled in satisfaction of the Borrower’s Fixed Conversion Obligation. The Person in whose name the certificate with restrictive legend (or book-entry with restricted security notation on the books of the Borrower’s transfer agent, if applicable) for any shares of Common Stock delivered upon conversion pursuant to this Section 4.03(a) is registered shall be treated as a shareholder of record as of the close of business on the relevant Fixed Conversion Date. (ii) Subject to Section 4.05, before the Holder shall be entitled to convert this Note pursuant to Section 4.01, the Holder shall (1) complete, manually sign and deliver an irrevocable notice to the Borrower as set forth in the Form of Notice of Conversion (or a facsimile thereof) (a “Notice of Conversion”) to the Borrower and state in writing therein the principal amount of this Note to be converted and the name or names (with addresses) in which the Holder wishes the certificate or certificates with restrictive legend (or book-entry with restricted security notation on the books of the Borrower’s transfer agent) for any shares of Common Stock to be delivered upon settlement of the Fixed Conversion Obligation to be registered, (2) surrender this Note, duly endorsed to the Borrower or in blank (and accompanied by appropriate endorsement and transfer documents), to the Borrower, and (3) if required, furnish appropriate endorsements and transfer documents. No Notice of Conversion with respect to this Note may be surrendered by the Holder if the Holder has also delivered a Fundamental Change Repurchase Notice to the Borrower in respect of this Note and has not validly withdrawn such Fundamental Change Repurchase Notice. (b) Conversions Pursuant to Section 4.02. Upon conversion of this Note pursuant to Section 4.02(a), the Borrower shall deliver to the Holder, in respect of each $1,000 principal amount of this Note being converted, a number of shares, units or notes, as applicable of Qualified Securities equal to the Financing Conversion Rate, together with cash, if applicable, in lieu of delivering any fractional share, unit or note in accordance with Section 4.04. The Holder hereby agrees to execute and deliver to the Borrower all transaction documents entered into by other purchasers participating in the relevant Qualified Financing, including any purchase agreement, any investor rights agreement and other ancillary agreements, with representations and warranties and transfer restrictions substantially similar to those provided by the investors in such Qualified Financing. The Holder also agrees to deliver the original of this Note (or a notice to the effect that the original Note has been lost, stolen or destroyed and an agreement acceptable to the Borrower whereby the Holder agrees to indemnify the

 
16 #96252355v15 Borrower from any loss incurred by it in connection with this Note) on or promptly following the relevant Financing Closing Date. The Borrower shall, as soon as practicable thereafter (but in any event with five Business Days of the closing of the Qualified Financing), issue and deliver to the Holder a certificate or certificates (or a notice of issuance of uncertificated shares, units or notes, if applicable) for the applicable number of shares, units or notes, principal amount or liquidation preference, as applicable, of the Qualified Securities, in substantially the same form and manner as such Qualified Securities are delivered to investors in the applicable Qualified Financing together with cash, if applicable, in lieu of delivering any fractional share, unit or note in accordance with Section 4.04 (the “Financing Conversion Obligation”). Any conversion of this Note pursuant to Section 4.02(a) shall be deemed to have been made immediately prior to the closing of the Qualified Financing (such date of closing, the “Financing Conversion Date”) and on and after such Financing Conversion Date the Persons entitled to receive the Qualified Securities issuable upon such conversion shall be treated for all purposes as the record holder of such Qualified Securities. (c) In case this Note shall be subject to any partial conversion, the Borrower shall execute and deliver to the Holder a new Note in authorized denominations in an aggregate principal amount equal to the unconverted portion of this Note, without payment of any service charge by the Holder but, if required by the Borrower, 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 Note issued upon such conversion being different from the name of the Holder of the old Note surrendered for such conversion. (d) Except as provided in Section 4.07, no adjustment shall be made for dividends on any shares of Common Stock issued upon the conversion of this Note as provided in this Article 4. (e) Provisions of this Note that apply to conversion of this entire Note also apply to conversion of a portion of this Note. (f) Any Conversion Obligation with respect to this Note shall be computed on the basis of the aggregate principal amount of this Note (or specified portions thereof to the extent permitted thereby) so converted. (g) Notwithstanding anything to the contrary in this Note, the Borrower shall not issue any shares of Common Stock or other Qualified Securities upon conversion of this Note pursuant to Section 4.01 or Section 4.02 if the issuance of such Common Stock or other Qualified Securities, together with any securities issued in connection with any other related transactions that may be considered part of the same series of transactions for purposes of the rules of Nasdaq Stock Market LLC, would exceed the aggregate number of shares of Common Stock or shares, units or notes, as applicable, of other Qualified Securities that the Borrower may issue in a transaction in compliance with the Borrower’s obligations under the rules or regulations of Nasdaq Stock Market LLC (such aggregate number of shares, units or notes, as applicable, the “Conversion Cap”), except

 
17 #96252355v15 that such limitation shall not apply if the Borrower’s stockholders have approved issuances in excess of the Conversion Cap in accordance with the rules of Nasdaq Stock Market LLC. (h) Upon any conversion, simultaneously with the Borrower’s settlement of the applicable Conversion Obligation, the Borrower shall pay to the Holder a cash payment representing accrued and unpaid interest, if any, to, but excluding, the relevant Conversion Date. Section 4.04. Fractional Shares. The Borrower shall not issue any fractional share of Common Stock or any fractional share, unit or note of Qualified Securities upon conversion of this Note and shall instead pay cash in lieu of delivering any fractional share of Common Stock or any fractional share, unit or note of Qualified Securities issuable upon conversion based on the Last Reported Sale Price on the relevant Fixed Conversion Date (in the case of Common Stock deliverable in respect of any Fixed Conversion Obligation) or the purchase price of each share, unit or note of Qualified Securities paid by the investors in the relevant Qualified Financing (in the case of Qualified Securities deliverable in respect of any Financing Conversion Obligation). Section 4.05. Taxes on Conversion. Except as provided in the next sentence, the Borrower shall pay any and all documentary, stamp or similar issue or transfer tax due and duties on the issuance of Common Stock or Qualified Securities upon conversion of this Note pursuant hereto. The Holder shall be liable for and shall be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue and delivery of Common Stock or Qualified Securities in a name other than that of the Holder, and no such issue or delivery shall be made unless the Person requesting such issue has paid to the Borrower the amount of any such tax or duty, or has established to the satisfaction of the Borrower that such tax or duty has been paid. Section 4.06. Certain Covenants. (a) The Borrower covenants that all shares of Common Stock or other Qualified Securities issued upon conversion of this Note shall be (as applicable) newly issued, duly authorized, validly issued, fully paid and non- assessable, enforceable against the Borrower in accordance with their terms, and shall be free from preemptive or similar rights and free from all taxes, liens and charges with respect to the issue thereof. (b) The Borrower covenants that, if any shares of Common Stock or other Qualified Securities to be provided for the purpose of conversion of this Note require registration with or approval of any governmental authority under any federal or state law before such shares of Common Stock or Qualified Securities may be validly issued upon conversion, the Borrower shall, 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 Borrower further covenants that if at any time the Common Stock or other Qualified Securities shall be listed on any national securities exchange or automated quotation system the Borrower will use reasonable best efforts to list and keep listed, so

 
18 #96252355v15 long as the Common Stock or such other Qualified Securities shall be so listed on such exchange or automated quotation system, any Common Stock or Qualified Securities issuable upon conversion of this Note. (d) The Borrower 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 this Note pursuant to Section 4.01 from time to time as this Note is presented for conversion. Section 4.07. Adjustment of Conversion Rate. The Fixed Conversion Rate shall be adjusted from time to time by the Borrower if any of the following events occurs, except that the Borrower shall not make any adjustments to the Fixed Conversion Rate if the Holder participates (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 this Note, in any of the transactions described in this Section 4.07, without having to convert this Note, as if it held a number of shares of Common Stock equal to the Fixed Conversion Rate, multiplied by the principal amount (expressed in thousands) of this Note held by the Holder. (a) If the Borrower issues shares of Common Stock as a dividend or distribution on shares of Common Stock, or effects a share split or share combination of its Common Stock, the Fixed Conversion Rate shall be adjusted based on the following formula: 𝐶𝑅 = 𝐶𝑅 × 𝑂𝑆𝑂𝑆 where, CR0 = the Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such dividend or distribution or immediately prior to the open of business on the effective date of such share split or share combination, as the case may be; CR1 = the Fixed Conversion Rate in effect immediately after the close of business on the Record Date for such dividend or distribution or immediately after the open of business on the effective date of such share split or share combination, as the case may be; OS0 = the number of shares of Common Stock outstanding immediately prior to the close of business on the Record Date for such dividend or distribution or immediately prior to the open of business on the effective date of such share split or share combination, as the case may be (before giving effect to any such dividend, distribution, split or combination); and OS1 = the number of shares of Common Stock outstanding immediately after giving effect to such dividend, distribution, share split or share combination, as the case may be.

 
19 #96252355v15 Any adjustments made pursuant to this Section 4.07(a) shall become effective immediately after (x) the close of business on the Record Date for such dividend or distribution or (y) the open of business on the effective date of such split or combination, as applicable. If any dividend or distribution described in this Section 4.07(a) is declared but not so paid or made, effective as of the date the Board of Directors determines not to pay such dividend or distribution, the new Fixed Conversion Rate shall again be adjusted to the Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared. (b) If the Borrower distributes to all or substantially all holders of Common Stock any rights, options or warrants entitling them to purchase, for a period of not more than 45 days after the announcement date for the distribution, shares of Common Stock at a price per share less than the average of the Last Reported Sale Prices of the Common Stock for the ten consecutive Trading Day period ending on the Trading Day immediately preceding the announcement date for such distribution, the Fixed Conversion Rate shall be adjusted based on the following formula: 𝐶𝑅 = 𝐶𝑅 × 𝑂𝑆 + 𝑋𝑂𝑆 + 𝑌 where, CR0 = the Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such distribution; CR1 = the Fixed Conversion Rate in effect immediately after the close of business on the Record Date for such distribution; OS0 = the number of shares of Common Stock outstanding immediately prior to the close of business on the Record Date for such distribution; 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 ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the announcement date for such distribution. For purposes of this Section 4.07(b), in determining whether any rights, options or warrants entitle the Holder to subscribe for or purchase shares of Common Stock at less than the average of the Last Reported Sale Prices of the Common Stock for the applicable ten consecutive Trading Day period, there shall be taken into account any consideration received by the Borrower for such rights, options or warrants and any amount payable on exercise thereof, with the value of such consideration if other than cash, to be determined by the Board of Directors.

 
20 #96252355v15 Any adjustment made pursuant to this Section 4.07(b) shall be made successively whenever any such rights, options or warrants are distributed and shall become effective immediately after the close of business on the Record Date for such distribution. To the extent that shares of Common Stock are not delivered after the expiration of such rights, options or warrants, the Fixed Conversion Rate shall be decreased to the Fixed 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 distributed, the Fixed Conversion Rate shall be decreased to the Fixed Conversion Rate that would then be in effect if the Record Date for such distribution had not occurred. (c) If the Borrower distributes shares of its Capital Stock, evidences of its indebtedness or other assets or property of the Borrower 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 as to which an adjustment is effected in Section 4.07(a) or Section 4.07(b), (ii) dividends or distributions paid exclusively in cash, as to which the provisions of Section 4.07(d) shall apply, (iii) dividends or distributions that constitute Reference Property following an event described in Section 4.10 and (iv) Spin-Offs to which the provisions set forth below in this Section 4.07(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 Fixed Conversion Rate shall be adjusted based on the following formula: 𝐶𝑅 = 𝐶𝑅 × 𝑆𝑃𝑆𝑃 − 𝐹𝑀𝑉 where, CR0 = the Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such distribution; CR1 = the Fixed Conversion Rate in effect immediately after the close of business on the Record Date for such distribution; SP0 = the average of the Last Reported Sale Prices of the Common Stock over the ten 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 in good faith by the Board of Directors) of Distributed Property with respect to each outstanding share of Common Stock as of the close of business on the Record Date for such distribution. Any adjustment made under the portion of this Section 4.07(c) above shall become effective immediately after the close of business on the Record Date for such

 
21 #96252355v15 distribution. If such distribution is not so paid or made, the Fixed Conversion Rate shall be decreased to the Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared. Notwithstanding the foregoing, if “FMV” as set forth above is equal to or greater than “SP0” as set forth above, in lieu of the foregoing adjustment, the Holder shall receive, in respect of each $1,000 principal amount of this Note, at the same time and upon the same terms as holders of Common Stock receive the Distributed Property, the amount and kind of Distributed Property the Holder would have received if the Holder owned a number of shares of Common Stock equal to the Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for the distribution. If the Board of Directors determines the “FMV” as set forth above of any distribution for purposes of this Section 4.07(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 ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the Ex-Dividend Date for such distribution. With respect to an adjustment pursuant to this Section 4.07(c) where there has been a payment of a dividend or other distribution on the Common Stock of shares of the Capital Stock of any class or series, or similar equity interest, of or relating to a Subsidiary or other business unit that are, or, when issued, will be, listed or admitted for trading on a U.S. national securities exchange (a “Spin-Off”), the Fixed Conversion Rate shall instead be adjusted based on the following formula: 𝐶𝑅 = 𝐶𝑅 × 𝐹𝑀𝑉 +𝑀𝑃𝑀𝑃 where, CR0 = the Fixed Conversion Rate in effect immediately prior to the end of the Valuation Period; CR1 = the Fixed 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 Common Stock applicable to one share of 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 ten consecutive Trading Day period immediately after, and including, the Ex-Dividend Date for such Spin-Off (such period, the “Valuation Period”); and MP0 = the average of the Last Reported Sale Prices of Common Stock over the Valuation Period.

 
22 #96252355v15 Such adjustment shall occur at the close of business on the last Trading Day of the Valuation Period; provided that, for purposes of determining the Fixed Conversion Rate in respect of any conversion during the Valuation Period, references within the previous paragraph to “ten” shall be deemed replaced with such lesser number of Trading Days as have elapsed from, and including, the Ex-Dividend Date of such Spin-Off to, and including, the Conversion Date. If any such dividend or distribution described in the preceding paragraph of this Section 4.07(c) is declared but not paid or made, the new Fixed Conversion Rate shall be readjusted to be the Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared. For purposes of this Section 4.07(c) (and subject in all respect to Section 4.13), rights, options or warrants distributed by the Borrower to all holders of its Common Stock entitling such holders to subscribe for or purchase shares of the Borrower’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 4.07(c) (and no adjustment to the Fixed Conversion Rate under this Section 4.07(c) shall 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 Fixed Conversion Rate shall be made under this Section 4.07(c). If any such right, option or warrant, including any such existing rights, options or warrants distributed prior to the date of this Note, 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 Record 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 Fixed Conversion Rate under this Section 4.07(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 Fixed Conversion Rate shall be readjusted as if such rights, options or warrants had not been issued and (y) the Fixed 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 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 Fixed Conversion Rate shall be readjusted as if such rights, options and warrants had not been issued.

 
23 #96252355v15 For purposes of Section 4.07(a), Section 4.07(b) and this Section 4.07(c), if any dividend or distribution to which this Section 4.07(c) is applicable also includes one or both of: (A) a dividend or distribution of shares of Common Stock to which Section 4.07(a) is applicable (the “Clause A Distribution”); or (B) a dividend or distribution of rights, options or warrants to which Section 4.07(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 4.07(c) is applicable (the “Clause C Distribution”) and any Fixed Conversion Rate adjustment required by this Section 4.07(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 Fixed Conversion Rate adjustment required by Section 4.07(a) and Section 4.07(b) with respect thereto shall then be made, except that, if determined by the Borrower (I) the “Record Date” of the Clause A Distribution and the Clause B Distribution shall be deemed to be the Record 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 close of business on the Record Date for such dividend or distribution or immediately prior to the open of business on the effective date of such share split or share combination, as the case may be” within the meaning of Section 4.07(a) or “outstanding immediately prior to the close of business on the Record Date for such distribution” within the meaning of Section 4.07(b). (d) If any cash dividend or cash distribution is made to all or substantially all holders of Common Stock, the Fixed Conversion Rate shall be adjusted based on the following formula: 𝐶𝑅 = 𝐶𝑅 × 𝑆𝑃𝑆𝑃 − 𝐶 where, CR0 = the Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such dividend or distribution; CR1 = the Fixed Conversion Rate in effect immediately after the close of business on the Record Date for such dividend or distribution; SP0 = the Last Reported Sale Price of the Common Stock on the Trading Day immediately preceding the Ex-Dividend Date for such dividend or distribution; and C = the amount in cash per share of Common Stock the Borrower distributes to holders of Common Stock.

 
24 #96252355v15 An adjustment to the Fixed Conversion Rate made pursuant to this Section 4.07(d) shall become effective immediately after the close of business on the Record Date for the applicable dividend or distribution. If any dividend or distribution described in this Section 4.07(d) is declared but not so paid or made, the new Fixed Conversion Rate shall be readjusted, effective as of the date the Board of Directors determines not to make or pay such dividend or distribution, to the Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared. Notwithstanding the foregoing, if “C” as set forth above is equal to or greater than “SP0” as set forth above, in lieu of the foregoing adjustment, the Holder shall receive, for each $1,000 principal amount of this Note, at the same time and upon the same terms as holders of shares of Common Stock, the amount of cash that the Holder would have received if the Holder owned a number of shares of Common Stock equal to the Fixed Conversion Rate in effect on the Record Date for such cash dividend or distribution. (e) If the Borrower or any of its Subsidiaries makes a payment in respect of a tender or exchange offer for Common Stock, to the extent that the cash and value of any other consideration included in the payment per share of Common Stock exceeds 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 last date on which tenders or exchanges may be made pursuant to such tender or exchange offer (the “Expiration Date”), the Fixed Conversion Rate shall be adjusted based on the following formula: 𝐶𝑅 = 𝐶𝑅 × 𝐴𝐶 + (𝑆𝑃 × 𝑂𝑆 )𝑂𝑆 × 𝑆𝑃 where, CR0 = the Fixed 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 Expiration Date; CR1 = the Fixed 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) paid or payable for shares of Common Stock purchased in such tender offer or exchange offer; OS0 = the number of shares of Common Stock outstanding immediately prior to time (the “Expiration Time”) such tender or exchange offer expires (prior to giving effect to the purchase of all shares of Common Stock accepted for purchase or exchange in such tender offer or exchange offer); OS1 = the number of shares of Common Stock outstanding immediately after the Expiration Time (after giving effect to the purchase of all shares of

 
25 #96252355v15 Common Stock accepted for purchase or exchange in such tender offer or exchange offer); and SP1 = the average of the Last Reported Sale Prices of the Common Stock over the ten (10) consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the Expiration Date. The adjustment to the Fixed Conversion Rate under this Section 4.07(e) shall become effective immediately following the close of business on the 10th Trading Day immediately following, and including, the Trading Day next succeeding the Expiration Date; provided that in respect of any conversion of this Note, if the relevant Conversion Date occurs during the 10 Trading Days immediately following, and including, the Trading Day next succeeding the Expiration Date, references to “10” or “10th” in the preceding paragraph shall be deemed replaced with such lesser number of Trading Days as have elapsed from, and including, the Trading Day next succeeding the Expiration Date to, and including, the Conversion Date in determining the Fixed Conversion Rate. (f) For purposes of this Section 4.07, the number of shares of Common Stock at any time outstanding shall not include shares of Common Stock held in the treasury of the Borrower so long as the Borrower does not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Borrower, but shall include shares of Common Stock issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. (g) All calculations under this Article 4 shall be made to the nearest cent or to the nearest 1/10,000th of a share, unit or note. (h) If the application of the foregoing formulas in Section 4.07 would result in a decrease in the Fixed Conversion Rate, no adjustment to the Fixed Conversion Rate shall be made (except on account of share combinations). (i) Notwithstanding anything to the contrary in this Section 4.07, the Fixed 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 securities of the Borrower 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 shares of Common Stock pursuant to any present or future employee, director or consultant benefit plan or program or employee stock purchase plan of, or assumed by, the Borrower or any of its Subsidiaries; (iii) upon the issuance of any shares of Common Stock pursuant to any option, warrant, right, or exercisable, exchangeable or convertible security not described in clause (ii) above and outstanding as of the Issue Date;

 
26 #96252355v15 (iv) upon the issuance of Rights under a Rights Plan unless, prior to conversion, the Rights issued under such Rights Plan have separated from the Common Stock; (v) for a change in the par value of the Common Stock; (vi) for accrued and unpaid interest; or (vii) solely on account of the purchase price, exchange price or conversion price in any Qualified Financing or Non-Qualified Financing being less than $1,000 divided by the Fixed Conversion Rate. Section 4.08. Notice of Adjustment. Whenever the Fixed Conversion Rate is required to be adjusted pursuant to this Note, the Borrower shall promptly deliver to the Holder a notice of the adjustment, briefly stating the facts requiring the adjustment, the adjusted Fixed Conversion Rate and the manner of computing it. Failure to deliver such notice or any defect therein shall not affect the validity of any such adjustment. Section 4.09. Notice of Certain Transactions. In the event that there is a dissolution or liquidation of the Borrower, the Borrower shall deliver to the Holder and provide to the Holder a written notice stating the proposed effective date. The Borrower shall deliver such notice at least 20 days before such proposed effective date. Failure to deliver such notice or any defect therein shall not affect the validity of any transaction referred to in this Section 4.09. Section 4.10. Effect of Reclassification, Consolidation, Merger or Sale On Conversion Privilege. (a) If any of the following events occur: (i) any recapitalization, reclassification or change of the outstanding shares of Common Stock (other than changes resulting from a subdivision or combination); (ii) any consolidation, merger, combination or similar transaction involving the Borrower; (iii) any sale, conveyance, lease or other transfer to any third party of all or substantially all of the consolidated property and assets of the Borrower and its Subsidiaries; 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 “Merger Event”), then, at and after the effective time of such Merger Event, the right of the Holder to convert each $1,000 principal amount of this Note pursuant to Section 4.01(a) shall be changed into a right of the

 
27 #96252355v15 Holder to convert such principal amount of this Note 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 Fixed Conversion Rate immediately prior to such Merger 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 Merger Event and, prior to or at the effective time of such Merger Event, this Note shall be deemed to provide for such change in the convertibility of this Note, including anti-dilution and other adjustments that shall be as nearly equivalent as is possible to the adjustments provided for in this Article 4, and the Borrower or the successor or purchasing Person, as the case may be, shall execute a supplement to this Note at such time to evidence the foregoing; provided, however, that at and after the effective time of the Merger Event the number of shares of Common Stock otherwise deliverable upon conversion of this Note pursuant to Section 4.03(a) 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 received in such Merger Event. If the Merger 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 shareholder election), then (i) the Reference Property into which this Note 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 Merger Event, then for all conversions pursuant to Section 4.01(a) for which the relevant Fixed Conversion Date occurs after the effective date of such Merger Event (A) the consideration due upon conversion of each $1,000 principal amount of this Note shall be solely cash in an amount equal to the Fixed Conversion Rate in effect on the Fixed Conversion Date, multiplied by the price paid per share of Common Stock in such Merger Event and (B) the Borrower shall satisfy the Fixed Conversion Obligation by paying cash to the converting Holder on the second Business Day immediately following the relevant Fixed Conversion Date. The Borrower shall notify the Holder of such weighted average as soon as practicable after such determination is made but in no event later than the third (3rd) Business Day following the effective date of the Merger Event. If, in the case of any Merger Event, the Reference Property includes shares of stock, securities or other property or assets (including cash or any combination thereof) of a Person other than the successor or purchasing corporation, as the case may be, in such Merger Event, then an assumption of this Note shall also be executed by such other Person and shall contain such additional provisions to protect the interests of the Holder 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 9. (b) When this Note is modified or amended pursuant to subsection (a) of this Section 4.10, the Borrower shall promptly provide to the Holder a notice briefly stating

 
28 #96252355v15 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 Merger Event, any adjustment to be made with respect thereto and that all conditions precedent have been complied with. Failure to deliver such notice shall not affect the legality or validity of such modification or amendment to this Note. (c) The Borrower shall not become a party to any Merger Event unless its terms are consistent with this Section 4.10. None of the foregoing provisions shall affect the right of the Holder to convert this Note into shares of Common Stock pursuant to Section 4.01(a) prior to the effective date of such Merger Event. (d) The above provisions of this Section 4.10 shall similarly apply to successive Merger Events. Section 4.11. Voluntary Increase; Nasdaq Compliance. The Borrower from time to time may increase the Fixed Conversion Rate, to the extent permitted by law and subject to any applicable shareholder approval requirements pursuant to the listing standards of The Nasdaq Global Market or such other United States securities exchange on which the Common Stock is traded, by any amount for any period of at least 20 days, if the Board of Directors determines that such increase shall be in the Borrower’s best interests. The Borrower may (but is not required to) make such increase in the Fixed Conversion Rate as the Board of Directors deems advisable to avoid or diminish any income tax to holders of Common Stock resulting from a dividend or distribution of stock, or rights to acquire stock, or similar event. The Borrower shall provide at least 15 days’ written notice to the Holder of any increase under this Section 4.11, and such notice shall state the increased Fixed Conversion Rate and the period during which it will be in effect. Section 4.12. Adjustments of Prices. Whenever any provision of this Note requires the Borrower to calculate the Last Reported Sale Prices over a span of multiple days, the Borrower will make appropriate adjustments to the Last Reported Sale Prices to account for any adjustment to the Fixed Conversion Rate that becomes effective, or any event requiring an adjustment to the Fixed Conversion Rate where the Ex-Dividend Date, Record Date, effective date or expiration date of the event occurs at any time during the period when the Last Reported Sale Prices are to be calculated. The Borrower will provide a schedule of its calculations the Holder. Section 4.13. Rights Plan. To the extent that the Borrower has a Rights Plan in effect upon conversion of this Note into Common Stock, the Holder shall receive upon conversion of this Note, the Rights under the Rights Plan, unless prior to conversion, the Rights have separated from the Common Stock, in which case, and only in such case, the Fixed Conversion Rate shall be adjusted at the time of separation as if the Borrower distributed to all or substantially all holders of Common Stock Distributed Property as described in Section 4.07(c) above, subject to readjustment in the event of the expiration, termination or redemption of such Rights.

 
29 #96252355v15 ARTICLE 5 INTENTIONALLY OMITTED ARTICLE 6 DEFAULT AND REMEDIES Section 6.01. Events of Default. The occurrence of any one or more of the following events shall constitute an event of default (hereinafter “Event of Default”) under this Note: (a) the Borrower fails to pay when due the principal of this Note at the Maturity Date, upon Optional Redemption, upon exercise of a repurchase right hereunder or otherwise; (b) the Borrower fails to pay an installment of interest on this Note for 30 days or more after the date when due; (c) the Borrower fails to deliver consideration due in respect of its Conversion Obligation upon conversion of this Note within the time periods specified in Section 4.03, and such failure continues for a period of three Business Days; (d) the Borrower fails to provide a Fundamental Change Borrower Notice when due in accordance with Section 9.01 or a notice pursuant to Section 4.02(b) when due, and in either case such failure continues for a period of four Business Days; (e) the Borrower fails to comply with its obligations under Section 7.01; (f) the Borrower fails to perform or observe any other term, covenant or agreement contained in this Note for a period of 60 days after written notice of such failure, requiring the Borrower to remedy the same, shall have been given to the Borrower by the Holder; (g) default by the Borrower or any Subsidiary of the Borrower 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 borrowed money in excess of $1,000,000 in the aggregate of the Borrower and/or any such Subsidiary, whether such indebtedness now exists or shall hereafter be created (i) resulting in such indebtedness becoming or being declared due and payable, (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 or (iii) otherwise, which such default is not cured or remedied within the time prescribed by its governing documents or if no time is prescribed within twenty (20) Business Days; (h) a final judgment or judgments for the payment of $1,000,000 (or its foreign currency equivalent) or more (excluding any amounts covered by insurance) in the aggregate rendered against the Borrower or any Subsidiary of the Borrower, which judgment is not discharged, bonded, paid, waived or stayed within 60 days after (i) the

 
30 #96252355v15 date on which the right to appeal thereof has expired if no such appeal has commenced, or (ii) the date on which all rights to appeal have been extinguished; (i) an involuntary case or other proceeding shall be commenced against the Borrower, any Guarantor or any Significant Subsidiary (or any group of the Borrower’s Subsidiaries that, taken together, would constitute a Significant Subsidiary) seeking liquidation, reorganization or other relief with respect to the Borrower, such Guarantor or any Significant Subsidiary (or any group of the Borrower’s Subsidiaries that, taken together, would constitute a 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 Borrower, such Guarantor or any Significant Subsidiary (or any group of the Borrower’s Subsidiaries that, taken together, would constitute a 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 30 consecutive days; (j) the Borrower, any Guarantor or any Significant Subsidiary (or any group of the Borrower’s Subsidiaries that, taken together, would constitute a Significant Subsidiary) pursuant to or within the meaning of any Bankruptcy Law: (i) commences as a debtor a voluntary case or proceeding; (ii) consents to the entry of an order for relief against it in an involuntary case or proceeding or the commencement of any case against it; (iii) consents to the appointment of a Receiver of it or for all or substantially all of its property; (iv) makes a general assignment for the benefit of its creditors; (v) files a petition in bankruptcy or answer or consent seeking reorganization or relief; or (vi) consents to the filing of such a petition or the appointment of or taking possession by a Receiver; (k) a Termination of Trading shall have occurred; or (l) except as permitted in this Note, any Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect, or any Guarantor, or any Person acting on its behalf, shall deny or disaffirm its obligations under its Guarantee. The term “Bankruptcy Law” means Title 11 of the United States Code (or any successor thereto) or any similar federal or state law for the relief of debtors. The term “Receiver” means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law.

 
31 #96252355v15 Section 6.02. Acceleration of Maturity; Rescission and Annulment. If an Event of Default with respect to the portion of this Note that is Outstanding (other than an Event of Default specified in Section 6.01(i) or Section 6.01(j) hereof in respect of the Borrower or any Guarantor) occurs and is continuing, the Holder may declare the portion of this Note that is Outstanding due and payable at its principal amount plus any accrued and unpaid interest, and thereupon the Holder may, at its discretion, proceed to protect and enforce its rights by the appropriate judicial proceedings. Such declaration may be rescinded and annulled by the written consent of the Holder. If an Event of Default specified in Section 6.01(i) or Section 6.01(j) hereof in respect of the Borrower or any Guarantor occurs and is continuing, then all unpaid principal of, and accrued and unpaid interest on, the portion of this Note that is Outstanding shall become immediately due and payable, without any declaration or other act on the part of the Holder. The Holder may rescind and annul an acceleration and its consequences if: (a) all existing Events of Default, other than the nonpayment of principal (including the Fundamental Change Repurchase Price or the Redemption Price, if applicable) of or interest on this Note which has become due solely because of the acceleration, have been remedied, cured or waived; and (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; provided, however, that in the event such declaration of acceleration has been made based on the existence of an Event of Default under Section 6.01(g) hereof and such Event of Default has been remedied, cured or waived in accordance with Section 6.01(g) hereof, then, without any further action by the Holder, such declaration of acceleration shall be rescinded automatically and the consequences of such declaration shall be annulled. No such rescission or annulment shall affect any subsequent Default or impair any right consequent thereon. Section 6.03. Other Remedies. If an Event of Default with respect to the portion of this Note that is Outstanding occurs and is continuing, the Holder may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, or interest on, this Note or to enforce the performance of any provision of this Note. Section 6.04. Waiver of Past Defaults. The Holder may waive an existing Default or Event of Default. Upon any such waiver, 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 Note; provided, however, that no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon Section 6.05. Unconditional Right of Holder to Receive Payment and to Convert. Notwithstanding any other provision in this Note, the Holder of this Note shall have the right, which is absolute and unconditional, to receive payment of the principal amount (including the Fundamental Change Repurchase Price and the Redemption Price, if

 
32 #96252355v15 applicable) and interest in respect of this Note, on or after the respective due dates expressed in this Note, and to convert this Note in accordance with Article 4, and to bring suit for the enforcement of any such payment on or after such respective due dates or for the right to convert in accordance with Article 4, and shall not be impaired or affected without the consent of the Holder. Section 6.06. Restoration of Rights and Remedies. If the Holder has instituted any proceeding to enforce any right or remedy under this Note and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Holder, then and in every such case, subject to any determination in such proceeding, the Borrower and the Holder shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Holder shall continue as though no such proceeding had been instituted. Section 6.07. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of a mutilated, destroyed, lost or stolen Note in Section 12.13, no right or remedy conferred in this Note upon or reserved to the Holder of this Note is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 6.08. Delay or Omission Not Waiver. No delay or omission of the Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or any acquiescence therein. Every right and remedy given by this Article 6 or by law to the Holder may be exercised from time to time, and as often as may be deemed expedient, by the Holder. Section 6.09. Waiver of Stay or Extension Laws. The Borrower covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim to take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Note; and the Borrower (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Holder, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 7 CONSOLIDATIONS; MERGER; CONVEYANCE; TRANSFER OR LEASE Section 7.01. Consolidations; Merger; Conveyance; Transfer or Lease. (a) The Borrower may not, without the consent of the Holder, consolidate with, merge into or convey, transfer or lease all or substantially all of the property and assets of

 
33 #96252355v15 the Borrower and its Subsidiaries, taken as a whole, to another Person (other than a transfer of all or substantially all of the assets of the Borrower and its Subsidiaries, taken as a whole, to one or more direct or indirect wholly-owned Subsidiaries) (a “Business Combination Event”) unless: (i) the resulting, surviving or transferee Person either (1) is the Borrower or (2) if not the Borrower, is a Qualified Successor Entity (such Qualified Successor Entity, the “Successor Entity”) organized and existing under the laws of the United States of America or any State thereof or the District of Columbia that expressly assumes, by an assignment and assumption agreement, executed and delivered to the Holder, in form reasonably satisfactory to the Holder, the obligations of the Borrower under this Note; and (ii) at the time of, and after giving effect to, such Business Combination Event, no Default or Event of Default shall have occurred and be continuing. Section 7.02. Successor Substituted. At the effective time of any Business Combination Event that complies with Section 7.01, the Successor Entity (if not the Borrower) shall succeed to, and be substituted for, and may exercise every right and power of, Borrower under this Note with the same effect as if such successor Person had been named as the Borrower herein, and thereafter, except in the case of a lease, and except for obligations the predecessor Person may have under an assignment and assumption agreement, the predecessor Person shall be relieved of all obligations and covenants under the this Note. ARTICLE 8 TAX TREATMENT Section 8.01. Tax Treatment. Each of the Borrower and the Holder agree to treat this Note as equity for U.S. federal and other applicable income tax purposes and to perform all tax reporting, withholding and other tax compliance in manner consistent with such treatment unless otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code. ARTICLE 9 REPURCHASE OF NOTE UPON A FUNDAMENTAL CHANGE Section 9.01. Repurchase of Note at Option of the Holder Upon a Fundamental Change. (a) If a Fundamental Change occurs prior to the Maturity Date, the Holder shall have the right, at the option of the Holder, to require the Borrower to repurchase all or any portion of this Note at the Fundamental Change Repurchase Price, on the date specified by the Borrower that is not less than twenty (20) days and not more than thirty- five (35) days after the date of the Fundamental Change Borrower Notice pursuant to Section 9.01(b) (the “Fundamental Change Repurchase Date”). The Holder may

 
34 #96252355v15 require the Borrower to repurchase fewer than all of the entire principal amount of this Note only if the principal amount of this Note to be repurchased is an integral multiple of $1,000. (b) Notwithstanding the foregoing, this Note may not be repurchased by the Borrower on any date at the option of the Holders upon a Fundamental Change if the principal amount of this Note 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 Borrower in the payment of the Fundamental Change Repurchase Price with respect to this Note). (c) On or before the 15th day after the Fundamental Change Effective Date, the Borrower shall deliver a written notice of the occurrence of the Fundamental Change, and of the repurchase right arising therefrom, to the Holder at the notice address in Section 12.01 (the “Fundamental Change Borrower Notice”). The Fundamental Change Borrower Notice shall set forth the Holder’s right to require the Borrower to purchase this Note and specify: (i) the events causing such Fundamental Change; (ii) the Fundamental Change Effective Date; (iii) the last date by which the Fundamental Change Repurchase Notice must be delivered to elect the repurchase option pursuant to this Section 9.01; (iv) the Fundamental Change Repurchase Price; (v) the Fundamental Change Repurchase Date; (vi) that if a Fundamental Change Repurchase Notice has been delivered by a Holder, this Note may be converted only if the Holder withdraws the Fundamental Change Repurchase Notice in accordance with the terms of this Note; and (vii) the procedures that the Holder must follow to require the Borrower to repurchase this Note under this Section 9.01. No failure of the Borrower to give the foregoing notices or defect therein shall limit the Holder’s right to exercise its right to cause the Borrower to repurchase this Note pursuant to this Section 9.01. (d) Repurchases of the principal of this Note under this Article 9 shall be made upon delivery to the Borrower by the Holder of a duly completed notice (the “Fundamental Change Repurchase Notice”) in the form set forth in the Form of Fundamental Change Repurchase Notice in Attachment 2 to this Note before the close of business on the Business Day immediately preceding the Fundamental Change Repurchase Date.

 
35 #96252355v15 Each Fundamental Change Repurchase Notice shall state: (i) the portion of the principal amount of this Note to be repurchased, which must be $1,000 or an integral multiple thereof (provided that any portion of this Note not to be repurchased is in the minimum principal amount of $1,000); and (ii) that this Note is to be repurchased by the Borrower pursuant to the applicable provisions of this Note. Notwithstanding anything herein to the contrary, the Holder 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 Borrower in accordance with Section 9.02. Section 9.02. 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 Borrower in accordance with this Section 9.02 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 this Note with respect to which such notice of withdrawal is being submitted; and (ii) the principal amount, if any, of this 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 (provided that any portion of this Note not to be repurchased is in the minimum principal amount of $1,000). Section 9.03. Note Repurchased In Part. Upon surrender of the portion of this Note that is to be repurchased only in part in accordance with Section 9.01, and promptly after the Fundamental Change Repurchase Date, the Borrower shall execute and deliver to the Holder, without service charge, a new Note, of such authorized denomination or denominations as may be requested by the Holder (which must be an integral multiple of $1,000 and which must be at least $1,000), in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of this Note so surrendered that is not repurchased. Section 9.04. Payment of Fundamental Change Repurchase Price. The Borrower shall pay the Fundamental Change Repurchase Price for this Note (or the applicable portion thereof) surrendered for repurchase (and not validly withdrawn prior to the close of business on the Business Day immediately preceding the Fundamental Change Repurchase Date) on the later of (i) the Fundamental Change Repurchase Date and (ii) the time of the delivery of this Note to the Borrower by the Holder.

 
36 #96252355v15 Section 9.05. Covenant to Comply with Applicable Laws Upon Repurchase of Note. In connection with any repurchase offer pursuant to this Article 9, the Borrower shall, if required: (a) comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act; (b) file a Schedule TO or any successor or similar schedule; and (c) otherwise comply with all federal and state securities laws in connection with any offer by the Borrower to repurchase this Note; in each case, so as to permit the rights and obligations under this Article 9 to be exercised in the time and in the manner specified in this Article 9. ARTICLE 10 REDEMPTION Section 10.01. Optional Redemption. The Borrower may redeem (an “Optional Redemption”) for cash all or any portion of this Note at the Redemption Price. Section 10.02. Notice of Optional Redemption. (a) In case the Borrower exercises its Optional Redemption right to redeem all or any part of this Note pursuant to Section 10.01, it shall fix a date for redemption (each, a “Redemption Date”) and it shall deliver or cause to be delivered a notice of such Optional Redemption (a “Redemption Notice”) not less than 20 nor more than 60 calendar days prior to the Redemption Date to the Holder. The Redemption Date must be a Business Day. (b) Each Redemption Notice shall specify: (i) the Redemption Date; (ii) the Redemption Price; (iii) that on the Redemption Date, the Redemption Price will become due and payable upon this Note to be redeemed, and that interest thereon, if any, shall cease to accrue on and after the Redemption Date; (iv) that the Holder may surrender this Note for conversion at the Fixed Conversion Rate at any time prior to the close of business on the Business Day immediately preceding the Redemption Date; (v) the procedures the Holder must follow to convert this Note; (vi) the Fixed Conversion Rate;

 
37 #96252355v15 (vii) in case this Note is to be redeemed in part only, the portion of the principal amount thereof to be redeemed and on and after the Redemption Date, upon surrender of this Note, a new Note in principal amount equal to the unredeemed portion thereof shall be issued. A Redemption Notice shall be irrevocable. Section 10.03. Payment of Redemption Price. If any Notice of Redemption has been given in respect of this Note in accordance with Section 10.02, this Note (or the applicable portion thereof) shall become due and payable on the Redemption Date at the applicable Redemption Price. On presentation and surrender of this Note to the Borrower, this Note (or the applicable portion thereof) shall be paid and redeemed by the Borrower at the applicable Redemption Price. Section 10.04. Note Redeemed in Part. Upon surrender of the portion of this Note that is to be redeemed only in part in accordance with Section 10.01, and promptly after the Redemption Date, the Borrower shall execute and deliver to the Holder, without service charge, a new Note, of such authorized denomination or denominations as may be requested by the Holder (which must be an integral multiple of $1,000 and which must be at least $1,000), in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of this Note so surrendered that is not redeemed. Section 10.05. Restrictions on Redemption. The Borrower may not redeem any portion of this Note on any date if the principal amount of this Note has been accelerated in accordance with the terms of this Note, and such acceleration has not been rescinded, on or prior to the Redemption Date (except in the case of an acceleration resulting from a Default by the Borrower in the payment of the Redemption Price with respect to this Note). ARTICLE 11 GUARANTEE Section 11.01. Subsidiary Guarantees. (a) Subject to this Article 11, each Guarantor hereby, jointly and severally, unconditionally guarantees to the Holder, irrespective of the validity and enforceability of this Note or the obligations of the Borrower hereunder, that: (i) the principal of (including the Fundamental Change Repurchase Price or the Redemption Price, if applicable) and interest on, this Note, and the payment and, if applicable, delivery of any consideration due upon conversion of this Note, shall be promptly paid and, if applicable, delivered in full when due under this Note, whether at maturity, by acceleration, upon repurchase, upon redemption, upon conversion or otherwise, and interest on the overdue principal of (including the Fundamental Change Repurchase Price or the Redemption Price, if applicable) and interest on this Note, if any, if lawful, and all other payment and, if applicable, delivery obligations of the Borrower to the Holder hereunder

 
38 #96252355v15 shall be promptly paid and, if applicable, delivered in full or performed, all in accordance with the terms hereof; and (ii) in case of any extension of time of payment or, if applicable, delivery or renewal of this Note or any of such other obligations, that same shall be promptly paid and, if applicable, delivered in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration, upon redemption, upon conversion or otherwise. Failing payment or, if applicable, delivery when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay and, if applicable, deliver the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. (b) The Guarantors hereby agree that their obligations hereunder are unconditional, irrespective of the validity, regularity or enforceability of this Note, the absence of any action to enforce the same, any waiver or consent by the Holder with respect to any provisions hereof, the recovery of any judgment against the Borrower, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Borrower, any right to require a proceeding first against the Borrower, protest, notice and all demands whatsoever and covenant that this Guarantee shall not be discharged except by complete performance of the obligations contained in this Note or upon the release of such Guarantee pursuant to Section 11.06. (c) If the Holder is required by any court or otherwise to return to the Borrower, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Borrower or the Guarantors, any amount paid or, if applicable, delivered by the Borrower or the Guarantors to the Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (d) Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holder in respect of any obligations guaranteed hereby until payment and, if applicable, delivery in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holder, on the other hand, (1) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (2) in the event of any declaration of acceleration of such obligations as provided in Article 6, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of Guarantees. The Guarantors shall have the right to seek contribution from any non- paying or, if applicable, non-delivering Guarantor so long as the exercise of such right does not impair the rights of the Holder under the Guarantees.

 
39 #96252355v15 Section 11.02. Limitation on Guarantor Liability. Each Guarantor, and by its acceptance of this Note, the Holder, hereby confirms that it is the intention of all such parties that the Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Title 11, U.S. Code or any similar federal or state law for the relief of debtors, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to such Guarantee. To effectuate the foregoing intention, the Holder and each Guarantor hereby irrevocably agree that the obligations of such Guarantor shall be limited to the maximum amount that shall, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments and, if applicable, deliveries made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent transfer or conveyance. Section 11.03. Execution and Delivery of Guarantee. Each Guarantor hereby agrees that its Guarantee set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on this Note a notation of such Guarantee. Section 11.04. Consolidations; Merger; Conveyance; Transfer or Lease by Guarantors. Each Guarantor may not, without the consent of the Holder, consolidate with, merge into or convey, transfer or lease all or substantially all of the property and assets of such Guarantor and its Subsidiaries, taken as a whole, to another Person (other than a transfer of all or substantially all of the assets of such Guarantor and its Subsidiaries, taken as a whole, to the Borrower or one or more direct or indirect Wholly Owned Subsidiaries of the Borrower) (a “Guarantor Business Combination Event”) unless: (i) the resulting, surviving or transferee Person (the “Successor Guarantor”) either (1) is such Guarantor or (2) if not such Guarantor, is organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and is treated as the same type of entity for U.S. federal income tax purposes as such Guarantor and expressly assumes, by an assignment and assumption agreement, executed and delivered to the Holder, in form reasonably satisfactory to the Holder, the obligations of such Guarantor under its Guarantee; and (ii) at the time of, and after giving effect to, such Guarantor Business Combination Event, no Default or Event of Default shall have occurred and be continuing. Section 11.05. Successor Guarantor Substituted. At the effective time of any Guarantor Business Combination Event that complies with Section 11.04 the Successor Guarantor (if not the Guarantor) shall succeed to, and be substituted for, and may exercise every right and power of, such Guarantor under this Note with the same effect as if such successor Person had been named as a Guarantor herein, and thereafter, except in the case of a lease, and except for obligations the predecessor Person may have under an

 
40 #96252355v15 assignment and assumption agreement, the predecessor Person shall be relieved of all obligations and covenants under the this Note. Section 11.06. Releases. The Guarantee of any Guarantor will be automatically released: (a) in connection with any sale, conveyance or transfer of all or substantially all of the consolidated properties and assets of such Guarantor and its Subsidiaries, taken as a whole (including by way of consolidation or merger) (other than to the Borrower or one or more direct or indirect Wholly Owned Subsidiaries of the Borrower) in compliance with Section 11.04; (b) in connection with any sale, disposition or transfer of all of the Capital Stock of such Guarantor to a Person (other than to the Borrower or one or more direct or indirect Wholly Owned Subsidiaries of the Borrower); or (c) upon satisfaction and discharge of this Note. ARTICLE 12 MISCELLANEOUS Section 12.01. Notices. All notices and other communications given or made pursuant to this Note shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or refusal, when given by (a) personal delivery to the party to be notified, (b) electronic mail or facsimile during normal business hours of the recipient, with verification of receipt, and if not sent during normal business hours, then on the recipient’s next Business Day, (c) registered or certified mail, return receipt requested, postage prepaid, or (d) nationally recognized overnight courier, freight prepaid, specifying next Business Day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the addresses set forth below: If to the Holder: Virgin Investments Limited Craigmuir Chambers Road Town, Tortola VG 1110 British Virgin Islands Email: vghl@harneys.com Tel: 1-284-494-2233 w/ copy to: Virgin Management USA, Inc. 65 Bleecker St., 6th Floor New York, NY 10012 Attn: General Counsel

 
41 #96252355v15 Email: james.cahillane@virgin.com Tel: 212-497-9098 If to the Borrower or to any Guarantor: Virgin Orbit Holdings, Inc. 4022 E. Conant Street Long Beach, CA 90808 Telephone: (562) 708-0026 Attention: Chief Financial Officer E-Mail: brita.o’rear@virginorbit.com with a copy (which shall not constitute notice) to: Derrick Boston, Chief Legal Officer Virgin Orbit Holdings, Inc. 4022 E. Conant Street Long Beach, CA 90808 Telephone: (562) 706-7108 E-Mail: derrick.boston@virginorbit.com Latham & Watkins LLP 650 Town Center Drive, 20th Floor Costa Mesa, CA 92626-1925 Telephone: (714) 755-8008 Attention: Drew Capurro Email: Drew.Capurro@lw.com Any party may change the address for notices by providing written notice to the party in accordance with this Section 12.01. Any notice sent by electronic mail shall only be valid if an original of such notice was subsequently received by the notified party, in which case such notice shall be deemed received at such time specified above. Any such notice may be given on behalf of a party hereto by such party’s counsel, or by any other person authorized in writing by such party. Section 12.02. Counterparts. This Note may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. Section 12.03. GOVERNING LAW; Jurisdiction. THIS NOTE (INCLUDING, FOR THE AVOIDANCE OF DOUBT, THE GUARANTEES INCLUDED HEREIN) AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR

 
42 #96252355v15 RELATED TO THIS NOTE (INCLUDING, FOR THE AVOIDANCE OF DOUBT, THE GUARANTEES INCLUDED HEREIN), SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PROVISIONS THEREOF TO THE EXTENT THAT SUCH PROVISIONS WOULD RESULT IN THE SELECTION OF THE LAW OF A DIFFERENT JURISDICTION AS THE GOVERNING LAW OF THIS NOTE. The Borrower and each Guarantor irrevocably consents and agrees, for the benefit of the Holder from time to time of this Note, 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 Note (including, for the avoidance of doubt, the Guarantees included herein) 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 this Note 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 Borrower and each Guarantor 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 Note (including, for the avoidance of doubt, the Guarantees included herein) 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 12.04. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, EACH GUARANTOR AND THE HOLDER 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 NOTE (INCLUDING, FOR THE AVOIDANCE OF DOUBT, THE GUARANTEES INCLUDED HEREIN). Section 12.05. Legal Holidays. In any case where any Interest Payment Date, Fundamental Change Repurchase Date, Conversion Date or 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 for the period from and after such date. Section 12.06. No Security Interest Created. Nothing in this Note, 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

 
43 #96252355v15 Section 12.07. Benefits of Note. Nothing in this Note, expressed or implied, shall give to any Person, other than the parties hereto, any benefit or any legal or equitable right, remedy or claim under this Note. Section 12.08. Headings. The headings of the sections of this Note are inserted for convenience only and shall not be deemed to constitute a part hereof. Section 12.09. Successors and Assigns. Subject to the limitations contained herein, this Note shall be binding upon the Borrower, and its respective successors and assigns (including by merger, consolidation, amalgamation or otherwise), and shall inure to the benefit of the Holder, and its designees, successors and assigns. This Note may not be assigned by the Borrower without the prior written consent of the Holder. Section 12.10. Registered Form. This Note is registered with respect to principal and interest and any transfer of this Note may be effected only by the surrender of this Note to the Borrower and either the reissuance of this Note by the Borrower and/or the issuance of a new Note by the Borrower to the transferee. Section 12.11. Amendment; Waiver. The terms and conditions of this Note shall not be amended, changed, terminated or waived except by a writing, duly executed by the Borrower and the Majority Holders. Upon the effectuation of such amendment, change, termination or waiver with the consent of the Majority Holders in conformance with this Section 12.11, such amendment, change, termination or waiver shall be effective as to, and binding against the Holder of this Note and the holders of all of the Senior Unsecured Convertible Notes issued pursuant to the Subscription Agreement. The Borrower shall promptly give written notice of any such amendment, change, termination or waiver to the Holder if the Holder has not previously consented to such amendment, change, termination or waiver in writing; provided that the failure to give such notice shall not affect the validity of such amendment, change, termination or waiver. Notwithstanding the foregoing (a) if any amendment, change, termination or waiver materially and adversely treats one or more holders of the Senior Unsecured Convertible Notes issued pursuant to the Subscription Agreement in a manner that is disproportionate to such treatment of all other holders, such amendment, change, termination or waiver shall also require the written consent of holders disproportionately treated and (b) no such amendment, change, termination or waiver shall (i) make any change to this Section 12.11, (ii) reduce the amount of Senior Unsecured Convertible Notes whose holders must consent to an amendment, change, termination or waiver, (iii) reduce the rate of or extend the stated time for payment of interest on this Note, (iv) reduce the principal of or extend the Maturity Date of this Note, (v) make any change that adversely affects the conversion rights of this Note, (vi) reduce the Redemption Price or the Fundamental Change Repurchase Price (or amend or modify in any manner adverse to the Holder the Borrower’s obligation to make such payments), or (vii) other than in accordance with the terms of this Note, eliminate any Guarantee, in each case, without the written consent of the Holder. Section 12.12. Severability. In the event any one or more of the provisions contained in this Note shall for any reason be held to be invalid, illegal or unenforceable

 
44 #96252355v15 in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. Section 12.13. Lost, Mutilated or Stolen Note. Upon receipt of evidence reasonably satisfactory to the Borrower of the loss, theft, destruction or mutilation of this Note and, in the case of any such mutilation, upon the surrender of this Note to the Borrower at its principal office, the Borrower will execute and deliver, in lieu thereof, a new Note of like tenor containing the same terms as this Note, dated so that there will be no loss of interest on such lost, stolen, destroyed or mutilated Note. Any Note in lieu of which any such new Note has been so executed and delivered by the Borrower shall not be deemed to be an Outstanding Note for any purpose. If the Holder applies for a substituted Note, the Holder shall furnish to the Borrower such security or indemnity as may be required by the Borrower to save the Borrower harmless from any loss, liability, cost or expense caused by or connected with such substitution, and, in case of destruction, loss or theft, the Holder shall also furnish to the Borrower evidence to its satisfaction 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 12.13 by virtue of the fact that any old Note is destroyed, lost or stolen shall constitute an additional contractual obligation of the Borrower, whether or not the destroyed, lost or stolen Note shall be found at any time. Section 12.14. Calculations. Except as explicitly stated herein, the Borrower shall be responsible for making all calculations required pursuant to this Note, including, without limitation, calculations with respect to determinations of the Last Reported Sale Price, accrued interest payable on this Note, the Fixed Conversion Rate and the Financing Conversion Rate. The Borrower shall make all such calculations in good faith and, absent manifest error, the Borrower’s calculations shall be binding on the Holder. The Borrower shall provide a written schedule of such calculations to the Holder upon the Holder’s written request. Section 12.15. No Personal Liability of Shareholders, Employees, Officer or Directors . No director, officer, employee, incorporator or shareholder of the Borrower, as such, will have any liability for any obligation of the Borrower under this Note or for any claim based on, in respect of, or by reason of, such obligation or its creation. By accepting this Note, the Holder waives and releases all such liability as part of the consideration for issuance of this Note. [Remainder of Page Intentionally Left Blank]

 
[Signature Page to Senior Unsecured Convertible Note] #96252355v15 IN WITNESS WHEREOF, the undersigned has executed this Senior Unsecured Convertible Note as of the date first set forth above. BORROWER VIRGIN ORBIT HOLDINGS, INC. By: GUARANTORS VIECO USA, INC. By: Name: Title: VIRGIN ORBIT, LLC By: Name: Title: VIRGIN ORBIT NATIONAL SYSTEMS, LLC By: Name: Title: JACM HOLDINGS, INC. By:

 
46 #96252355v15 Name: Title: HOLDER VIRGIN INVESTMENTS LIMITED By: Name: Title:

 
A-1 #96252355v15 A Hidden text for page numbering – do not delete ATTACHMENT 1 [FORM OF NOTICE OF CONVERSION] Senior Unsecured Convertible Note To: Virgin Orbit Holdings, Inc. Pursuant to Section 4.01 of this Note, the undersigned registered owner of this Note hereby exercises the option to convert this Note, or the portion hereof (provided that (i) such portion is an integral multiple of $1,000 principal amount and (ii) the portion of this Note not to be converted is not less than $1,000 in principal amount), below designated, and Virgin Orbit Holdings, Inc. (the “Borrower”), shall deliver shares of Common Stock, together with a cash payment, if applicable, in lieu of delivering any fractional share of Common Stock, in accordance with the terms of this Note and accrued and unpaid interest on the converted principal amount of this Note to, but excluding, the Conversion Date, and directs that any consideration issuable and deliverable upon such conversion, and the portion of this Note representing any unconverted principal amount hereof, be issued and delivered to the Holder 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 transfer taxes payable with respect thereto. Date: Signature(s) Signature Guarantee 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 to be delivered, other than to and in the name of the registered Holder.

 
A-2 #96252355v15 Fill in for registration of shares if to be issued, and Note if to be delivered, other than to and in the Holder: (Name) (Street Address) (City, State and Zip Code Please print name and address Principal amount to be converted (if less than all): $ ,000 NOTICE: The above signature(s) of the Holder hereof must correspond with the name as written upon the face of this Note in every particular without alteration or enlargement or any change whatever. Social Security or Other Taxpayer Identification Number

 
A-3 #96252355v15 ATTACHMENT 2 [FORM OF FUNDAMENTAL CHANGE REPURCHASE NOTICE] Senior Unsecured Convertible Note To: Virgin Orbit Holdings, Inc. The undersigned registered owner of this Note hereby acknowledges receipt of a notice from Virgin Orbit Holdings, Inc. (the “Borrower”) as to the occurrence of a Fundamental Change with respect to the Borrower and specifying the Fundamental Change Repurchase Date. The undersigned registered owner of this Note hereby instructs the Borrower to pay to the registered Holder hereof in accordance with the applicable provisions of this Note (1) the entire principal amount of this Note, or the portion thereof (provided that (i) such portion is an integral multiple of $1,000 principal amount and (ii) the portion of this Note not to be repurchased is not less than $1,000 in principal amount) below designated, and (2) accrued and unpaid interest, if any, thereon to, but excluding, such Fundamental Change Repurchase Date. Date: Signature(s) Social Security or Other Taxpayer Identification Number Principal amount to be converted (if less than all): $ ,000 NOTICE: The above signature(s) of the Holder hereof must correspond with the name as written upon the face of this Note in every particular without alteration or enlargement or any change whatever.

 
A-4 #96252355v15 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 Borrower, with full power of substitution in the premises. In connection with any transfer of the within Note, the undersigned shall comply with the requirements of this Note applicable to such transfer and confirms that this Note is being transferred: ☐ To Virgin Orbit Holdings, Inc. or a subsidiary thereof; or ☐ Pursuant to the registration statement that has become or been declared effective under the Securities Act of 1933, as amended; or ☐ Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended; or ☐ Pursuant to another available exemption from registration under the Securities Act of 1933, as amended. Date: Signature(s) Signature Guarantee 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 to be delivered, other than to and in the name of the registered Holder.

 
A-5 #96252355v15 NOTICE: The signature on the assignment must correspond with the name as written upon the face of this Note in every particular without alteration or enlargement or any change whatever.

 


Exhibit 31.1

CERTIFICATION
PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002


I, Daniel Hart, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 of Virgin Orbit Holdings, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.[omitted];

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.





Exhibit 31.1
November 8, 2022
/s/ Daniel Hart
Daniel Hart
Chief Executive Officer
(Principal Executive Officer)


Exhibit 31.2



CERTIFICATION
PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002


I, Brita O’Rear, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 of Virgin Orbit Holdings, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.[omitted];

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.




Exhibit 31.2
November 8, 2022/s/ Brita O’Rear
Brita O’Rear
Chief Financial Officer
(Principal Financial Officer)


Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Virgin Orbit Holdings, Inc. (the “Company”) for the quarterly period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

Date:November 8, 2022By:/s/ Daniel Hart
Name:Daniel Hart
Title:Chief Executive Officer
(Principal Executive Officer)


Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Virgin Orbit Holdings, Inc. (the “Company”) for the quarterly period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.
Date:November 8, 2022By:/s/ Brita O’Rear
Name:Brita O’Rear
Title:Chief Financial Officer
(Principal Financial Officer)